Arcadia Medical Resort of Talbot (19-CA-280611)

United States Government

National Labor Relations Board

OFFICE OF THE GENERAL COUNSEL

Advice Memorandum

S.A.M.

DATE: April 25, 2022

TO:

Ronald K. Hooks, Regional Director

Region 19

FROM:

Richard A. Bock, Associate General Counsel

Division of Advice

SUBJECT: Arcadia Medical Resort of Talbot

Case 19-CA-280611

347-6040-7500

530-4825-6700

530-4850-6700

530-6067-4000

The Region submitted this case for advice as to whether a nursing home owner-

operator is a “perfectly clear” successor under Spruce Up Corp.1 and, if so, whether

the Employer’s purchase of the Predecessor’s assets “free and clear” of the

Predecessor’s collective-bargaining agreement, pursuant to Section 363 of the

Bankruptcy Code,2 relieves the Employer of its obligation to bargain with the Union

over initial terms and conditions of employment.3 We conclude that the Employer is a

“perfectly clear” successor under extant law and that the bankruptcy court’s “free and

clear” sale order does not insulate the Employer from its bargaining obligations,

which arose from its own post-sale conduct. Given that the Employer forfeited the

right to set initial terms under current Board law, this case is an appropriate vehicle

to urge the Board to overrule Spruce Up and adhere to the plain language of the

Supreme Court’s “perfectly clear” caveat in Burns.4 Alternatively, we conclude that

even if the Employer were only an ordinary Burns successor, some, if not all, of its

changes were unlawful because they were not announced as part of employees’ initial

terms. Additionally, since the Employer unilaterally ceased dues checkoff upon taking

over operations, if warranted, the Region should use this case to argue that the Board

1 209 NLRB 194 (1974), enforced mem., 529 F.2d 516 (4th Cir. 1975).

2 11 U.S.C. § 363.

3 The Region also asked whether Section 10(j) relief is appropriate and warranted in

this case. The propriety and warrant of Section 10(j) relief will be addressed in a

separate memorandum

ff upon taking

over operations, if warranted, the Region should use this case to argue that the Board

1 209 NLRB 194 (1974), enforced mem., 529 F.2d 516 (4th Cir. 1975).

2 11 U.S.C. § 363.

3 The Region also asked whether Section 10(j) relief is appropriate and warranted in

this case. The propriety and warrant of Section 10(j) relief will be addressed in a

separate memorandum.

4 NLRB v. Burns Int’l Sec. Servs., Inc., 406 U.S. 272, 294-95 (1972). See infra n.19.

Case 19-CA-280611

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should overrule Valley Hospital Medical Center5 and return to the holding of Lincoln

Lutheran of Racine.6

FACTS

WA3 OP Talbot LLC d/b/a Arcadia Medical Resort of Talbot (“the Employer”)

operates a nursing home and rehabilitation center located in Renton, Washington.

Prior to March 2021, Talbot Rehabilitation Center, LLC (“the Predecessor”) operated

the facility. Under the Predecessor, Local 775 of the Service Employees International

Union (“the Union”) represented a unit that included restorative aides, certified

nursing assistants, and licensed practical nurses. The parties had negotiated a

collective-bargaining agreement, which was effective September 17, 2020 through

August 31, 2022.

I.

Bankruptcy Proceedings

In September 2020, Goldner Capital Management LLC (“Goldner”) offered to buy

the Predecessor along with two other nonunionized companies. Under an agreement

negotiated between Goldner and the three companies, each facility would file for

Chapter 11 bankruptcy, move to have their individual cases jointly administered, and

then sell their assets to Goldner “free and clear” of all liabilities and obligations

pursuant to Section 363 of the Bankruptcy Code.7 Goldner set up three limited

liability corporations, including the Employer, to act as purchasers. On December 18,

2020, the Predecessor and the other two companies (collectively, “the Debtors”) filed

separate petitions for Chapter 11 bankruptcy in the United States Bankruptcy Court

for the Western District of Washington

ilities and obligations

pursuant to Section 363 of the Bankruptcy Code.7 Goldner set up three limited

liability corporations, including the Employer, to act as purchasers. On December 18,

2020, the Predecessor and the other two companies (collectively, “the Debtors”) filed

separate petitions for Chapter 11 bankruptcy in the United States Bankruptcy Court

for the Western District of Washington. The Predecessor failed to give the legally-

required notice of the bankruptcy to the Union at the outset of the bankruptcy

proceeding.8 Similarly, although its collective-bargaining agreement with the Union

was still in effect, the Predecessor failed to list it as an executory contract in its initial

filings.

5 368 NLRB No. 139 (2019), rev. granted sub nom. Local Joint Executive Bd. of Las

Vegas v. NLRB, 840 F. App’x 134 (9th Cir. 2020).

6 362 NLRB 1655 (2015).

7 11 U.S.C. § 363.

8 See 11 U.S.C. § 1109(b); Fed. R. Bankr. P. 2002; see generally 5 WILLIAM L. NORTON

III, NORTON BANKRUPTCY LAW AND PRACTICE § 100:2 (3d ed. 2008 & Supp. 2022)

(labor unions are parties in interest, with a right to notice and hearing, where their

rights are affected by a Chapter 11 bankruptcy case).

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On December 22, 2020, the Debtors filed a motion seeking the Bankruptcy

Court’s permission to sell their assets free and clear of all liens, claims,

encumbrances, and other interests (“Sale Motion”). Attached was the Asset Purchase

Agreement and Operations Transfer Agreement (“Purchase Agreement”) to which the

Debtors and the Employer were parties. In relevant part, the Purchase Agreement

states:

Except with respect to the Collective Bargaining Agreement by and

between [the Predecessor] and SEIU 775 (the “CBA”), the Business

is not subject to any collective bargaining agreements. Sellers are

not in default in any of their obligations under the CBA and the

CBA is in full force and effect. Sellers have provided a true and

correct copy of the CBA to Buyers

he Purchase Agreement

states:

Except with respect to the Collective Bargaining Agreement by and

between [the Predecessor] and SEIU 775 (the “CBA”), the Business

is not subject to any collective bargaining agreements. Sellers are

not in default in any of their obligations under the CBA and the

CBA is in full force and effect. Sellers have provided a true and

correct copy of the CBA to Buyers. Sellers will provide any notice

required to be provided under the CBA in connection with the

transaction contemplated by this Agreement and will provide a

copy of such notice to Buyers.

On February 5, 2021, the Bankruptcy Court issued an order (“Sale Order”)

approving the Sale Motion.9 In relevant part, the Sale Order states that the

purchased assets of the Debtors, including the Predecessor’s facility, “shall be sold

free and clear of . . . collective bargaining agreements and obligations . . . .” The Sale

Order also declares that “the Buyers shall have no successor or vicarious liabilities of

any kind or character, including, but not limited to any theory of . . . labor law . . .

now existing or hereafter arising . . . with respect to the Debtors, or any obligations of

the Debtors arising prior to and including the Closing Date.”

The Predecessor did not provide notice to the Union of the impending sale or the

Sale Motion at any point during the bankruptcy proceeding, notwithstanding that

Article 25 of the collective-bargaining agreement required it to give notice of a sale “as

soon as possible, but in no case later than thirty (30) days” prior to the sale.

II.

The Employer’s Takeover of the Predecessor’s Operations

Prior to taking over operations, the Employer did not communicate with

employees nor announce any changes to terms and conditions of employment

withstanding that

Article 25 of the collective-bargaining agreement required it to give notice of a sale “as

soon as possible, but in no case later than thirty (30) days” prior to the sale.

II.

The Employer’s Takeover of the Predecessor’s Operations

Prior to taking over operations, the Employer did not communicate with

employees nor announce any changes to terms and conditions of employment. On

March 9, the Predecessor’s administrator emailed the Union’s representative that the

facility had “just received notification that the new management/owners are starting

on Monday, 3/15,” and promised to engage in any further discussions necessary “to

ensure a seamless transition.” At the time, the Predecessor and the Union were in the

midst of processing grievances that had arisen, in part, due to the Predecessor

changing payroll servicers in 2020. These grievances concerned the failure to deduct

and remit dues, the failure to properly reflect pay rates and leave accrual, as well as

9 All dates hereafter are in 2021, unless otherwise noted.

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an unrelated discharge of a nurse. Between March 15 and March 23, the Union and

the Predecessor met regularly to resolve these grievances, with the Predecessor

stating that the “new owners/management” would remedy them. On March 15, the

Predecessor posted a flyer next to the timeclock informing employees that it was

again switching payroll servicers, that paid time off amounts would carry over to the

new provider, and that no time would be lost.

The Employer held a post-transition meeting with employees at some point in

March or April. During that meeting, the Employer’s new administrator announced

that employees would only be able to carry over 40 hours of paid time off and, as of

August 1, hours in excess of that amount would be lost. The Employer did not

communicate any other changes in employment terms at this meeting

d be lost.

The Employer held a post-transition meeting with employees at some point in

March or April. During that meeting, the Employer’s new administrator announced

that employees would only be able to carry over 40 hours of paid time off and, as of

August 1, hours in excess of that amount would be lost. The Employer did not

communicate any other changes in employment terms at this meeting.

On March 23, the Predecessor’s administrator10 informed the Union

representative that the new payroll company stated it would not be deducting Union

dues until “they” renew the “contract” with the Employer.11 The administrator also

noted that the license had been processed the day before “to approve the

ownership.”12

On April 9, the Employer’s attorney called the Union representative regarding

the new ownership of the Talbot facility. The attorney requested a copy of the

collective-bargaining agreement and the Union representative asked about the

grievance regarding the discharged nurse. The Employer’s attorney responded that

the discharge occurred during the Predecessor’s operation of the facility and the new

owner had neither the capability nor the interest in returning the nurse to work.

There was no hiatus between the Predecessor’s and the Employer’s operations

and the Employer did not go through any formal hiring process, such as requiring

that the Predecessor’s employees submit applications, interview for positions, or

provide proof of their credentials. Employees simply showed up for their shifts as

10 The Predecessor’s administrator did not continue on in that role with the Employer,

but it is not known whether this person was retained by the Employer in some other

capacity.

11 It is not clear whether the administrator was referring to renewal of the payroll

contract or execution of a new collective-bargaining agreement.

12 The precise date of transition from the Predecessor to the Employer is unclear

sor’s administrator did not continue on in that role with the Employer,

but it is not known whether this person was retained by the Employer in some other

capacity.

11 It is not clear whether the administrator was referring to renewal of the payroll

contract or execution of a new collective-bargaining agreement.

12 The precise date of transition from the Predecessor to the Employer is unclear.

Initially, the Predecessor’s administrator stated that the “new owners/management”

would start on March 15. But the Predecessor’s administrator later indicated that the

actual transfer of ownership occurred March 22. In its position statement, the

Employer asserts that it assumed operations on March 19. For purposes of this

memorandum, we rely upon March 19 as the transition date.

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usual and performed their duties just as they had under the Predecessor. However,

sometime after the transition, the Union representative learned that the Employer

directed employees to fill out paperwork through an online portal and that many

employees were struggling with it. Employees worried that, if they did not submit job

applications through the online portal, they would be discharged. It was also around

this time that the Union discovered that employees were either not receiving their

anniversary wage increases or that their wage increases had been rescinded. On May

12, the Union representative emailed the administrator about the difficulties

employees were having with the online portal. The Union representative also

protested the Employer’s failure to pay anniversary wage increases provided for in

the collective-bargaining agreement. On May 13, the Union representative emailed

the administrator again about these issues, noting that the Union was “more than

willing to meet and bargain.” The administrator subsequently called the Union

representative and explained that the Employer’s online portal was for employee

onboarding and not for employees to apply for jobs

ncreases provided for in

the collective-bargaining agreement. On May 13, the Union representative emailed

the administrator again about these issues, noting that the Union was “more than

willing to meet and bargain.” The administrator subsequently called the Union

representative and explained that the Employer’s online portal was for employee

onboarding and not for employees to apply for jobs. In the end, the Employer only

asked employees to provide W-4 forms.

On May 15, the Union filed a grievance with the Employer over its changes to

how much paid time off employees could accrue, its refusal to cash out paid time off

that was lost, and its reduction of paid time off accrual rates. The Employer ignored

these grievances. On May 19, the Union renewed its grievance regarding dues

checkoff because the Employer was, like the Predecessor, failing to collect and remit

dues. The Employer refused to discuss the grievance, insisting that any discussion of

setting up dues checkoff be part of bargaining for a new collective-bargaining

agreement. On June 28, the Union representative issued a formal bargaining demand

to the Employer, reiterating its May request. Since then, the parties have held a

number of bargaining sessions to negotiate a new collective-bargaining agreement.

However, they have not yet reached agreement on a contract.

ACTION

We conclude that the Employer is a “perfectly clear” successor that had an

obligation to bargain with the Union prior to setting initial terms and conditions and

that the bankruptcy court’s “free and clear” sale does not relieve the Employer of this

obligation. Accordingly, the Employer violated Section 8(a)(5) by unilaterally reducing

paid time off accrual amounts, reducing paid time off accrual rates, eliminating paid

time off cashouts, eliminating anniversary wage increases, and refusing to process

grievances

etting initial terms and conditions and

that the bankruptcy court’s “free and clear” sale does not relieve the Employer of this

obligation. Accordingly, the Employer violated Section 8(a)(5) by unilaterally reducing

paid time off accrual amounts, reducing paid time off accrual rates, eliminating paid

time off cashouts, eliminating anniversary wage increases, and refusing to process

grievances. Alternatively, we conclude that some, if not all, of these changes were

likewise unlawful even if the Employer were only an ordinary Burns successor

because they were not announced as part of employees’ initial terms. Finally, we

conclude that, because the Employer did not bargain with the Union prior to the

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cessation of dues checkoff, if warranted,13 the Region should use this case to urge the

Board to overrule Valley Hospital.14

I.

Perfectly Clear Successorship

a. The Employer is a “perfectly clear” successor under Spruce Up

Upon acquiring a business, a new employer has an obligation to bargain with the

union that represented its predecessor’s employees if the new employer continues its

predecessor’s business in substantially the same form and if a majority of its

workforce was formerly employed by the predecessor.15 However, a new employer is

not bound by the predecessor’s collective-bargaining agreement or its substantive

terms and ordinarily may unilaterally set initial terms and conditions of

employment.16

Under Burns, a successor must “initially consult with the employees’ bargaining

representative before [it] fixes terms” if it is “perfectly clear that the new employer

plans to retain all of the employees in the unit.”17 The Board has limited the

“perfectly clear” exception to situations where the new employer actively or tacitly

misleads employees or their union into believing that the employees will be retained

by the successor under the same terms and conditions,18 or at least fails to “clearly

announce” its intent to establish new terms and conditions pri

lans to retain all of the employees in the unit.”17 The Board has limited the

“perfectly clear” exception to situations where the new employer actively or tacitly

misleads employees or their union into believing that the employees will be retained

by the successor under the same terms and conditions,18 or at least fails to “clearly

announce” its intent to establish new terms and conditions prior to or simultaneous

13 See infra n.73.

14 368 NLRB No. 139.

15 Fall River Dyeing & Finishing Corp. v. NLRB, 482 U.S. 27, 41 (1987); Burns, 406

U.S. at 279-81.

16 See Nexeo Solutions, LLC, 364 NLRB 570, 574 (2016) (citing Burns, 406 U.S. at

281-95); Monterey Newspapers, 334 NLRB 1019, 1020 (2001).

17 Burns, 406 U.S. at 294-95.

18 See, e.g., Fremont Ford, 289 NLRB 1290, 1296-97 (1988) (employer was “perfectly

clear” successor where it indicated to union that employees would be retained,

engaged in a misinformation campaign that terms and conditions would remain the

same, and only revealed changes after hiring process had begun); Nexeo Solutions,

364 NLRB at 577-78 (employer was “perfectly clear” successor where employees were

“lulled” into believing terms and conditions would be comparable to predecessor’s

when employer indicated plan to retain them but then formal offer letters reflected

different terms).

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with its invitation to accept employment.19 Thus, an employer becomes a “perfectly

clear” successor if it is silent as to changing the existing working conditions at the

time it indicates to employees or their union that it intends to hire the predecessor’s

employees,20 or fails to give “sufficiently clear” notice that employees’ existing

19 Spruce Up, 209 NLRB at 195 (employer that indicated intent to retain

predecessor’s employees while simultaneously announcing new wage rate was not a

“perfectly clear” successor)

working conditions at the

time it indicates to employees or their union that it intends to hire the predecessor’s

employees,20 or fails to give “sufficiently clear” notice that employees’ existing

19 Spruce Up, 209 NLRB at 195 (employer that indicated intent to retain

predecessor’s employees while simultaneously announcing new wage rate was not a

“perfectly clear” successor). The General Counsel disagrees with Spruce Up and has

taken the position that the Board should adhere to the plain language of the Supreme

Court’s “perfectly clear” caveat in Burns, 406 U.S. at 294-95. Applying the plain

language of Burns to the instant case, we conclude that it was “perfectly clear” that

the Employer intended to retain the Predecessor’s employees. The Employer had the

Predecessor’s employees show up for their shifts as usual and did not require

employees to submit job applications or go through any genuine hiring process.

Rather than seek out other job applicants or advertise open positions, the Employer

simply adopted the Predecessor’s workforce as its own. Accordingly, the Region should

use this case as a vehicle to urge the Board to overrule Spruce Up as set forth in

Arcadia Medical Resort of Parkside, Case 19-CA-280613, Advice Memorandum dated

Apr. 5, 2022.

20 See, e.g., Canteen Co., 317 NLRB 1052, 1052-54 (1995) (employer became “perfectly

clear” successor when it informed union of its plan to retain predecessor employees

without announcing changes in working conditions), enforced, 103 F.3d 1355 (7th Cir.

1997); Roman Catholic Diocese of Brooklyn, 222 NLRB 1052, 1055 (1976) (successor

forfeited right to set initial terms under “perfectly clear” exception where new

employer made unequivocal statement to union of intent to hire all of the

predecessor’s lay teachers without mentioning any changes in terms and conditions of

employment, which only became known later when it distributed an employment

contract), enforcement denied in relevant part sub nom. Nazareth Reg’l High Sch. v

rfeited right to set initial terms under “perfectly clear” exception where new

employer made unequivocal statement to union of intent to hire all of the

predecessor’s lay teachers without mentioning any changes in terms and conditions of

employment, which only became known later when it distributed an employment

contract), enforcement denied in relevant part sub nom. Nazareth Reg’l High Sch. v.

NLRB, 549 F.2d 873 (2d Cir. 1977).

Case 19-CA-280611

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working conditions will change.21 For example, an announcement of new terms and

conditions that is “general” or “speculative” will not suffice.22

In Specialty Envelope Co.,23 the Board found that an employer was a “perfectly

clear” successor where it assumed operations with the predecessor’s workforce and

only thereafter announced changes in terms and conditions of employment. Viewing

the circumstances from the employees’ perspective, the Board found that the

successor conveyed an intent to employ the predecessor’s workforce by having

employees report to work as usual without being required to complete employment

applications or even ask to be employed by the successor.24 As in Specialty Envelope,

here the Employer never required employees to apply for their jobs. It simply asked

them to provide W-4 forms after they had already been hired.25 Indeed, in response to

21 Creative Vision Resources, LLC, 364 NLRB 1299, 1302 n.12 (2016) (where

predecessor employees were classified as independent contractors, successor’s

inclusion of W-4 forms with job applications was not “sufficiently clear”

announcement of new terms), enforced, 882 F.3d 510 (5th Cir. 2018); see also Canteen,

317 NLRB at 1053-54 (requiring predecessor employees to serve a probationary period

did not preclude a finding of “perfectly clear” successorship). But see Banknote Corp

employees were classified as independent contractors, successor’s

inclusion of W-4 forms with job applications was not “sufficiently clear”

announcement of new terms), enforced, 882 F.3d 510 (5th Cir. 2018); see also Canteen,

317 NLRB at 1053-54 (requiring predecessor employees to serve a probationary period

did not preclude a finding of “perfectly clear” successorship). But see Banknote Corp.

of America, 315 NLRB 1041, 1043 (1994) (employer’s disavowal of predecessor’s

statement that it had agreed to be bound by the terms and conditions of the

predecessor’s collective-bargaining agreement—clarifying that it had “not made any

such commitments”—put employees on notice that it intended to make changes),

enforced, 84 F.3d 637 (2d Cir. 1996).

22 Windsor Convalescent Center of North Long Beach, 351 NLRB 975, 982 (2007) (“A

general statement that new terms will subsequently be set is not sufficient to fulfill

the [employer’s] Spruce Up obligation to announce new terms prior to or simultaneous

with takeover”), enforcement denied in relevant part, 570 F.3d 354 (D.C. Cir. 2009);

East Belden Corp., 239 NLRB 776, 793 (1978) (finding employer to be a “perfectly

clear” successor where its announcement of unspecified changes in the future,

couched in “generalized and speculative terms,” did not clearly inform employees of

the nature of the intended changes), enforced mem., 634 F.2d 635 (9th Cir. 1980).

23 321 NLRB 828, 830-31 (1996), enforcement denied in relevant part sub nom. Peters

v. NLRB, 153 F.3d 289 (6th Cir. 1998).

24 Id.

25 See Creative Vision Resources, 364 NLRB at 1302-03 (inclusion of tax forms with

applications demonstrated successor’s intent to hire predecessor’s employees since job

applicants typically do not fill out such forms until hired); Cadillac Asphalt Paving

Co., 349 NLRB 6, 11 (2007) (finding that “by offering job applications and W-4 forms

153 F.3d 289 (6th Cir. 1998).

24 Id.

25 See Creative Vision Resources, 364 NLRB at 1302-03 (inclusion of tax forms with

applications demonstrated successor’s intent to hire predecessor’s employees since job

applicants typically do not fill out such forms until hired); Cadillac Asphalt Paving

Co., 349 NLRB 6, 11 (2007) (finding that “by offering job applications and W-4 forms

Case 19-CA-280611

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employees’ fear that they may be discharged if they did not complete the Employer’s

online forms, the Employer’s administrator explicitly denied that the Employer was

requiring job applications. Instead, the online platform was described as “employee

onboarding,” something that, by definition, is only necessary after an employee has

been hired. This absence of any genuine hiring process, combined with the Employer

assuming operations by bringing in the Predecessor’s employees to report to work as

usual, makes it “perfectly clear” that the Employer intended to retain the

Predecessor’s workforce.

And, as in Specialty Envelope, the Employer here waited to announce changes to

terms and conditions until after the Predecessor’s employees reported to work as

usual. The Employer made this decision despite ensuring that it would have the

opportunity to make such an announcement before assuming operations. In

negotiating the Purchase Agreement, the Employer secured for itself the right to

access the Predecessor’s premises before the sale to “advise [employees] of [the

Employer’s] proposed plans with respect to the hiring of employees” and “the benefits

which will be offered.” But the Employer chose not to avail itself of this right. Instead,

the Employer waited to announce its initial terms until after it assumed operations

with the Predecessor’s workforce

itself the right to

access the Predecessor’s premises before the sale to “advise [employees] of [the

Employer’s] proposed plans with respect to the hiring of employees” and “the benefits

which will be offered.” But the Employer chose not to avail itself of this right. Instead,

the Employer waited to announce its initial terms until after it assumed operations

with the Predecessor’s workforce. It was not until after adopting the Predecessor’s

workforce as its own that the Employer announced that employees could no longer

accrue as much paid time off and that they would lose any paid time off in excess of 40

hours within mere months. Other changes, such as eliminating anniversary wage

increases, were never announced at all. Rather, the Employer tacitly allowed

employees to believe that these terms and conditions of employment were unchanged.

Only later did employees discover that their employment with the Employer was

under materially different terms than those of the Predecessor. By having the

Predecessor’s employees return to work while remaining silent as to intended changes

to terms and conditions of employment, the Employer forfeited its right to set initial

terms.26

to [the predecessor’s] employees . . . [the successor] invited the employees to accept

employment”).

26 The Region should not rely upon the March 15 payroll flyer or the Predecessor

administrator’s statement to the Union regarding a “seamless transition” in

operations to establish “perfectly clear” successorship because there is insufficient

evidence that the flyer was posted at the direction of the Employer or that the

Predecessor’s administrator was acting as an agent of the Employer or on behalf of

the Employer. Regarding the March 15 payroll flyer, it directed employees to contact

the Predecessor’s human resources manager, who did not continue in that role with

the Employer, and the flyer did not mention the Employer in any way

vidence that the flyer was posted at the direction of the Employer or that the

Predecessor’s administrator was acting as an agent of the Employer or on behalf of

the Employer. Regarding the March 15 payroll flyer, it directed employees to contact

the Predecessor’s human resources manager, who did not continue in that role with

the Employer, and the flyer did not mention the Employer in any way. Similarly,

there is no evidence that would indicate that the Predecessor’s administrator was

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b. The Bankruptcy Court’s “Free and Clear” Sale Order Does Not

Extinguish the Employer’s Bargaining Obligation as a “Perfectly

Clear” Successor Under the Act

Having found that the Employer is a “perfectly clear” successor, the issue

remains whether the Bankruptcy Court’s Sale Order nonetheless shields the

Employer from liability under the Act. We conclude that it does not because the

Bankruptcy Court’s Sale Order only extinguishes liabilities of the Debtors, not those

of the Employer that arose because of its own post-sale conduct.

Where two statutes are capable of coexistence, it is the duty of the courts to

regard each as effective, absent a clear expression of congressional intent to the

contrary.27 When circumstances arise that present a conflict between the underlying

purposes of the Act and the Bankruptcy Code, the issue “must be resolved in a way

that accommodates the policies of both Federal statutes.”28

speaking on behalf of the Employer. There is no evidence that the Employer

instructed the administrator to make statements to employees, that the Employer

had already offered the administrator the opportunity to continue on in their position

at the time the “seamless transition” statement was made, or that the Employer later

ratified or adopted the administrator’s statement as its own

speaking on behalf of the Employer. There is no evidence that the Employer

instructed the administrator to make statements to employees, that the Employer

had already offered the administrator the opportunity to continue on in their position

at the time the “seamless transition” statement was made, or that the Employer later

ratified or adopted the administrator’s statement as its own. Compare Bekins Moving

& Storage Co., 330 NLRB 761, 761 n.1 (2001) (General Counsel failed to establish

that predecessor’s manager was an agent of the successor when he communicated

that employees would probably be retained where there was no evidence that he had

been offered and accepted any position with the successor or had been directed to

contact employees on behalf of the successor at the time of his statement), with Nexeo

Solutions, 364 NLRB at 578-80 (finding predecessor president’s communications to

employees attributable to successor because, among other things, purchase agreement

contemplated retention of president and successor review of pre-takeover

communications to employees, successor’s consultants were involved in drafting and

editing communications, and president gave impression that he would continue as

manager under new owner), and Lemay Caring Center, 280 NLRB 60, 65-67 (1986)

(attributing unlawful statements to successor where predecessor’s manager informed

employees of successor’s future operational plans after he had been selected by the

successor to continue in a managerial role and successor failed to repudiate his

actions or to inform employees that he was not speaking on its behalf), enforced sub

nom. Dasal Caring Ctrs. v. NLRB, 815 F.2d 711 (8th Cir. 1987).

27 See generally Morton v. Mancari, 417 U.S. 535, 551 (1974).

28 Direct Press Modern Litho, Inc., 328 NLRB 860, 861 (1999) (citing NLRB v. Bildisco

& Bildisco 465 U.S. 513, 535, 541 (1984) (Justice Brennan, concurring in part and

dissenting in part)).

ns or to inform employees that he was not speaking on its behalf), enforced sub

nom. Dasal Caring Ctrs. v. NLRB, 815 F.2d 711 (8th Cir. 1987).

27 See generally Morton v. Mancari, 417 U.S. 535, 551 (1974).

28 Direct Press Modern Litho, Inc., 328 NLRB 860, 861 (1999) (citing NLRB v. Bildisco

& Bildisco 465 U.S. 513, 535, 541 (1984) (Justice Brennan, concurring in part and

dissenting in part)).

Case 19-CA-280611

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It is well settled that the Board is the exclusive public agent chosen by Congress

to enforce the Act, subject only to review in the United States Courts of Appeals.29

Accordingly, “the institution of bankruptcy proceedings generally does not deprive the

Board of jurisdiction or authority to entertain and process” unfair labor practice

cases.30 The determination of whether an employer is a successor under the Act is a

question of substantive labor law over which the Board has primary jurisdiction.31

Assessing whether a purchaser is a successor—whether an ordinary Burns successor

or a “perfectly clear” successor under the Burns caveat—depends upon several factors

that establish a “substantial continuity,” including the makeup of the successor’s

employee complement, the extent to which employees of the new company perform

the same jobs under the same employment conditions and supervision, and the degree

of similarity between the products or services offered, the production process, and the

customers.32 The Board applies the Burns successorship doctrine in the same manner

where a successor employer purchases a predecessor’s assets through bankruptcy as

it does where a successor acquires a business by other means.33 This flows from the

fact that the duties of a successor arise where a “new employer makes the conscious

decision to maintain generally the same business” and to retain the predecessor’s

workforce, or at least hire a majority of its employees from the predecessor, all of

which generally occurs post-sale.34 By their very nature, the Burns factors cannot be

measure

s a business by other means.33 This flows from the

fact that the duties of a successor arise where a “new employer makes the conscious

decision to maintain generally the same business” and to retain the predecessor’s

workforce, or at least hire a majority of its employees from the predecessor, all of

which generally occurs post-sale.34 By their very nature, the Burns factors cannot be

measured before a business has been sold to, or operated by, a putative successor.

29 San Diego Bldg. Trades Council v. Garmon, 359 U.S. 236, 245 (1959); Nathanson v.

NLRB, 344 U.S. 25, 27 (1952).

30 Image Systems, 285 NLRB 370, 371 (1987) (citing Olympic Fruit & Produce Co.,

261 NLRB 322, 323 (1982)).

31 See In re Goodman, 873 F.2d 598, 602-03 (2d Cir. 1989) (Board, not bankruptcy

court, has jurisdiction to decide whether a new employer is a successor or alter ego of

an earlier employer for purposes of liability under the Act), overruled on other

grounds, Germain v. Conn. Nat’l Bank, 926 F.2d 191 (2d Cir 1991); cf. In re Bel Air

Chateau Hosp., Inc., 611 F.2d 1248, 1251 (9th Cir. 1979) (whether receiver was alter

ego of hospital’s former operators was a question exclusively for the Board to answer).

32 Fall River Dyeing, 482 U.S. at 43.

33 See Nephi Rubber Products Corp., 303 NLRB 151, 153 (1991) (16-month hiatus and

bankruptcy proceedings did not preclude a finding of successorship), enforced, 976

F.2d 1361 (10th Cir. 1992); Jersey Juniors, Inc., 230 NLRB 329, 332-33 (1977)

(applying Burns where successor purchased predecessor’s assets in a Chapter 11

bankruptcy sale).

34 Fall River Dyeing, 482 U.S. at 41. Accord Burns, 406 U.S. at 279-81.

er Products Corp., 303 NLRB 151, 153 (1991) (16-month hiatus and

bankruptcy proceedings did not preclude a finding of successorship), enforced, 976

F.2d 1361 (10th Cir. 1992); Jersey Juniors, Inc., 230 NLRB 329, 332-33 (1977)

(applying Burns where successor purchased predecessor’s assets in a Chapter 11

bankruptcy sale).

34 Fall River Dyeing, 482 U.S. at 41. Accord Burns, 406 U.S. at 279-81.

Case 19-CA-280611

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The Bankruptcy Code, conversely, focuses on eliminating liabilities that a

bankrupt business incurs before selling its assets. The primary goals of Chapter 11 of

the Code are “the preservation of the business as a going concern and the

maximization of the assets recoverable to satisfy claims.”35 Consequently, when a

debtor seeks to sell its business “free and clear” under Chapter 11,36 the goal is to

maximize the purchase price of the debtor’s assets to benefit creditors of the bankrupt

business.37 But while a bankruptcy court may permit assets to be sold “free and clear”

of any interest against the bankruptcy estate under Section 363(f) of the Code, it

cannot insulate a purchaser’s liability where the claim arose after the sale due to the

purchaser’s own conduct.38 Thus, while a bankruptcy court may discharge obligations

35 In re Cedar Funding, Inc., 419 B.R. 807, 817 (B.A.P. 9th Cir. 2009) (citing Bank of

Am. Nat’l Trust & Sav. Ass’n v. 203 N. LaSalle St. P’ship, 526 U.S. 434, 453 (1999));

see also In re New Invs., Inc., 840 F.3d 1137, 1142 (9th Cir. 2016) (Chapter 11 “strikes

a balance” between a business’s interest in “reorganizing and restructuring its debts”

and creditors’ “interest in maximizing the value of the bankruptcy estate” (quoting

Fla. Dep’t of Revenue v. Piccadilly Cafeterias, Inc., 554 U.S. 33, 51 (2008))).

36 11 U.S.C. § 363.

37 In re Realia, Inc., No. ADV. 2:10-00962, 2012 WL 833372, at *10 (B.A.P. 9th Cir.

Mar

9th Cir. 2016) (Chapter 11 “strikes

a balance” between a business’s interest in “reorganizing and restructuring its debts”

and creditors’ “interest in maximizing the value of the bankruptcy estate” (quoting

Fla. Dep’t of Revenue v. Piccadilly Cafeterias, Inc., 554 U.S. 33, 51 (2008))).

36 11 U.S.C. § 363.

37 In re Realia, Inc., No. ADV. 2:10-00962, 2012 WL 833372, at *10 (B.A.P. 9th Cir.

Mar. 13, 2012) (purpose of “free and clear” language is to maximize recovery on

debtor’s assets in the marketplace), aff’d mem., 569 F. App’x 544 (9th Cir. 2014); In re

Med. Software Sols., 286 B.R. 431, 446 (Bankr. D. Utah 2002) (“Without adequate

protection, purchasers would bid nominal amounts for assets to compensate for the

risk of uncertainty thereby impairing the debtor’s creditors with a lower sales

amount.”). See generally In re WBQ P’ship, 189 B.R. 97, 108 (Bankr. E.D. Va. 1995)

(discussing policy underlying Bankruptcy Code’s “free and clear” provision in Section

363(f)).

38 See In re NE Opco, Inc., 513 B.R. 871, 877-78 (Bankr. D. Del. 2014) (purchaser

could not use bankruptcy “free and clear” sale order to escape liability for employment

discrimination claims that were based on purchaser’s post-sale refusal to hire); see

also Ninth Ave. Remedial Grp. v. Allis-Chalmers Corp., 195 B.R. 716, 732 (N.D. Ind.

1996) (bankruptcy courts lack power to sell assets free and clear of “future claims that

did not arise until after the bankruptcy proceedings concluded”); In re AutoStyle

Plastics, Inc., 227 B.R. 797, 800 (Bankr. W.D. Mich. 1998) (same); In re Motors

Liquidation Co., 568 B.R. 217, 230-31 (Bankr. S.D.N.Y. 2017) (“free and clear” sale of

assets of Chapter 11 debtor could not bar failure-to-warn and failure-to-recall-and-

retrofit claims based not on the conduct of the debtor-manufacturer but on the

conduct of the purchaser), aff’d in relevant part, 590 B.R. 39 (S.D.N.Y.

2018), aff’d, 943 F.3d 125 (2d Cir. 2019), aff’d, 792 F. App’x 28 (2d Cir. 2019),

and aff’d, 957 F.3d 357 (2d Cir. 2020); cf

Y. 2017) (“free and clear” sale of

assets of Chapter 11 debtor could not bar failure-to-warn and failure-to-recall-and-

retrofit claims based not on the conduct of the debtor-manufacturer but on the

conduct of the purchaser), aff’d in relevant part, 590 B.R. 39 (S.D.N.Y.

2018), aff’d, 943 F.3d 125 (2d Cir. 2019), aff’d, 792 F. App’x 28 (2d Cir. 2019),

and aff’d, 957 F.3d 357 (2d Cir. 2020); cf. Ingman v. FCA US LLC, No. CV-17-00069-

Case 19-CA-280611

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under the Act that arose before a predecessor’s bankruptcy petition, a successor’s

post-sale conduct can create new obligations.39

The Board’s 2005 decision in Foodbasket Partners40 demonstrates how the

Board’s successorship principles, which are based on the successor’s own conduct, do

not interfere with the policy underpinnings of the Bankruptcy Code’s “free and clear”

sale rules protecting an asset purchaser from liability for the predecessor’s

misconduct. In Foodbasket Partners, the predecessor had filed for bankruptcy, its

assets were sold to one of its creditors pursuant to a “free and clear” bankruptcy court

order, and then the respondent employer subsequently purchased six of the bankrupt

employer’s stores.41 The Board adopted the ALJ’s conclusion that the free and clear

sale did not privilege the employer to ignore its Burns bargaining obligation.42 The

ALJ explained that the employer incurred its bargaining obligation as a successor

based on its own conduct, rather than that of the predecessor.43 The ALJ also

explained that the employer’s post-bankruptcy third-party purchase of the

predecessor’s assets, upon which its Burns bargaining obligation was premised, was

not the kind of pre-bankruptcy “liability” the Bankruptcy Code was designed to

extinguish.44

GF-BMM, 2017 WL 5465521, at *3-4 (D. Mont. Nov. 14, 2017) (remanding product

liability lawsuit to state court because purchaser’s post-bankruptcy sale conduct was

not “related to” bankruptcy so as to confer federal court jurisdiction)

its Burns bargaining obligation was premised, was

not the kind of pre-bankruptcy “liability” the Bankruptcy Code was designed to

extinguish.44

GF-BMM, 2017 WL 5465521, at *3-4 (D. Mont. Nov. 14, 2017) (remanding product

liability lawsuit to state court because purchaser’s post-bankruptcy sale conduct was

not “related to” bankruptcy so as to confer federal court jurisdiction).

39 Erica, Inc. v. NLRB, 200 F. App’x 344, 347 (5th Cir. 2006), enforcing Foodbasket

Partners, 344 NLRB 799 (2005); see also In re Carib-Inn of San Juan Corp., 905 F.2d

561, 562 (1st Cir. 1990) (finding Board, not bankruptcy court, had jurisdiction to

decide merits of unfair labor practice charge since Board complaint was directed

solely at purchaser and sought no remedy against bankrupt estate); In re Goodman,

873 F.2d at 602 (finding that bankruptcy court’s discharge of debts could not serve to

insulate against liability for post-petition conduct).

40 344 NLRB 799.

41 See id. at 800.

42 See id. at 800-01.

43 See id. at 801. See also Erica, 200 F. App’x at 347 (Foodbasket Partners “had a duty

to bargain with the union under the NLRA because of its conduct after the purchase

of [predecessor’s business]”).

44 See Foodbasket Partners, 344 NLRB at 801.

Case 19-CA-280611

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Similarly, in NLRB v. Horizons Hotel,45 an employer filed for bankruptcy and

sold its assets “free and clear” of liabilities and encumbrances pursuant to a

bankruptcy court’s order. The purchaser then refused to hire a unit of the

predecessor’s employees because of their union affiliation and, with regard to another

unit, refused to recognize and bargain with the union even where it had hired a

majority of the predecessor’s employees.46 The First Circuit upheld the Board’s

determination that the purchaser was a Burns successor and had violated Section

8(a)(1), (3), and (5) of the Act, specifically rejecting the purchaser’s argument that the

free and clear bankruptcy sale protected it from such liability

unit, refused to recognize and bargain with the union even where it had hired a

majority of the predecessor’s employees.46 The First Circuit upheld the Board’s

determination that the purchaser was a Burns successor and had violated Section

8(a)(1), (3), and (5) of the Act, specifically rejecting the purchaser’s argument that the

free and clear bankruptcy sale protected it from such liability. In reaching this

conclusion, the court declared that the purchaser was “not here being held responsible

. . . for the conduct or liability of a prior owner” but was being held “responsible for its

own unlawful acts.”47

The rationale underpinning these cases is equally applicable to the “perfectly

clear” successorship context.48 The Employer here created its own liability,

independent of Predecessor’s liability that was discharged through the “free and

clear” sale. First and foremost, the Employer alone is responsible for failing to consult

the Union over initial employment terms. The Employer would not be facing liability

under the Act had it abided by its bargaining obligation as a “perfectly clear”

successor. Indeed, the Employer was well aware that the workforce was represented

because the Purchase Agreement specifically mentioned the bargaining relationship

and acknowledged that the Employer had received a copy of the most recent labor

agreement. And there was ample time to bargain over establishing different

employment terms than those offered by the Predecessor between early February,

45 49 F.3d 795, 800, 803 (1st Cir. 1995), enforcing 312 NLRB 1212 (1993).

46 Id. at 804-06.

47 Id. at 803 (citing In re Carib-Inn, 905 F.2d at 563-64).

48 Cf

d that the Employer had received a copy of the most recent labor

agreement. And there was ample time to bargain over establishing different

employment terms than those offered by the Predecessor between early February,

45 49 F.3d 795, 800, 803 (1st Cir. 1995), enforcing 312 NLRB 1212 (1993).

46 Id. at 804-06.

47 Id. at 803 (citing In re Carib-Inn, 905 F.2d at 563-64).

48 Cf. Massey Energy Co., 358 NLRB 1643, 1648 n.21 (2012) (Noel Canning Board)

(rejecting contention that imposing a duty to bargain over initial terms would negate

the bankruptcy court’s “free and clear” order setting aside the collective-bargaining

agreement because successor’s “own post-sale conduct—its continuation of [the

predecessor’s] business, its discriminatory refusal to hire the predecessor’s employees,

and its announcement to prospective employees that [the successor] would be

nonunion—triggered [that] obligation to bargain”). Although Massey Energy was

issued by a panel that, under NLRB v. Noel Canning, 573 U.S. 513 (2014), was not

properly constituted, it is the General Counsel’s position that this case was soundly

reasoned. The Region should therefore urge the ALJ and the Board to extend the

principles set forth in that case to the instant matter. See DHL Express, Inc. v. NLRB,

813 F.3d 365, 377 n.2 (D.C. Cir. 2016) (noting that the rationale in a voided, two-

member decision was “instructive”).

Case 19-CA-280611

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when the Bankruptcy Court approved the sale, and its takeover of operations in mid-

March. Instead, the Employer made no effort to consult with the employee’s

representative prior to setting initial terms. Thus, as in Horizons Hotel, the

Employer’s own unlawful post-sale actions create the need for relief under the Act.

Furthermore, the Employer could have avoided being classified as a “perfectly

clear” successor altogether but chose not to take the steps necessary to do so

-

March. Instead, the Employer made no effort to consult with the employee’s

representative prior to setting initial terms. Thus, as in Horizons Hotel, the

Employer’s own unlawful post-sale actions create the need for relief under the Act.

Furthermore, the Employer could have avoided being classified as a “perfectly

clear” successor altogether but chose not to take the steps necessary to do so. Rather

than adopting the predecessor’s workforce as its own, it could have advertised

positions and conducted a genuine hiring process. Although the Purchase Agreement

required that the Employer retain two-thirds of the 329 staff members employed

across all three nursing homes it purchased, the bargaining unit at the Predecessor’s

facility was only 70 employees. This meant the Employer could have refused to hire

some or all of the Predecessor’s employees on a non-discriminatory basis, avoided

becoming a “perfectly clear” successor (and maybe even a Burns successor), and still

complied with the terms of the Purchase Agreement. Likewise, the Employer could

have prevented “perfectly clear” successorship from attaching if it had clearly

announced new terms and conditions to the Predecessor’s employees.49 Indeed, the

Purchase Agreement explicitly preserved its right to communicate with employees

about hiring and benefits, yet the Employer chose not to avail itself of that

opportunity. Instead of running the risk of losing the Predecessor’s experienced

employees and needing to hire replacements during a nationwide shortage of nurses,

the Employer silently adopted the Predecessor’s workforce as its own and allowed

employees to believe nothing would change.50 In short, the Employer had a clear

chance here to avoid a bargaining obligation over initial terms: it could have looked

beyond the predecessor’s workforce for hiring and it had the right to meet with

existing employees to announce initial terms that deviated from the preexisting

terms

ntly adopted the Predecessor’s workforce as its own and allowed

employees to believe nothing would change.50 In short, the Employer had a clear

chance here to avoid a bargaining obligation over initial terms: it could have looked

beyond the predecessor’s workforce for hiring and it had the right to meet with

existing employees to announce initial terms that deviated from the preexisting

terms. But the Employer made “the conscious decision” not to do either.51

The Employer argues that it cannot be a “perfectly clear” successor because the

Sale Order extinguished any obligation that the Employer be bound by the

Predecessor’s collective-bargaining agreement.52 But this defense misses the mark.

49 As noted above, however, the Region should also seek to overturn Spruce Up in this

case. See supra n.19.

50 See S & F Market Street Healthcare, 570 F.3d at 359 (holding that, “at bottom, the

‘perfectly clear’ exception is intended to prevent an employer from inducing possibly

adverse reliance on the part of employees it . . . lulled into not looking for other

work”).

51 Fall River Dyeing, 482 U.S. at 41.

52 While the plain language of the Sale Order appears broad enough to extinguish the

Employer’s obligations as a successor, such an outcome would run counter to the

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Even a “perfectly clear” successor is “not required as a legal matter to adopt their

predecessor employer’s collective-bargaining agreement.”53 Rather, it is only

required—as a statutory matter, not a contractual one—to maintain the status quo

until bargaining with the union to agreement or impasse.54

Further, the cases cited by the Employer in support of its position are inapposite.

For example, the Employer primarily relies on Local Joint Executive Board v

er to adopt their

predecessor employer’s collective-bargaining agreement.”53 Rather, it is only

required—as a statutory matter, not a contractual one—to maintain the status quo

until bargaining with the union to agreement or impasse.54

Further, the cases cited by the Employer in support of its position are inapposite.

For example, the Employer primarily relies on Local Joint Executive Board v. Hotel

Circle, Inc.,55 which held that “the unique features of labor agreements do not

overcome the plain language of the Bankruptcy Act” and that a debtor could reject an

“onerous and burdensome” collective-bargaining agreement. The Employer argues

that, by allowing a debtor to reject a collective-bargaining agreement, the court

implicitly sanctioned rejecting such agreements through “free and clear” sales as well.

But that decision predates the Supreme Court’s landmark decision in Bildisco,56

which was in turn abrogated by the Bankruptcy Amendments and Federal Judgeship

Act of 1984, which imposed a strict set of requirements on debtors seeking to reject

purposes of the Bankruptcy Code: to extinguish liabilities arising from claims against

the debtor arising before the debtor sells its assets. Thus, we construe the Sale

Order’s language more narrowly than its plain language might suggest—an

interpretation the Employer effectively acknowledges by bargaining with the Union

for a new collective-bargaining agreement as an ordinary Burns successor.

53 First Student, Inc., a Division of First Group America, 366 NLRB No. 13, slip op. at

3 (2018), enforced, 935 F.3d 604 (D.C. Cir. 2019).

54 Id. Cf. Litton Bus. Sys., Inc. v. NLRB, 501 U.S. 190, 206 (1991) (“Under Katz, terms

and conditions continue in effect by operation of the NLRA. They are no longer

agreed-upon terms; they are terms imposed by law, at least so far as there is no

unilateral right to change them.”).

55 613 F.2d 210 (9th Cir. 1980).

56 Bildisco, 465 U.S

at

3 (2018), enforced, 935 F.3d 604 (D.C. Cir. 2019).

54 Id. Cf. Litton Bus. Sys., Inc. v. NLRB, 501 U.S. 190, 206 (1991) (“Under Katz, terms

and conditions continue in effect by operation of the NLRA. They are no longer

agreed-upon terms; they are terms imposed by law, at least so far as there is no

unilateral right to change them.”).

55 613 F.2d 210 (9th Cir. 1980).

56 Bildisco, 465 U.S. at 525-26 (collective-bargaining agreements are executory

contracts that can be rejected pursuant to the then-existing bankruptcy laws, but

their special nature requires that bankruptcy courts apply a stricter standard than

the “business judgment” standard for rejection).

Case 19-CA-280611

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collective-bargaining agreements.57 Similarly, in Auto Workers v. Morse Tool, Inc.58

the district court denied a union’s appeal from a bankruptcy court decision allowing

the sale of a debtor’s assets “free and clear” of the collective-bargaining agreement,

but only on the basis of mootness. And while the bankruptcy court in In re Lady H

Coal Co.59 held that a debtor could sell its assets “free and clear” of a collective-

bargaining agreement even after failing to satisfy the strict requirements contained

in Section 1113 of the Bankruptcy Code, the court declined to make any findings of

fact or conclusions of law “as to objections raising successor liability based on other

bodies of federal law.”

The particular circumstances of this case make imposing a duty to bargain over

initial terms especially compelling. The Debtors did not file a motion pursuant to

Section 1113 to reject the Predecessor’s collective-bargaining agreement and thus

never met the strict requirements necessary to do so.60 Indeed, the Debtors failed to

give notice of the bankruptcy to the Union or the Board and, therefore, neither had

opportunity to object to the Debtors’ Sale Motion seeking to abrogate the collective-

bargaining agreement

ors did not file a motion pursuant to

Section 1113 to reject the Predecessor’s collective-bargaining agreement and thus

never met the strict requirements necessary to do so.60 Indeed, the Debtors failed to

give notice of the bankruptcy to the Union or the Board and, therefore, neither had

opportunity to object to the Debtors’ Sale Motion seeking to abrogate the collective-

bargaining agreement. Though it was technically the Debtors’ responsibility to notify

the Union of the bankruptcy “free and clear” sale under Section 363,61 the Employer’s

hands are not entirely clean either. As noted above, it clearly knew of the Union’s

57 See 11 U.S.C. § 1113 (requiring that debtor first take certain steps, such as

bargaining in good faith with the union over possible contract modifications, before

seeking rejection of a collective-bargaining agreement and setting forth specific

requirements for bankruptcy court to approve such rejection); see also In re Wheeling-

Pittsburgh Steel Corp., 52 B.R. 997, 998-99 (W.D. Pa. 1985) (describing amendments

to bankruptcy code in response to Bildisco), vacated on other grounds, 791 F.2d 1074

(3d Cir. 1986).

58 85 B.R. 666, 667 (D. Mass. 1988).

59 193 B.R. 233, 236 (Bankr. S.D.W. Va. 1996).

60 See 11 U.S.C. § 1113 (permitting rejection of a collective-bargaining agreement only

if the court finds that (1) the debtor proposed contract modifications to the union

necessary to permit the reorganization of the debtor; (2) the union refused to accept

such proposal without good cause; and (3) the balance of equities clearly favors

rejection of the labor agreement).

61 See 11 U.S.C. § 363(b)(1); Fed. R. Bankr. P. 6004(a); see generally 2 WILLIAM L.

NORTON III, NORTON BANKRUPTCY LAW AND PRACTICE § 44:18 (3d ed. 2008 & Supp.

2022) (for sale of property outside the ordinary course of business, proper notice of

transaction must be given to parties with interest in the property).

d (3) the balance of equities clearly favors

rejection of the labor agreement).

61 See 11 U.S.C. § 363(b)(1); Fed. R. Bankr. P. 6004(a); see generally 2 WILLIAM L.

NORTON III, NORTON BANKRUPTCY LAW AND PRACTICE § 44:18 (3d ed. 2008 & Supp.

2022) (for sale of property outside the ordinary course of business, proper notice of

transaction must be given to parties with interest in the property).

Case 19-CA-280611

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representational status and the collective-bargaining agreement but said nothing

until after the sale went through.

Based on the foregoing, it is wholly appropriate to seek relief under the Act for

the Employer’s failure to honor its obligation to bargain over initial terms of

employment after adopting the Predecessor’s workforce as its own.

II.

Alternative Burns Theory

Alternatively, even assuming the Employer was not a “perfectly clear” successor,

it still had an obligation to bargain with the Union before implementing unilateral

changes that were not announced as part of its initial terms.

While an ordinary Burns successor is free to set initial terms and conditions of

employment without bargaining with the union, a bargaining obligation then attaches

as to subsequent changes the successor wishes to make.62 In 301 Holdings, LLC,63

the successor set initial terms by telling employees that work schedules would

change, but omitted the fact that it would also reduce wages and discontinue health

and welfare benefits.64 The Board found that the successor had a duty to bargain with

the union over these unannounced changes because, by telling employees that

schedules would change, the successor implied “that all other terms and conditions

would remain the same” and “could not thereafter unilaterally depart from those

other terms and conditions.”65 Accordingly, 301 Holdings stands for the principle that

“when a Burns successor announces a limited number of specific changes from the

predecessor’s terms and conditions of employment, it is those changes that define the

perm

he successor implied “that all other terms and conditions

would remain the same” and “could not thereafter unilaterally depart from those

other terms and conditions.”65 Accordingly, 301 Holdings stands for the principle that

“when a Burns successor announces a limited number of specific changes from the

predecessor’s terms and conditions of employment, it is those changes that define the

permissible setting of initial terms: employees are entitled to conclude that all other

terms will remain the same.”66 Thus, even where a successor lawfully sets initial

62 See, e.g., Banknote, 315 NLRB at 1044 n.9, 1049 (ordinary Burns successor was not

privileged to unilaterally change health benefits after it commenced operations

because those changes were inconsistent with pre-takeover promise to continue

benefits as-is for 60 days).

63 340 NLRB 366 (2003).

64 Id. at 367.

65 Id. at 368.

66 Paragon Systems, Inc., 362 NLRB 1385, 1388 n.2 (2015) (Member McFerran,

dissenting) (disagreeing with majority as to whether 301 Holdings was

distinguishable). Notably, the Paragon Systems majority did not disagree with

Member McFerran’s characterization of the principle established in 301 Holdings so

much as whether the announcement in that case reasonably encompassed a specific

Case 19-CA-280611

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terms, it may not unilaterally implement other changes that were not announced as

part of initial terms.67

Here, the Employer held a post-transition meeting where it announced that

employees could only carry over 40 hours of paid time off and that they would lose any

balance over that amount on August 1. But even assuming this meeting occurred

upon commencement of operations such that the announced caps on paid time off

were part of initial terms,68 the Employer did not convey that it would be

implementing the other changes it subsequently made

g where it announced that

employees could only carry over 40 hours of paid time off and that they would lose any

balance over that amount on August 1. But even assuming this meeting occurred

upon commencement of operations such that the announced caps on paid time off

were part of initial terms,68 the Employer did not convey that it would be

implementing the other changes it subsequently made. It did not announce that it

would stop cashing out lost paid time off, reduce paid time off accrual rates, or

eliminate anniversary wage increases. Nor did the Employer announce that it would

cut employees off from their Union by refusing to process grievances and ceasing dues

checkoff. Instead, the Employer simply let employees discover these changes when

they received their paychecks. Because it did not include these unilateral changes to

terms and conditions of employment as part of its initial terms, the Employer was not

privileged to make them without first bargaining with the Union.

To the extent the Employer may argue that it acted lawfully as to any changes

implemented prior to the Union’s bargaining demand, we would reject such a defense

because its bargaining obligation attached immediately upon its takeover of

operations. Although Fall River Dyeing envisioned that a union would need to make a

bargaining request before a bargaining obligation could attach, this requirement

developed in circumstances where there was a “start-up period by the new employer

while it gradually builds its operations and hires employees.”69 Such a requirement is

change such that the change was part and parcel of the Burns successor’s lawfully-

imposed initial terms. Id. at 1386

d to make a

bargaining request before a bargaining obligation could attach, this requirement

developed in circumstances where there was a “start-up period by the new employer

while it gradually builds its operations and hires employees.”69 Such a requirement is

change such that the change was part and parcel of the Burns successor’s lawfully-

imposed initial terms. Id. at 1386.

67 Compare Windsor Convalescent Home, 351 NLRB at 982 n.31 (even assuming

successor’s letter to employees was a sufficiently clear announcement of new

employment terms such that it was not a “perfectly clear” successor, it still had an

obligation to bargain over any unannounced terms, including dismantling of bulletin

board and issuing new handbooks), and Specialty Envelope, 321 NLRB at 832 (though

successor lawfully set its own initial terms, change in attendance policy announced

one month after takeover was unlawful), with Paragon, 362 NLRB at 1386-87 (finding

reduction in shift-transition time to be lawful initial term where it was reasonably

encompassed by announcement that shift schedules would be subject to operational

needs).

68 If the Region determines that the paid time off caps were not announced shortly

after takeover, even that announced change would be unlawful because it would no

longer be considered part of “initial terms.”

69 Fall River Dyeing, 482 U.S. at 47.

Case 19-CA-280611

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conditions of employment

encompassed by announcement that shift schedules would be subject to operational

needs).

68 If the Region determines that the paid time off caps were not announced shortly

after takeover, even that announced change would be unlawful because it would no

longer be considered part of “initial terms.”

69 Fall River Dyeing, 482 U.S. at 47.

Case 19-CA-280611

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conditions of employment. Although Lincoln Lutheran and Valley Hospital involved

an employer’s conduct after an existing collective-bargaining agreement had expired,

the principle that an employer may not alter preexisting terms and conditions of

employment without first bargaining with the union applies with equal force in the

context of “perfectly clear” Burns successorship.76

Here, the Employer is a “perfectly clear” successor that was obligated to bargain

to agreement or impasse before setting initial terms of employment and making any

changes thereafter.77 Although the Predecessor’s collective-bargaining agreement

provided for dues checkoff, the Employer deviated from that status quo by ceasing the

collection and remittance of dues to the Union and did so without consulting the

Union.78 Not only that, the Employer refused to discuss the Union’s renewed

76 See Specialty Envelope, 321 NLRB at 831 n.8 (1996) (reversing ALJ’s finding that a

“perfectly clear” successor violated Section 8(a)(5) by ceasing dues checkoff based on

view that “a dues-checkoff provision is solely a creature of the contract”) (citing

Bethlehem Steel Co., 136 NLRB 1500 (1962), enforced in relevant part, 320 F.2d 615

(3d Cir. 1963)); Nexeo Solutions, 364 NLRB at 573, 582 (“perfectly clear” successor

unlawfully implemented unilateral changes in unit employees’ preexisting terms

when it set initial terms); Cadillac Asphalt Paving, 349 NLRB at 9-11 (“perfectly

clear” successor failed to continue terms maintained by predecessor at the time of

succession)

RB 1500 (1962), enforced in relevant part, 320 F.2d 615

(3d Cir. 1963)); Nexeo Solutions, 364 NLRB at 573, 582 (“perfectly clear” successor

unlawfully implemented unilateral changes in unit employees’ preexisting terms

when it set initial terms); Cadillac Asphalt Paving, 349 NLRB at 9-11 (“perfectly

clear” successor failed to continue terms maintained by predecessor at the time of

succession).

77 See Nexeo Solutions, 364 NLRB at 581, 582 n.38 (Board “decisions have

consistently interpreted Burns as imposing a requirement that a “perfectly clear”

successor bargain with the incumbent union to agreement or impasse before

establishing initial terms; no reviewing court has disagreed”); Creative Vision

Resources, 364 NLRB at 1301 n.8, 1305 (in light of “perfectly clear” successor finding,

unilateral changes implemented on or after first day of operations were unlawful).

78 Although the Predecessor had ceased deducting and remitting dues, the result of a

change in payroll providers that occurred before the sale of its assets, the Union filed

a grievance over the failure and the Union and the Predecessor were working to

remedy the issue at the time the Employer took over operations. The Union then re-

filed its dues checkoff grievance with the Employer but, unlike the Predecessor, it

refused to respond to the grievance. Because the Union was making efforts to ensure

that the Predecessor resumed dues checkoff, persisted in these efforts after the

Employer took over operations, and the Employer was clearly aware of these efforts,

dues checkoff was a term and condition of employment that the Employer was not

free to unilaterally change. See Jersey Juniors, Inc., 230 NLRB 329, 334 (1977) (where

predecessor acknowledged obligation to make pension contributions but was unable to

do so because of financial inability, union was making efforts to collect such

contributions, and successor was aware of those efforts, successor could not

“unilaterally disavow observance of such a term of employment”).

free to unilaterally change. See Jersey Juniors, Inc., 230 NLRB 329, 334 (1977) (where

predecessor acknowledged obligation to make pension contributions but was unable to

do so because of financial inability, union was making efforts to collect such

contributions, and successor was aware of those efforts, successor could not

“unilaterally disavow observance of such a term of employment”).

Case 19-CA-280611

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grievance regarding dues checkoff, instead insisting on bargaining over a dues-

checkoff arrangement as part of a new collective-bargaining agreement. The

Employer’s discontinuation of dues checkoff cut employees off from their chosen

representative at a time when the Union and employees were in a “peculiarly

vulnerable position.”79 Accordingly, this case would be a good vehicle to argue for a

return to Lincoln Lutheran.

For the foregoing reasons, the Region should issue complaint, absent settlement,

concerning the unilateral changes set forth above, seek to overrule Spruce Up, and, if

appropriate,80 urge the Board to overturn Valley Hospital.

/s/

R.A.B.

ADV.19-CA-280611.Response.Arcadia Medical Resort of Talbot

cc: Injunction Litigation Branch

79 Fall River Dyeing, 482 U.S. at 39.

80 See supra n.73.

(b) (6), (b) (7