Key Takeaways:
- A divided panel of the D.C. Circuit held that the NLRB cannot prevent a successor employer from challenging an incumbent union’s majority support for up to one year after a change in ownership.
- The successor bar rule, which had been in its current form since 2011, is no longer valid in the D.C. Circuit following the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo, which eliminated Chevron deference.
- Buyers of unionized businesses should now treat union status, employee support, and available evidence as part of their transaction due diligence from the outset, rather than assuming a mandatory one-year recognition period.
The U.S. Court of Appeals for the D.C. Circuit has invalidated the National Labor Relations Board’s (NLRB or Board) “successor bar,” which required certain buyers of unionized businesses to recognize and bargain with the incumbent union for up to one year and prohibited the employer from unilaterally withdrawing recognition based on a claimed loss of majority support.
In Hospital Menonita de Guayama, Inc. v. NLRB, the 2-1 majority held that the successor bar conflicts with the National Labor Relations Act’s (NLRA) protections for employee choice and majority rule. The decision followed a remand from the U.S. Supreme Court directing the D.C. Circuit to reconsider its earlier approval of the rule in light of Loper Bright Enterprises v. Raimondo.
The decision does not eliminate the broader successorship doctrine. Instead, it returns to purchasers of unionized operations a valuable option and underscores the need to address labor issues early in the transaction process.
How Did the NLRB Successor Bar Work Before It Was Invalidated?
In 2011, the Board adopted the current iteration of the successor bar. The rule applied when a new employer did the following:
- Acquired a business in an asset purchase (as opposed to a stock purchase).
- Hired a sufficient number of the predecessor’s employees so that the number of employees in the operation after purchase included a majority of the seller’s prior workforce.
- Continued substantially the same operations, all of which generally qualified the buyer as a successor employer.
As a successor employer, the buyer was required to recognize and bargain with the incumbent union for a “reasonable period,” which could last up to one year. During that period, neither the employer nor the employees nor even a competing union could challenge the incumbent union’s presumed majority status. The NLRB’s presumption that the majority of employees in the operations after purchase still supported the incumbent union was irrebuttable, requiring the buyer to recognize and bargain with that union after the transaction.
How Did the Dispute Arise?
Hospital Menonita became the successor employer at a unionized hospital. It initially recognized the union but later received evidence that it believed supported the view that a majority of employees in each of the hospital’s five bargaining units no longer wanted union representation. In one unit, all employees reportedly rejected the union.
Based on this evidence of lack of majority support after the transaction, the hospital stopped bargaining with the incumbent union and withdrew recognition. The Board rejected the employer’s evidence as irrelevant and applied the successor bar. The Board then found that the hospital had committed unfair labor practices by refusing to bargain with the incumbent union.
In early 2024, the D.C. Circuit initially upheld the Board’s decision, which adopted a “deferential analysis” of the successor bar that relied on the Chevron doctrine. However, in summer 2024, the Supreme Court overruled Chevron deference and ended the doctrine’s requirement that courts yield to agency interpretation. Upon the hospital’s appeal to the Supreme Court, the Supreme Court vacated the original D.C. Circuit judgment and directed the D.C. Circuit to take “further consideration in light of Loper Bright ….”
Why Did the D.C. Circuit Reject the NLRB Successor Bar After Loper Bright?
On remand, the majority concluded that Loper Bright required the court to decide for itself whether the NLRA authorized the successor bar. It could no longer uphold the rule simply because the Board had made a “reasonable policy choice.”
Applying its independent judgment, the court identified two fundamental problems with the rule.
First, Sections 7 and 9 of the NLRA protect employees’ right to choose whether to bargain collectively and require an exclusive bargaining representative to have majority support. The successor bar suspended those protections by requiring an employer to bargain with an incumbent union even when the union indisputably lacked majority support.
Second, Congress expressly created only a single one-year restriction on challenges to a union’s representative status: the election bar that follows a valid Board-certified election. The majority reasoned that the Board could not create an additional restriction tied to a change in ownership when Congress did not include one in the statute.
The court also rejected the Board’s reliance on industrial stability. In the majority’s view, the successor bar promoted union stability at the expense of the employee rights Congress chose to protect. General policymaking authority could not overcome the absence of statutory authorization.
Consistent with its reasoning, the court granted the hospital’s petition, denied enforcement of the Board’s order, and remanded the case back to the Board so the hospital could present its evidence that the union lacked majority support. It chose not to address whether the hospital had already established a lawful basis for withdrawing recognition.
What Does the Decision Mean for Employers Acquiring Unionized Businesses?
With this decision, successor employers have regained a tool to challenge majority support and protect employee freedom and majority rule in collective bargaining. However, the decision should not be read as allowing purchasers to disregard incumbent unions whenever a business changes hands. A buyer may still inherit an obligation to recognize and bargain with an incumbent union. The difference is that, under the D.C. Circuit’s decision, the buyer may not be automatically prohibited from presenting objective evidence that the union has lost majority support.
Going forward, a prospective buyer should continue to identify each bargaining unit, how and when the union obtained recognition, the status and expiration date of any collective bargaining agreement, any recent elections or petitions, and any pending unfair labor practice proceedings. Buyers should also ensure that they have access to the information needed to evaluate labor obligations before making recognition or integration decisions.
The decision does not make withdrawing recognition risk-free. An employer that acts without sufficient objective evidence may still face refusal-to-bargain charges.
Potential buyers and successor employers can now plan for multiple possible outcomes: continued recognition and bargaining with the incumbent union, or a carefully supported challenge to the union’s majority status.
Notably, this decision by the D.C. Circuit is the first federal appellate court to address the successor bar since the Supreme Court’s decision in Loper Bright. The immediate effect of this decision is therefore clearest in the D.C. Circuit. Employers should not assume that the rule will be treated uniformly in every jurisdiction. While it is expected that most federal appellate courts will likewise reject the successor bar, this is not a guarantee. It is possible that certain appellate courts may retain the successor bar or adopt limited variations.
For employers considering the acquisition of a unionized business, the principal takeaway is practical. The successor bar should no longer be treated as an unavoidable one-year period during which majority support is legally irrelevant. Union status, employee support, and the evidence available to the buyer should instead become part of the transaction analysis from the beginning. Potential buyers and successor employers alike should evaluate their options to utilize this regained tool.
For more information on the D.C. Circuit’s decision invalidating the NLRB’s successor bar and how it could affect your business, please contact one of the authors.
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