In a unanimous ruling, the National Labor Relations Board (NLRB) clarified the legal standard to be applied when an employer allegedly refuses to hire its predecessor’s employees to avoid bargaining with the union that represents those workers. While technically applying only to mergers or acquisitions of companies with existing union contracts, the NLRB is often the trend-setter for successorship theories under other statutes applying to all employers.
In Planned Building Services, Inc., 347 NLRB 64 (July 31, 2006), the Board held that the correct standard to apply in such cases is the Wright Line test, which the Board has applied to discriminatory discharge cases since 1980. 251 NLRB 1083. A variation of the Wright Line test was later adopted for employment discrimination cases in McDonnell Douglas v. Green. See 411 U.S. 792. Planned Building Services is significant in that it distinguishes “successorship-avoidance” cases from those alleging a discriminatory failure to hire—ultimately lowering the General Counsel’s burden in proving unfair labor practices in the successorship-avoidance situation.
In Planned Building Services, The Board reversed the Administrative Law Judge’s application of prior case law, under which the General Counsel has the burden of proving not only discriminatory motive, but also (1) that the employer was hiring or had concrete plans to hire at the time of the alleged unlawful conduct; and (2) that the applicants had experience or training relevant to the positions for which the employer was hiring.
While this test still applies in a general failure-to-hire case, the Board determined that there is no need in a successorship-avoidance case to demonstrate that the predecessor’s employees have “relevant experience or training for essentially the same jobs in the successor’s work force that they performed in the predecessor’s work force.” In addition, because the successor employer must have a work force in place to continue the predecessor’s business, “it is similarly of little use to require the General Counsel to demonstrate that the employer was hiring or had concrete plans to hire.”
Now, under the Wright Line test, the initial focus is on the elements of the General Counsel’s prima facie case, i.e., the existence of protected activity, knowledge of that activity by the employer, and union animus. Proof of these elements warrants at least an inference that the employee’s protected conduct was a motivating factor and that a violation of the National Labor Relations Act has occurred. Once that burden is met, a violation will be found unless the employer demonstrates that the same action would have been taken even in the absence of protected activity. In Planned Building Services, the employer had won cleaning service contracts at four buildings in lower Manhattan previously served by other cleaning companies with collective bargaining relationships. The employer admitted that one of the reasons it did not hire more incumbents was its reluctance to recognize the union as their bargaining representative. Based on this admission, as well as other evidence of discriminatory motivation, the ALJ and Board determined that the employer violated both 8(a)(1) and 8(a)(3) by refusing to hire its predecessors to avoid an obligation to bargain with the union.
Planned Building Services should resonate with employers because of the focus in today’s economy on mergers and acquisitions. Acquiring entities frequently “right size” or “spruce up” companies by either eliminating the union altogether or renegotiating terms and conditions of employment. Acquiring companies should be aware of the legal limitations when a union is involved, and should also be careful with documents and admissions related to the planning phase in mergers and acquisitions.