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Power Plant Acquisitons: Workforce Management from the Buyer's Perspective

Fortnightly Magazine - December 1998

insist upon change. To do so, however, will require a comprehensive labor relations strategy.

Due Diligence:

Assessing Labor Practices

The phrase "due diligence" is a favorite buzz word in today's electric utility industry, where mergers and acquisitions have made it second nature to business development professionals to investigate prospective partners. The notion of due diligence might not often occur in the context of workforce management issues in power plant acquisition. The flawed premise here is that simply because staffing, compensation, and labor agreements have succeeded in the past, they will continue to work. Of course, nothing could be further from the truth.

Each buyer must assess key practices in human resources and labor relations. For example, will the labor agreements drafted for a single bargaining unit within a vertically integrated utility still make sense for a company that only generates electricity? Will employment agreements now prove necessary (though never used before) to minimize turnover among key managers during the transition period? If staffing is tailored to baseload operation, can subcontracting accommodate peaking needs? Notwithstanding such questions, what legal or contractual obstacles might stand in the way?

Accordingly, due diligence for power plant acquisition should consider at a minimum (1) the buyer's successorship status, (2) the total compensation package for the plant's workforce, recognizing the importance of workforce productivity, and (3) strategies for restructuring the union organization.

Successorship Status. Today many companies looking to sell power generation assets are requiring successful bidders to accept labor agreements and unionized workforces in their entirety. While the seller often has powerful and rational political and financial reasons for such mandated successorship, this approach may not help meet the potential buyer's long-term operating objectives.

As a general rule, employers enjoy substantial flexibility to restructure businesses and transfer capital unhampered by rights and benefits mandated by collective bargaining agreements. However, to protect those rights and benefits, as well as their representational status, unions have generally, but not exclusively, relied upon federal labor law and the doctrine of successorship to force new employers to recognize CBAs or otherwise bargain with employees. The doctrine of successorship determines whether or which obligations of a predecessor unionized employer will be imposed upon a successor purchaser or employer. (See Sidebar, "Dealing With Successorship.")

Several states have passed their own "successorship" statutes, requiring sellers and buyers to enforce and recognize successorship clauses in CBAs. These states include Delaware, Pennsylvania, and Rhode Island. While the state provisions were in effect prior to the recent sell-off of power generation assets, in Commonwealth Edison's sale of the Kincaid Station, the International Brotherhood of Electrical Workers attempted through the federal courts to use the Illinois successorship statute to force the buyer to adopt the existing CBA between Commonwealth Edison and Local 15 of the IBEW. However, the federal district court, relying on a prior decision applying the Minnesota successorship statute, found the Illinois statute to be preempted by federal labor law, and thereby unconstitutional and unenforceable. See Cmwlth Ed. Co. v. IBEW, 961 F.Supp. 1169 (N.D. Ill. 1997).

Rather than become mired in the successorship issue, a number