Acquisition of Union Represented Operations

Important Options and Considerations 

The following is intended to provide an overview of key considerations and options available to the Buyer when acquiring a union represented operation by means of an Asset Purchase Sale. Unlike a Stock Purchase acquisition, where the Buyer inherits the existing union agreements, an Asset Purchase acquisition typically provides the Buyer with several valuable options when dealing with the union. Should you require further assistance, please reach out to our labor relations consultants at Hutchison Group today.

Union Recognition During an Asset Purchase Acquisition

A company’s options and obligations related to union recognition are governed by National Labor Relations Board (NLRB) rules and determined by how many employees the Buyer intends to retain from the acquired company. Consider these two scenarios:

1. If over 50% of the Buyer's new hires were previously employed by the Seller's company, then under NLRB rules, the Buyer is obligated to recognize the union as the bargaining agent. However, the Buyer is not obligated to assume the current union contract; rather, it will have an opportunity to negotiate its own CBA with the union. Initial terms and conditions of employment will be established by the Buyer. Negotiations with the union typically take place a few months following the completion of the acquisition, though in some cases, the sale may be predicated on the Buyer reaching terms with the union in advance of closing. 
2. If less than 50% of the Buyer’s employees were previously employed by the Seller, the Buyer is not obligated to recognize the union that represented employees of the acquired company. In this case, as mentioned above, the initial terms and conditions of employment will be established by the Buyer. In this instance, for the union to be recognized, they must conduct a union organizing campaign and petition the NLRB for a new election.  

Company Can Determine Initial Terms of Employment

It is important to note that in both examples cited above, during an Asset Purchase Sale, the company has the right to establish the initial terms and conditions of employment. These initial terms are typically conveyed to employees in the form of a formal and well thought out offer of employment letter. The company’s offer letter can establish job requirements, rate of pay, hours worked, employee benefits, etc. For example, a trucking company could make future employment contingent upon employees having a Class A license, or that they would need to obtain a Class A license within a set period of time. The company could also mandate drug testing, etc.

It is important to note that the initial letter of employment will form the basis for any future union contract negotiations. Following negotiations, if the parties fail to reach an agreement, the terms and conditions established by the company, in their offer letter, would remain in effect.  

Employee Selection During Asset Purchase Acquisitions

In the event of an Asset Purchase acquisition, unless otherwise stipulated by the Seller as a condition of the Sales Purchase Agreement, the Buyer has no legal obligation to hire any employees from Seller. 

If the Buyer elects to hire people that were previously employed by the Seller, the Buyer has no obligation to make offers based upon seniority, tenure or any other qualification pertaining to the acquired company’s past practices. The one caveat here is that the group of employees that the Buyer hires should not be viewed to exclude any particular race, age, or gender, but should be representative of the overall Seller’s demographic. As an example, if the average age of Seller’s employees was 45 and the Buyer only made employment offers to those people under the age of 30 the company might be subject to an age-based discrimination charge. To avoid potential problems in this area, our employee relations consultants at Hutchinson Group recommend a careful review of the employment criteria to be used by the company, and a demographic analysis of planned employment offers. 

Union Organizing and Company Response 

When union recognition is automatically provided (over 50% of Buyer's new hires were previously employed by the Seller), our union contract negotiators recommend that the company carefully prepare a letter to the union leadership informing them that while the Buyer recognizes the union as the legally designated bargaining agent, the company will not accept the terms and conditions of previous labor agreement with Seller. This allows both the company and union to negotiate a competitive labor agreement with no ties to the previous contract. Our union contract negotiators recommend that this letter be carefully reviewed by an experienced labor attorney.  

In those instances where less than 50% of the Buyer's new hires were previously employed by the Seller, the company should expect that the union would attempt to organize the workforce. Given this reality, the company has to decide how it will respond  and perhaps consult with our union relations consultants before proceeding. The company could consider the following options: 

1. Cooperate with Union Leaders - If the company believes that employees are extremely likely to seek out and vote for union representation, the company might choose to cooperate with union leadership as they attempt to organize the Buyer’s new employees.  However, the company cannot simply recognize the union or impose union representation on its workforce. NLRB rules dictate that only affected employees can choose to elect union representation.
2. Take a Neutral Position - By taking a neutral position, the company would not actively oppose union representation. However, the Buyer could make known to employees that the company sees no advantage to union representation, and that the new owner is capable of representing their interest and would prefer to deal with them directly. This is a very interesting option and one that our labor relations consultants at Hutchison Group believe the company should always consider. 

In recent years we have found that many former union employees would actually prefer to deal with management directly, and not be represented by a union. To help make this goal possible, it is likely that the company would have to provide employees with a comparable wage and benefit structure, so there would not necessarily be a cost advantage of staying nonunion. However, the Buyer could benefit by avoiding restrictive work rules and practices that reduce productivity and performance. This approach would also avoid having to deal with the union’s grievance process, and other time-consuming administrative requirements associated with union contracts.

1. Actively Resist Union Organizing - the last option would be for the company to actively resist any attempt by the union to organize their employees. This approach might be complicated by the fact that the Seller might experience some “backlash” from other union operations that they continue to operate.

In spite of the options outlined above, in some Asset Purchase deals, the Seller will request potential Buyers to hire a majority of their employees, thereby facilitating recognition of the union. This often helps the Seller avoid any contentious issues with their own employees and union leadership at their other operations. Again, even if this were to occur, the acquiring company may still be able to select employees and negotiate a new contract with new terms and conditions (no obligation to accept the prior union agreement). Further clarification can be provided by our union relations consultants.

Comprehensive Planning and Due Diligence are Essential 

When considering an acquisition of a union or non-union operation, advanced planning is essential for future success. Hutchison Group has considerable experience with Labor Relations planning and HR due diligence for mergers and acquisitions of both union and non-union operations. We would welcome an opportunity to discuss your particular situation and develop a plan to help ensure a successful outcome.  

This article is not intended to provide legal advice, but to outline different options and considerations that may be helpful when acquiring a new business by an Asset Purchase Sale. To ensure compliance with all governing laws and statues we strongly recommend that any parties interested in acquiring a unionized operation consult with an experienced labor attorney.