Bloomberg Law
Oct. 25, 2019, 8:01 AM

INSIGHT: NLRA Successorship Doctrine May Be Teed Up for a Change

Douglas Darch
Douglas Darch
Baker McKenzie
Christina  Taylor
Christina Taylor
Baker McKenzie

The D.C. Circuit Court of Appeals decision in First Student Inc. v. NLRB suggests the judicially-created “perfectly clear” successorship standard to determine whether a company inherited its predecessor’s bargaining agreement is ripe for a challenge.

A divided panel concluded that under the National Labor Relations Act, the “perfectly clear” successor standard applied to a successor employer in order to prevent employees from being “lulled” into a false sense of security or into not looking for other work.

The Sept. 3 decision is a stark example of the need for attorneys to anticipate and to shape arguments based on the sea change occurring in America’s courts despite the “current” state of the law.

From in-House Employees to Subcontractors

First Student involved the frequent and familiar change of a workforce (in this instance drivers) from in-house employees to a service sector subcontractor. The interactions of First Student with the drivers, their union representatives, and the contractor were the subject of the litigation.

The majority concluded that an offer of employment to current employees who met its hiring criteria, including a background check, physical examination, and drug test, created a “perfectly clear” successor. As the majority explained, this statement was unaccompanied by a contemporaneous announcement that wages and other working conditions would be changed.

Judge Laurence Silberman dissented, arguing the “perfectly clear” successor doctrine required an intent to hire “all” of the predecessor’s employees, not merely a majority. He also took exception to the majority’s view that First Student’s statements were evidence of an intent to hire all employees, given those statements were qualified.

The majority’s response, explaining the underpinning of the “perfectly clear” doctrine, makes clear the perfectly clear doctrine is subject to challenge. The majority stated the it:

  • (i) ensures putative employees are appraised promptly of impending reductions in wages and benefits; and
  • (ii) prevents an employer from inducing possibly adverse reliance by the putative employees, preventing employees from being misled or “lulled into not looking for other work.”

As the panel subsequently and succinctly put it: “the purpose of the ‘perfectly clear’ successor doctrine” is to “protect incumbent employees from being ‘lulled into a false sense of security’.”

Employees Can Turn to State Law

The fatal flaw in the majority’s analysis is that the NLRA does not protect employees from being “lulled.” The NLRA grants employees several enumerated rights, in relevant part, the right to join, form, and support unions, to organize and bargain collectively, and to act concertedly for mutual aid and protection.

Nowhere does Section 7 provide a right to be free from misleading statements or the right not to be misled. Indeed, on multiple occasions, regardless of the administration in the White House, the NLRB has refused to regulate speech during union election campaigns which was misleading or inaccurate.

In contrast, the common law in most states routinely and historically addresses misrepresentation and detrimental reliance. Indeed, all 50 states recognize claims under both theories to greater or lesser degrees. Thus, employees can turn to state law for protection in these circumstances, as the U.S. Supreme Court recognized many years ago. See Belknap v Hale (1983) (allowing disappointed and displaced strike replacements to bring state law breach of contract claims).

The “lulling” rationale is of questionable continued vitality for a second reason. In its recent decision in Epic Systems Corp v. Lewis (2018), the Supreme Court reviewed and explained the reach of Section 7. The court’s majority noted that the rights and protections identified in Section 7 were limited in scope.

Section 7, in the court’s view, only extended to self-organization, forming, joining or assisting labor organizations, and bargaining collectively. Notably absent from the list of protections are “being misled” or being “lulled” into not looking for other work.

Use Blank Slate Analysis

The “perfectly clear” doctrine has evolved like a self-rising house of cards. Its basic premise and rationale appear inconsistent with a recent Supreme Court decision and long standing NLRB precedent.

Employers and their counsel faced with “perfectly clear” successorship complaints issued by the NLRB’s general counsel would be well served to analyze the evolution of this legal theory, and to argue the theory is not well grounded.

Indeed, given the tone of recent Supreme Court decisions and its willingness to examine the reasoning underpinning its prior decisions evident in Janus v. AFSCME, employer counsel should use a blank slate analysis whenever defending or prosecuting claims.

They should consider whether those legal theories are consistent with current legal thought, and argue for the narrowing or rejection of those theories. Reliance on the proverbial brief bank is now a fraught proposition.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Douglas Darch is a partner in Baker McKenzie’s Chicago office and was recently recognized as one of the Top Ten Management Labor Attorneys in Illinois. He has participated in over 150 hearings before the National Labor Relations Board, labor arbitrators, federal and state courts, and administrative agencies.

Christina Taylor is an associate in Baker McKenzie’s Palo Alto office and is part of the North America Employment and Compensation Group.

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