On July 18, 2016, the Board issued a split decision (Member Miscimarra dissenting) in Nexeo Solutions, LLC, 364 NLRB No. 44, in which it found that the buyer, Nexeo, was a “perfectly clear” successor of the seller’s unionized employees thereby precluding it from being able to set initial terms and conditions of employment unilaterally. The Board’s decision in Nexeo is noteworthy because the Board reached its conclusion despite the fact that the buyer’s offer of employment to the seller’s employees stated that the conditions of employment would be different, a fact that normally precludes a “perfectly clear” successor finding. As a result of the Board’s decision in Nexeo, buyers of unionized operations must take extra precautions, especially regarding communications made by the seller, if they wish to retain the right to set initial terms and conditions of employment unilaterally.

Under the Board’s successorship doctrine, a new employer that continues its predecessor’s unionized business in substantially unchanged form and hires employees of the predecessor as a majority of its work force is a successor with an obligation to bargain with the union. However, as the Supreme Court held in NLRB v. Burns Security Service, 406 U.S. 272 (1972), a successor is not bound by the substantive terms of a collective bargaining agreement negotiated by the predecessor and is ordinarily free to set initial terms of employment unilaterally.

The Court explained that the duty to bargain will not normally arise before the successor sets initial terms and conditions because it is not usually evident whether the union will retain majority status in the new work force until after the successor has hired a full complement of employees. … The Court recognized, however, that “there will be instances in which it is perfectly clear that the new employer plans to retain all of the employees in the unit.” … In those circumstances, the Court stated that a successor is required to “initially consult with the employees’ bargaining representative before he fixes terms.”

The Board, interpreting Burns, held in Spruce UP, 209 NLRB 194 (1974), that when an employer who has not yet commenced operations announces new terms prior to or simultaneously with his invitation to the previous work force to accept employment under those terms, it cannot be fairly said that the new employer plans to retain all of the employees in the unit because there is the possibility that employees will reject employment under the new terms. In such situations, the employer is not a “perfectly clear” successor and thus has no duty to bargain with the union prior to setting initial terms and conditions.

In Nexeo, the buyer committed in the purchase agreement to “make offers of at-will…employment to the Employees…at least thirty (30) days prior to the Closing Date” and, for a period of 18 months after the closing date, to “provide to each Transferred Employee (i) a base salary or wages no less favorable than those provided immediately prior to the Closing Date and (ii) other employee benefits, variable pay, incentive or bonus opportunities under plans, programs and arrangements that are substantially comparable in the aggregate as those provided by [the seller].” Once the purchase agreement was finalized, the seller, not the buyer (Nexeo), began communicating with the employees about the sale. According to the Board majority, those communications were vetted by both the seller and the buyer before they were disseminated to employees. Those communications included:

  • Nov. 7: “In total, we anticipate approximately 2,000 [seller] employees and dedicated resource group and supply chain partners will transfer to the new business…. I know that I want to go forward, into the future, with all of you. You are a great team, and I look forward to starting this new chapter with you.”
  • Nov. 8: An Employee Q&A stated, in part:
    • “Does the newly independent company anticipate any layoffs as a result of the transaction? Broadly speaking, the newly independent company’s intent is to retain [the seller’s employees. The seller’s] people and various support partners will continue to work from their current locations and perform similar roles and functions.”
    • “Does the newly independent company anticipate any changes to compensation and/or benefits? Under the terms of the agreement, for at least 18 months following closing, the newly independent company is required to provide, to each transferred employee, base salary and wages that are no less favorable than those provided prior to closing; and other employee benefits that are substantially comparable in the aggregate to compensation and benefits as of January 1, 2011.”
    • “[T]he structure of the agreement between [the seller] and the newly independent company includes the transfer of assets, facilities and people.”
  • Dec. 6: Another Q&A stating that “Over 2,000 employees have already been notified that they will transfer to the new company on the day after the sale closes” and that “[the buyer] has agreed to recognize service time.”

In February, the new employer finally sent out its offer letters that included the following language:

[W]e think you should know that Nexeo Solutions has not agreed to assume any of [the seller’s] collective bargaining agreements. We have also chosen not to adopt, as initial terms and conditions of employment, any of the provisions contained in any current or expired collective bargaining agreement to which [the seller] is a party. Among other things, what that means is that if you accept this offer, you will not, when you become a Nexeo Solutions employee, participate in the multiemployer pension plan in which you participate as [a seller employee]. Instead, you will be covered at the outset of your employment by Nexeo Solutions’ 401(k) plan.

The letter also notified employees that they would be covered under a new health insurance plan. Nexeo took over operations on April 1.

The ALJ found that the new employer was not a “perfectly clear” successor because the “totality of the messages that were conveyed” to the unit employees indicated that more information about initial terms would be forthcoming and that the employer ultimately did timely provide specific information in the offer letters. In rejecting the ALJ’s decision, the Board found that the purchase agreement, together with the communications to the employees in November, established that the employer was a “perfectly clear” successor with an obligation to bargain with the union before establishing or altering initial terms and conditions of employment:

it was abundantly clear from the outset that the Respondent planned to retain the unit employees. Under the terms of the November 5 Purchase Agreement, the Respondent committed itself to offer employment to all of [the seller’s] employees. Then, on November 7, 2010, the unit employees were informed that “[the seller’s] employees…will transfer to the new business.” There was no mention at that time that the Respondent intended to establish a new set of conditions. To the contrary, the November 7 email was silent regarding terms and conditions of employment, and nothing in the email portended employment under different terms. Under the Board’s interpretation of the Burns caveat, therefore, the Respondent became a “perfectly clear” successor, with an obligation to bargain over initial terms, as of November 7, 2010.

Miscimarra disagreed with the Board’s decision because “the majority neglects to recognize that Nexeo cannot reasonably be found to have waived its right to set initial terms based on statements made by a different party…about [the seller’s] employees’ potential employment prospects. [The seller] did not speak for Nexeo and did not purport to speak for Nexeo, and none of [the seller’s] statements constituted an invitation by Nexeo to [the seller’s] employees to accept employment.” In conclusion, Miscimarra warns:

The new affirmative duty created by my colleagues is especially unfortunate because it will predictably have consequences–however unintended they may be–that will generate greater uncertainty for, and impose greater hardship on, employees and unions involved in a sale, transfer or other conveyance of operations. Nothing in the NLRA requires successor employers to monitor and renounce, amend, or ratify their predecessors’ communications to guard against any favorable comment by the predecessor regarding the potential continued employment prospects of the predecessor’s employees, where the predecessor fails to simultaneously mention the successor’s intention to alter various employment terms and conditions. …

It is also likely, as a result of my colleagues’ decision, that many potential successor employers will negotiate strict limitations on a predecessor’s ability to convey any information to its employees regarding their potential employment with the successor. Nothing in the NLRA requires purchasers to disclose their employment plans to the seller, and–in view of my colleagues’ decision–purchasers would be well advised to prohibit sellers from communicating anything to their employees and unions regarding the purchaser’s employment-related plans.