Labor contractor was ‘perfectly clear’ successor; must bargain over initial terms of employment

By Ronald Miller, J.D.

Agreeing with the NLRB that a staffing company was a “perfectly clear” successor, the Fifth Circuit found the company acted unlawfully by unilaterally imposing initial terms and conditions of employment. Contrary to the employer’s contention, the appeals court determined that its communication of new terms of employment to its predecessor’s employees after they began work was untimely. Further, the successor’s communication with a predecessor employee who distributed job applications about the new terms of employment, its communication of the new terms to about 20 employees and subsequent word-of-mouth exchanges, and the inclusion of tax withholding forms with job applications were together insufficient to provide notice of the new terms to a majority of its employees (Creative Vision Resources, L.L.C. v. NLRB, September 25, 2017, King, C.).

Change in employer. Richards Disposal is a trash collection company in the New Orleans area. Since 2007, the union represented the “hoppers” who ride on the back of garbage trucks and pick-up trash cans. Until June 2011, the hoppers were employed by Berry III, a labor-supply company. Dissatisfied with Berry’s management practices, a Richards’ executive decided to form Creative to become the new hopper supplier. To prepare for the transition, Creative prepared an employee handbook and safety manual, and distributed employment applications and tax forms to current Berry hoppers. The hoppers were informed that joining Creative would mean changes in terms and conditions of employment, including $11 per hour pay with overtime and deduction of taxes and social security from their paychecks.

Once Berry’s hoppers filled out the application and tax form, they were hired. Creative did not interview candidates, review qualifications, or check references. Ultimately, Creative received approximately 70 applications from Berry hoppers. At that point, Richards’ cancelled its Berry contract and Creative became the new hopper supplier. Creative directly told the hoppers about the new terms on June 2, 2011. Two days later, Creative distributed the employee handbook setting out new rules and employment standards.

Demand for recognition. After learning that Creative had replaced Berry and retained the incumbent employees, the union demanded that Creative recognize the union as the hoppers’ bargaining representative. Creative did not reply. Thereafter, the union filed an unfair labor practice charge against Creative, alleging violations of the NLRA. An administrative law judge concluded that Creative violated Section 8(a)(5) by refusing to recognize the union. However, the ALJ also concluded that Creative was not a “perfectly clear” successor because it communicated candidly with the hoppers about its intent to set initial terms, and accordingly was within its right to set initial terms and conditions.

The Board disagreed with the ALJ in part. It upheld the ALJ’s finding that Creative unlawfully refused to recognize and bargain with the union. On the other hand, the Board concluded that Creative was a perfectly clear successor and acted unlawfully by unilaterally imposing initial terms and conditions of employment. In its analysis, the Board looked only to Creative’s communications on or before June 1, concluding that the June 2 announcement was untimely. Member Miscimarra dissented, arguing that the June 2 meeting was enough to give notice of new terms of employment. Creative petitioned for review, while the Board sought enforcement of its order.

Perfectly clear successor. Under the NLRA, when an employer qualifies as a “successor” to another, it is “bound to recognize and bargain with the union” that represented its predecessor’s employees. That bargaining obligation does not mean that every successor must abide by its predecessor’s terms and conditions of employment. Rather, under NLRB v. Burns Security Services, a successor employer is not bound by the substantive terms of a CBA negotiated by its predecessor and is ordinarily free to set initial terms and conditions of employment unilaterally.

However, there are instances in which it is perfectly clear that the new employer plans to retain all of the employees in the unit, so that it is appropriate to have the employer initially consult with the employees’ bargaining representative before fixing terms. A successor set on retaining its predecessor’s employees may dispel this “perfectly clear” intention by giving employees “prior notice of its intention” to institute its own initial terms or by holding itself as if it will not adhere to the terms of the previous CBA.

Creative did not dispute that it was a successor, so the Fifth Circuit focused on whether it was a “perfectly clear” one. To the Board, June 1 rather than June 2 was the date by which Creative had to give notice of its intent to offer employment on different terms, so that Creative’s June 2 announcement was irrelevant. As to the pre-June 2 communications, the Board concluded that the Richards’ executive did not tell a Berry employee about the new terms of employment, so that he did not tell those terms to the 50 Berry hoppers to whom he gave applications; Richards’ communication of the new terms to 20 Berry hoppers was insufficient to put a majority of hoppers on notice; and inclusion of tax forms was too ambiguous for a reasonable employee that continued employment was conditioned on acceptance of different terms.

Timing of announcement. To begin, the appeals court ruled that the Board’s conclusion that Creative’s June 2 announcement was untimely was well founded. Past Board decisions hold that a successor employer may unilaterally set initial terms of employment if it clearly announces its intent to establish a new set of conditions prior to, or simultaneously with, its expression of intent to retain the predecessor’s employees. But after the successor expresses its intent to retain the predecessor’s employees, an announcement of new terms will not vitiate the bargaining obligation. In this instance, the Board found that Creative expressed its intent to retain the Berry employees between mid-May and June 1.

The Fifth Circuit was persuaded by the Board’s and D.C. Circuit’s reasoning regarding the wisdom of the “prior-to-or-simultaneous-announcement” requirement. Applying that requirement here, the appeals court found that substantial evidence supported the Board’s conclusion that Creative expressed an intent to retain the Berry hoppers by June 1, so that its announcement of the new terms on June 2 was untimely.

Pre-June 2 communications. The appeals court next considered whether Creative gave notice of its intent to establish new terms on or before June 1. The court examined the cumulative effect of Creative’s pre-June 2 communications to the hoppers, including (1) Richards’ communication with the Berry employee about the new terms of employment; (2) Richards’ communication of the new terms to about 20 hoppers and the subsequent word-of-mouth exchanges among hoppers; and (3) the inclusion of tax withholding forms with the job applications.

First, there was a dispute about what Richard told the Berry hopper, so it was concluded that the hopper did not inform hoppers to whom he gave applications that their conditions of employment would change under Creative. Second, it was concluded that Richards’ communication of the new terms to about 20 hoppers, plus subsequent informal word-of-mouth exchanges were insufficient to put a majority of Creative’s workforce on notice of the new terms. Finally, the court held that distributing tax forms with job applications was insufficient to put the hoppers on notice. Consequently, the court determined that all three communications combined did not provide a majority of Creative’s hoppers with sufficient notice of the new terms.

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