California nursing home buyer must pay estimated $1.25 million in backpay and interest, recognize union & hire 50 employees of seller following purchase
Last week’s National Labor Relations Board (NLRB) order requiring the buyer of a California nursing home to pay approximately $1.25 million in backpay and interest, rehire 50 employees and recognize the seller’s union reminders buyers of union-organized businesses of some of the significant risks of mishandling union-related obligations in merger and acquisition, bankruptcy and other corporate transactions under the National Labor Relations Act (NLRA) and other federal labor laws.
Buyer’s Obligations To Honor Seller’s Collective Bargaining Obligations
Under the NLRA, new owners of a union facility that are “successors” of the seller generally must recognize and bargain with the existing union if “the bargaining unit remains unchanged and a majority of employees hired by the new employer were represented by a recently certified bargaining agent.” See NLRB v. Burns Sec. Servs., 406 U.S. 272, 281 (1972).
In assembling its workforce, a successor employer also generally “may not refuse to hire the predecessor’s employees solely because they were represented by a union or to avoid having to recognize a union.” U.S. Marine Corp., 293 NLRB 669, 670 (1989), enfd., 944 F.2d 1305 (7th Cir. 1991).
Nasaky, Inc. NLRB Order
Last week’s NLRB Order requires Nasaky, Inc., the buyer of the Yuba Skilled Nursing Center in Yuba City, California, to recognize and honor collective bargaining obligations that the seller Nazareth Enterprises owed the before the sale and rehire and pay backpay and interest to make whole 50 of the seller’s former employees who the NLRB determined Nasaky, Inc. wrongfully refused to hire when it took over the facility from the prior owner, Nazareth Enterprises.
Before Nasaky, Inc. bought the nursing home, many of the employees at the nursing home were represented by the Service Employees International Union, United Healthcare Workers West (Union). After Nasaky, Inc. agreed to buy the facility but before it took control of its operations, Nasaky, Inc. advertised in the media for new workers to staff the facility and told existing employees at the facility that they must reapply to have a chance of keeping their jobs under the new ownership.
When Nasaky, Inc. took operating control of the Facility, facility operations continued as before with the same patients receiving the same services. The main difference was the workforce. The new staff included 90 employees in erstwhile bargaining unit positions, of which forty were former employees of the predecessor employer and fifty were newcomers. Nasaky, Inc. then took the position that the change in the workforce excused it from responsibility for recognizing or bargaining with the Union or honoring the collective bargaining agreement between the Union and seller Nazareth Enterprises.
When the union demanded that Nasaky, Inc. recognize the Union and honor the Union’s collective bargaining agreement with Nazareth Enterprises, Nasaky, Inc. refused. Instead, Nasaky, Inc. notified the union that it would not allow the Union on its premises, would not honor the Union’s collective bargaining agreement with the seller, and did not accept any of the predecessor’s terms and conditions of employment. The Union then filed charges with the NLRB, charging that Nazareth Enterprises had breached its obligations as a successor under the NLRA.
After NLRB Regional Director Joseph F. Frankl agreed and issued a complaint, California Administrative Law Judge Gerald Etchingham found all the allegations true based on a two-day hearing. He rejected all of Nasaky’s explanations for why it declined to hire most of those who had worked for the previous employer. See ALJ Decision. Since Nasaky, Inc did not file exceptions, the NLRB ordered Nasaky, Inc. immediately to recognize and bargain with the Union, hire the former employees and make them whole. The amount of backpay and interest is expected to approximate $1.25 million.
Managing Labor Exposures In Business Transactions
The NLRB’s order against Nasaky, Inc. highlights some of the business and operational risks that buyers and sellers can face if labor-management relations are misperceived or mismanaged in connection with business transactions. Because the existence of collective bargaining agreements or other labor obligations can substantially affect the operational flexibility of a buyer, buyers need to investigate and carefully evaluate the potential existence and nature of their obligations as part of their due diligence strategy before the transaction. A well-considered understanding of whether the structure of the transaction is likely to result in the buyer being considered a successor for purposes of union organizing and collective bargaining obligations also is very important so that the buyer and seller can properly appreciate and deal with any resulting responsibilities.
Beyond the potential duty to recognize a seller’s collective bargaining obligations, buyers and sellers also should consider the potential consequences of the proposed transaction on severance, pension, health, layoff and recall and other rights and obligations that may arise. At minimum, the existence of these responsibilities and their attendant costs are likely to impact the course of the negotiations.
When a worksite is union organized, for instance, additional obligations may arise in the handling of reductions in force or other transactions as a result of the union presence. For example, in addition to otherwise applicable responsibilities applicable to non-union affected transaction, the Worker Adjustment Retraining Act (WARN) and other plant closing laws and/or collective bargaining agreements may impose special notification or other requirements before a reduction in force or other transaction related activities.
Similarly, the existence of collective bargaining agreements also may trigger obligations for one or both parties to engage in collective bargaining over contemplated changes in terms and conditions of employment, to provide severance, to accellerate or fund severance, benefits or other obligations, to provide continued health or other coverage, to honor seniority, recall or other rights or deal with a host of other special contractual obligations.
Where the collective bargaining arrangements of the seller currently or in the past have included obligations to contribute to a multiemployer, collectively bargained pension or welfare plan, the buyer and seller also need to consider both the potential for withdrawal liability or other obligations and any opportunities to minimize these exposures in structuring the allocation of the arrangement. In this case, both parties need to recognize that differences exist between the federals for determining when successor liability results under the withdrawal liability rules than typically apply other labor and employment law purposes. While buyers and sellers often presume that the stock versus assess sale distinction that typically applies for many other legal purposes will apply, this can be an expensive mistake in the case of determining a buyer’s obligation to honor the seller’s collective bargaining obligations post deal. Likewise, buyers can be exposed to multiemployer successor liability from asset transactions, although it may be possible to mitigate or avoid such liabilities by incorporating appropriate representations in the sale documents or through other steps. Since these multiemployer withdrawal and contribution liabilities generally attach on a controlled group basis, both parties need to properly appreciate and address these concerns early in the transaction to mitigate their risks and properly value the transaction.
In light of these and other potential labor-related risks that may affect corporate and other business transactions, parties contemplating or participating in these transactions are urged to engage and consult with competent legal counsel with specific experience in such labor management relations and multiemployer benefit plan matters early in the process.
About The Author
Management attorney and consultant Cynthia Marcotte Stamer helps businesses, governments and associations solve problems, develop and implement strategies to manage people, processes, and regulatory exposures to achieve their business and operational objectives and manage legal, operational and other risks. Board certified in labor and employment law by the Texas Board of Legal Specialization, with more than 25 years human resource and employee benefits experience, Ms. Stamer helps businesses manage their people-related risks and the performance of their internal and external workforce though appropriate labor and employment, human resources, employee benefit, worker’s compensation, insurance, outsourcing and risk management strategies domestically and internationally. Recognized in the International Who’s Who of Professionals and bearing the Martindale Hubble AV-Rating, Ms. Stamer’s experience includes significant experience advising and representing buyers, sellers, their commonly controlled and affiliated entities, lenders, bankruptcy trustees and committees and others regarding labor-management relations, employment, compensation, employee benefits and other human resources related exposures, strategies and negotiations. She also has served as counsel to multiemployer and single employer pension, profit-sharing and other retirement, health and welfare, severance and other plans and their fiduciaries and sponsors in relation to these and other transactions.
Ms. Stamer also is a highly regarded author and speaker, who regularly conducts management and other training on a wide range of labor and employment, employee benefit, human resources, internal controls and other related risk management matters. Her writings frequently are published by the American Bar Association (ABA), Aspen Publishers, Bureau of National Affairs, the American Health Lawyers Association, SHRM, World At Work, Government Institutes, Inc., Atlantic Information Services, Employee Benefit News, and many others. For a listing of some of these publications and programs, see here. Her insights on human resources risk management matters also have been quoted in The Wall Street Journal, various publications of The Bureau of National Affairs and Aspen Publishing, the Dallas Morning News, Spencer Publications, Health Leaders, Business Insurance, the Dallas and Houston Business Journals and a host of other publications. Chair of the ABA RPTE Employee Benefit and Other Compensation Committee, a council member of the ABA Joint Committee on Employee Benefits, and the Legislative Chair of the Dallas Human Resources Management Association Government Affairs Committee, she also serves in leadership positions in many human resources, corporate compliance, and other professional and civic organizations. For more details about Ms. Stamer’s experience and other credentials, contact Ms. Stamer, information about workshops and other training, selected publications and other human resources related information, see here or contact Ms. Stamer via telephone at 469.767.8872 or via e-mail to email@example.com.
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