On their last day of work, the unionized employees of bankrupt Aero Stretch Inc., a Gardena aerospace manufacturer, were told they could apply for positions the next day with the new company taking over, Advance Stretchforming International Inc. (ASI). The employees were also informed that there would be no union at ASI. Now the federal court of appeals that covers California has ruled that this comment carried some serious and unexpected consequences for the new employer.
Successor Employer Establishes New Employment Terms
Former Aero employees who applied for work with ASI signed a statement acknowledging that the new company wasn’t assuming Aero’s collective bargaining agreement and that their employment would be at-will. They were also told that their wages would be different and that there would be no seniority, no retirement plan, less vacation time, fewer holidays and no health or dental insurance. ASI hired eight of the 17 former Aero employees.
Within days of ASI taking control, the union demanded that the company negotiate with the union over the terms of employment. ASI refused.
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Union Files Charge
The union filed an unfair labor practice charge with the National Labor Relations Board, arguing that ASI didn’t have the right to set new conditions of employment without first bargaining with the union. ASI said it wasn’t required to bargain because the employees didn’t want union representation, as they indicated in a poll ASI conducted. The NLRB sided with the union, and the case went to the Ninth Circuit Court of Appeals.
Right To Change Terms Of Employment
The court explained that a successor employer who carries on the prior owner’s business essentially unchanged isn’t bound by its predecessor’s collective bargaining agreement unless the contract requires it to do so. Instead, the successor ordinarily is free to set its own initial employment terms. But it must still recognize the union and subsequently bargain with it over the terms and conditions of employment. That’s because under federal law the union typically remains the workers’ bargaining representative.
Employer Loses Big Advantage
But by saying five crucial words—”there will be no union”—ASI essentially repudiated its obligation to recognize the union. As a result, the court said, ASI forfeited its right to impose the initial employment terms. And by unilaterally changing the existing rights and benefits of the employees and refusing to bargain, ASI violated federal labor law.
To remedy ASI’s misconduct, the court ruled that the employees were entitled to collect back wages and benefits that they would have received if ASI had negotiated in good faith with the union. The case now goes back to the trial court to determine what the result would have been had such negotiations taken place.
Practical Impact
This case provides a vivid example of how a few poorly chosen words when acquiring a company with a unionized workforce can get you entangled in costly and disruptive litigation. It’s critical never to say or do anything that might suggest you don’t intend to fulfill your bargaining obligations.