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

Fortnightly Magazine - December 1998

Dealing With Successorship Must buyer accept seller's labor agreements?

• Rule. If legal status of "successor" applies, buyer may be required to recognize and bargain with employee union of predecessor employer.

• Test. New employer deemed "successor" if substantial continuity within enterprise (em if a similarity between businesses, customers, products, and production processes. Key questions: Has new employer retained employees of the old employer? Do retained employees view job situation as essentially unaltered? %n1%n

• Obligations. "Successor" must recognize and bargain with employee's union of predecessor employer once successor's workforce is composed of a majority of predecessor's employees in a substantial and representative complement, and once a request is made for recognition.

• Exceptions. "Successor" not bound by terms of predecessor's collective bargaining agreement if arm's-length transaction between parties, and where successor neither explicitly nor implicitly assumes CBA. In general, successorship clauses not enforceable when not agreed to by buyer. %n2%n

• Initial Flexibility. Successor may set initial terms and conditions of employment unilaterally without bargaining with union (em but not where successor intends to hire a majority of its workforce from predecessor's employees; or if successor either (1) misleads employees concerning changes in wages, hours or conditions of employment, or (2) fails to announce intent to set new conditions before inviting former employees to accept employment. %n3%n

• Avoidance Strategy. Where the workforce is drastically reduced or jobs significantly redesigned, successorship may not take affect.

• Mitigation Strategy. Offer "best-efforts" commitment to hire predecessor's employees, to allay concerns over job security, as substitute for mandatory successorship. Note: In Com Ed's State Line sale to Southern Energy, buyer was committed only to hiring as many of existing employees as needed, with those not receiving offers retained by the seller or offered a severance package.

• Reciprocity Strategy. Offer successorship status to union in trade for reciprocal agreements to modify work rules, or compensation delivery and design.

• Practical Advice. Given current prospects for deals and tight labor market, most buyers should expect to carry over the majority of existing plant workforce. In near term, newly purchased plant will operate much as it always has. Since continuation of operations is a material factor, a finding of successorship is generally likely. %n4%n

Labor Relations: A Baseline Strategy

For either union or non-union workforces:

• Don't automatically hire the existing workforce.

• Have seller do the downsizing before closing deal (or concurrently with restaffing decisions).

• Manage facility with the existing senior management team.

• Keep any rehired employees at or near current levels for compensation, retirement, and welfare benefits.

• Set your own welfare benefit plans.

• Merge new employees into your own retirement plan without a transfer of assets.

In a union setting:

• Be willing to recognize a well-established collective bargaining agent;

• Don't adopt existing labor agreement;

• Set initial employment terms, then negotiate new agreement.

• Consider seller's requests; minimize impact of bid requirements; minimize employee transition requirements in asset purchase agreement.

1 See Falls River Dyeing & Finishing Corp. v. NLRB, 482 U.S. 27, 43 (1987); Briggs v. Lumbingware, Inc. v. NLRB, 877 F.2d 1282, 1285 (6th Cir. 1989).

2 See Howard Johnson Co., 417 U.S. at 258,