Helping M&A Lawyers Through Union Due Diligence

A fair amount of work is referred to me from business lawyers who need help navigating the complex world of traditional labor law when structuring a merger or acquisition of a unionized company.

A few recent examples of how this happens this include: 

  • A real estate development company that purchased a building where the janitors, elevator operators, and HVAC employees were unionized, but the developer wanted to outsource those jobs and eliminate the unions.
  • A  manufacturing client purchased a company whose employees were represented by a union and wanted to ensure that all of the employees continued working for the company.
  • A franchisee client that purchased several facilities from another franchisee and wanted to eliminate the union at the only unionized facility.

In each of these examples, the purchasing companies faced liability for back wages to employees and other penalties under the National Labor Relations Act if they did not comply with often counter-intuitive labor laws. If the sellers did not comply with the law, the purchasers could easily have become successor employers with successor liability to the employees.

As a fellow labor lawyer puts it: A company usually has a management right to sell a business. However, there are important exceptions, especially when the company has the intent to end the union’s representation of the employees. Even if the seller has the statutory right not to bargain about the decision to sell, the company has the obligation to give notice of the sale to the union and also give the union an opportunity to bargain about the effects of the sale. Further, if requested by the union, the seller may have an obligation to give the union information and documents about the sale. These statutory rights may be altered by a union contract.

Purchasers, on the other hand, must determine their goal. They can acquire a company:

  1. Without an obligation to a union;
  2. With an obligation to bargain with the union but provide different wages, benefits and working conditions; or
  3. With unchanged wages, benefits, and working conditions and a continuing relationship with the union.

Each of these goals requires different actions by the purchasers before and during the acquisition of a unionized company.

That fellow labor lawyer from above says it best:

A purchaser’s liability to the union and employees depends whether the purchaser is a “perfectly clear” or “not a perfectly clear” successor to the unionized company. The smoothest transition occurs when the purchaser adopts the union contract. It is perfectly clear that the purchaser is the successor. In addition, it is perfectly clear when the purchaser retains a majority of the employees; workers perform the same or similar job duties; manufactures the same or similar products; and has the same or similar vendors and customers. However, the purchaser may not be a perfectly clear successor if the company, prior to the closing, sets new wages, benefits, and working conditions, and interviews but does not hire a majority of the seller’s employees. A purchaser cannot conduct interviews with the intent to not hire a majority of the seller’s employees. In this situation, the purchaser may not have the legal obligation to recognize and bargain with the union and to comply with the seller’s contract with the union. In either case, the purchaser needs to perform due diligence to determine if a legal obligation to recognize and bargain with a union exists and if a contract exists. Most importantly, the purchaser has to take those actions in compliance with the rules set forth in numerous cases decided by the National Labor Relations Board addressing when obligations continue and do not continue.

As with other due diligence, companies protect themselves from liability the earlier they engage and seek the advice of counsel.

Matt Austin is a Columbus, Ohio lawyer who owns Austin Legal, LLC, a boutique law firm with offices in central and northeast Ohio that limits its representation to employers dealing with labor, employment, and OSHA matters. Austin Legal’s Concierge Legal Services program is relied upon by companies to remain compliant and competitive. If you have employees, you need Concierge Legal Services. You can call Matt at (614) 285-5342 or email him at Austin@LaborEmploymentOSHA.com.

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