Gary R. Pannone

Gary R. Pannone

March 28, 2022 10:25 AM

When a buyer decides to acquire a unionized business that is subject to the terms of a collective bargaining agreement (“CBA”), it is important for the buyer to take steps prior to the closing so that it can protect its rights vis-à-vis the unionized employees of the seller.

Structuring the Transaction

Structuring the transaction as a stock acquisition versus an asset transaction could make a difference for the buyer as it relates to the status of the seller’s obligations to the union. If the acquisition is structured as a stock transfer, the acquiring company “steps into the shoes” of the target and is obligated to abide by the terms of the existing collective bargaining agreement. This means that the buyer is not able to change the terms and conditions of employment for the employees covered by the existing CBA for the remaining term of the union agreement. If, however, the acquisition is structured as an asset transaction, it is possible that the acquiring entity may not be obligated to assume the existing CBA, or even recognize the union.

In an asset transaction, the buyer may be obligated to recognize and bargain with the predecessor’s union under the following circumstances: (1) the majority of the company’s workforce was previously employed by the seller, and (2) there is substantial continuity of the two companies’ business operations. If the buyer is not acquiring the employees as part of the transaction, or union-represented employees of the seller will be merged with the buyer’s group of employees, it is arguable that there may not be any continued obligations between the buyer and the union.

Important Questions & Considerations

One of the determinants as to whether a buyer is obligated to recognize the seller’s union as the collective bargaining representative of employees is the degree to which the buyer has hired the seller’s employees and continues to operate the business as the seller did. In other words, is there substantial continuity of business at the new business? If the buyer hires none or a small minority of the seller’s employees, there could be an argument that the buyer has no obligation to recognize the union because the buyer is not a successor to the seller. There are a number of factors that are taken into account in determining whether a buyer in an asset purchase is a successor, including:

• what percentage of the seller’s employees are hired by the buyer;• whether the wages, benefits and working conditions are different from those of the seller;• whether the equipment and products manufactured by the buyer are the same as those of the seller;• whether management has changed, and

• the amount of integration between the seller’s other employees and the employees hired to work in the purchased facility.

If the buyer’s business is substantially different than the seller’s business and the employees are performing different jobs, there also may not be an obligation for the purchaser to recognize the union. It is important for the buyer to carefully analyze how it intends to operate well before the company takes over the operations, so it can potentially make strategic decisions and not inadvertently waive any rights.

Even in situations in which the buyer becomes the successor for the seller’s employees, the buyer generally has the right to elect, not adopt, the CBA that was in place between the seller and the union. Instead, the purchaser may set different initial terms and conditions of employment and then bargain with the union for a new CBA. Taking this step is important in that the CBA is the contract that governs the terms and conditions of the bargaining unit employees’ employment. The buyer will want to craft a CBA specific to their business and operations, not the seller’s.

Buyer’s Risks of Being a Successor

It is important to note that the buyer could lose its right to establish terms and conditions different from those contained in the predecessor’s CBA if the buyer is deemed a successor to the seller as it relates to the CBA. This could occur if the buyer misleads the seller’s employees into believing they will be retained or hired after the acquisition without changes to their wages, hours, or terms and conditions of employment.

In this case, it could be determined that the buyer has waived its right to establish new terms and conditions of employment and is obligated to follow the predecessor’s CBA as the status quo until the company can potentially negotiate new terms. To avoid being considered a successor to the seller as it relates to the terms of the CBA, the buyer should make clear that it will not be adopting the existing CBA, but instead, that any offers of employment post-acquisition will be under new terms and conditions.

Special care should be taken at every step of the transaction, including in the transaction documents, in all announcements and employee communications, and in any offer letters or hiring documents provided to the employees. The buyer should be careful in deciding to adopt the terms of the seller’s CBA as it relates to the impact over time from a financial and an operations perspective.

Evaluating the Existing CBA & Negotiating a New CBA

An important starting point is to evaluate the CBA’s economic provisions, including wages, bonuses and benefits. Even if the employees’ current wages are not higher than what the company is willing to pay, many CBAs include automatic annual increases with little or no consideration for employee performance. There can also be significant costs associated with medical benefits and other benefits, especially if the company does not have the ability under the CBA to change those benefits mid-contract. If there is an existing pension plan, the employer also would be responsible for any required contributions thereunder.

Possibly an even larger liability relates to multi-employer pension plans. Many multi-employer pension plans are underfunded, and employers that withdraw can be responsible for significant withdrawal liability costs. This alone would be reason to not adopt the predecessor’s CBA. A company should also strongly weigh whether the CBA’s noneconomic provisions fit with its own specific business and operations. Important provisions to consider include the CBA’s procedures regarding how employees are promoted, how overtime is assigned, employee hiring and layoffs, employee grievances and arbitration, company neutrality provisions, no strike clauses, subcontracting and management rights provisions.

Once a CBA is in place, it establishes all of these items for the term of the CBA, which is typically three to five years. Furthermore, the provisions then serve as the starting point for the next CBA negotiation, and it can be extremely difficult to reduce or pull back on provisions once they are established. Because of this, most companies will want to invest the resources to negotiate a new CBA at the time of the acquisition, rather than adopting the predecessor’s CBA.

Deciding to Move Forward as Union vs. Non-Union

It is important for the buyer to weigh the differences in operating a union versus non-union facility as it relates to everyday operations relative to interactions with the bargaining unit employees. One of the main differences in operating a unionized facility is that often, the company has less flexibility with a number of matters. For instance, in a non-union setting, the company has wide discretion in hiring, promotions and employee terminations. In union facilities, hiring decisions can be limited by recall rights of previously laid off employees or by requirements to first offer the position to an existing bargaining unit employee.

Similarly, many CBAs have strict procedures on how employees may be promoted. Where the company otherwise might be able to promote based on merit, many CBAs rely on seniority. Employee terminations also are typically limited. Generally, in the non-union setting, employees are at-will, and the company has wide discretion to act as it sees fit. Most CBAs, though, restrict terminations to those “for cause” and violations of established work rules. This can make it difficult to dismiss underperforming employees.

Although there are many unionized facilities with excellent employee-management relationships, it is not uncommon for

an adversarial “us versus them” culture to arise, especially during contract negotiations, in situations of discipline and terminations, and even with larger business decisions.

Depending on the worksite, employee grievances can be commonplace, and the handling of these grievances often requires multiple steps of management involvement and review, written responses and appeals. Failure to correctly follow the steps can result in a decision against the company and in favor of the employee. Companies also have to be mindful of the precedent created by grievance and arbitration decisions, as final decisions can arguably govern similar matters in the future.

In Closing

When acquiring a unionized business, the buyer must be mindful of these differences. Even outside the terms of the CBA, operating with a union can affect how the company communicates, interacts and even motivates its workforce. Failure to consider the differences before the transaction is closed could result in unnecessary tension in the workforce that have long-lasting effects on the successful operation of the business. For further information about buying or selling a business with or without a unionized workforce, or other business matters, please contact PLDO Managing Principal Gary R. Pannone at 401-824-5100 or email

Related Articles

From Russia, With Law

by Best Lawyers

The bite of U.S. sanctions aside, Cleary Gottlieb partner Yulia Solomakhina sees great promise for commerce and the law as Russia increasingly embraces markets and technology.

An Interview With Cleary Gottlieb

How Corporate Law in France Is Navigating the Trade Wars

by Best Lawyers

Bertrand Cardi and Cyril Bonan discuss M&A, protectionism, and the trade wars' impact in France.

An Interview With Darrois Villey Maillot Broc

Merging Business and Responsibility: Gilbert + Tobin

by Best Lawyers

Attorneys Costas Condoleon and Sam Nickless from the Australian firm Gilbert + Tobin discuss the firm's 2020 award, how Australia’s Corporate Law practice is preparing for the world’s transforming economic landscape, and the international community’s demands of its businesses.

Gilbert + Tobin 2020 LFOTY Interview

Protecting High-level Executives With the Apex Doctrine

by Sara Collin

The Apex Doctrine, developed to shield high-level executives from inappropriate depositions, is a beneficial asset to lawyers and clients, at least in the states where it’s been adopted.

Apex Doctrine Protects Executives

Trending Top Five: Critical Corporate Components for 2022

by Justin Smulison

It’s no longer “business as usual” for most of Corporate America. With a growing list of challenges facing the legal and financial health of many companies, we talked to several major General Counsel about the biggest areas in which businesses should remain vigilant.

Corporate Advice From General Counsel

Announcing the 2022 Best Lawyers: The Corporate Law and Commercial Litigation Issue

by Best Lawyers

The first edition of Best Lawyers: The Corporate Law and Commercial Litigation Issues features thought leadership articles from attorneys around the nation, as well as listings in more than 70 practice areas.

Corporate and Commercial Issue

Will Recent Boeing Settlements Create Tailwinds In Corporate Law?

by Justin Smulison

Prominent litigation against Boeing is setting a precedent of accountability, professionalism and commitment among company boards as well as ushering ESG further into the courtroom to help monitor and prevent safety issues.

Recent Boeing Settlements and Corporate Law

Hollywood Union Strike Threat is Playing Out Under Different Environment

by John Ettorre

Workers in Hollywood are threatening to strike if a deal with studios cannot be reached.

Hollywood Workers Threatening to Strike

Working With Changes

by Best Lawyers

Carolyn Pugsley, the Joint Global Head of Practice for Corporate, Australia at Herbert Smith and Freehills, discusses policy changes affecting the M&A market in Australia as well as the impact of the pandemic on the practice.

An Interview With Herbert Smith and Freehills

Leading the Evolution in Workplace Law

by Best Lawyers

Colin G.M. Gibson discusses workplace safety, issues such as raising the minimum wage, and job-protected leaves. 

An Interview With Harris & Company

How Technological Advances Can Help Corporate Law

by Best Lawyers

Dieter Gericke and Benjamin Leisinger discuss how being aware of technological advances helps them provide corporate financial advice.

An Interview With Homburger

How This Firm Is Shaping the Economic Future of Ukraine

by Best Lawyers

Denis Lysenko discusses how AEQUO has helped build a new business environment.

An Interview With AEQUO

How Russia's Global Policy Is Impacting Mergers and Acquisitions

by Best Lawyers

Alexei Zakharko and Mathieu Fabre-Magnan disscuss how they are preparing for emerging trends in the next couple of years.

An Interview With Dentons Russia

Hengeler Mueller on How German Firms Can Compete in the Global M&A Arena

by Best Lawyers

Germany's 2020 “Law Firm of the Year” honoree in Mergers and Acquisitions Law

An Interview With Hengeler Mueller

A Globalized Sprint: How Japan’s Insolvency Practice Is Expanding and Preparing for the Future

by Best Lawyers

Emerging legal trends are a relished opportunity for reorganization, while natural disasters present an opportunity for innovation.

Interview with Nishimura & Asahi Law Firm

Why Cariola Díez Pérez-Cotapos Developed Its Own Legal Tech

by Best Lawyers

Juan Pablo Matus of Cariola Díez Pérez-Cotapos, 2019 "Law Firm of the Year" award for Corporate and M&A Law in Chile, discusses his firm's joint venture with Cognitiva in creating Lexnova, a legal AI system.

Cariola Díez Pérez-Cotapos Interview

Trending Articles

The Real Camille: An Interview with Johnny Depp’s Lawyer Camille Vasquez

by Rebecca Blackwell

Camille Vasquez, a young lawyer at Brown Rudnick, sat down with Best Lawyers CEO Phillip Greer to talk about her distinguished career, recently being named partner and what comes next for her.

Camille Vasquez in office

Announcing the 2022 Best Lawyers® in the United States

by Best Lawyers

The results include an elite field of top lawyers listed in the 28th Edition of The Best Lawyers in America® and in the 2nd Edition of Best Lawyers: Ones to Watch in America for 2022.

2022 Best Lawyers Listings for United States

Famous Songs Unprotected by Copyright Could Mean Royalties for Some

by Michael B. Fein

A guide to navigating copyright claims on famous songs.

Can I Sing "Happy Birthday" in Public?

Best Lawyers: Ones to Watch – The Future of Legal Talent Looks Bright

by Justin Smulison

Best Lawyers: Ones to Watch is launching its second edition in the United States, and after talking with both a company leader and esteemed lawyers on the list, the importance of this prestigious list is evident.

Best Lawyers: Ones to Watch in America 2022

Johnny Depp and Amber Heard: The Best Lawyers Honorees Behind the Litigation

by Gregory Sirico

Best Lawyers takes a look at the recognized legal talent representing Johnny Depp and Amber Heard in their ongoing defamation trial.

Lawyers for Johnny Depp and Amber Heard

Why Cariola Díez Pérez-Cotapos Developed Its Own Legal Tech

by Best Lawyers

Juan Pablo Matus of Cariola Díez Pérez-Cotapos, 2019 "Law Firm of the Year" award for Corporate and M&A Law in Chile, discusses his firm's joint venture with Cognitiva in creating Lexnova, a legal AI system.

Cariola Díez Pérez-Cotapos Interview

Choosing a Title Company: What a Seller Should Expect

by Roy D. Oppenheim

When it comes to choosing a title company, how much power exactly does a seller have?

Choosing the Title Company As Seller

Announcing the 2022 "Best Law Firms" Rankings

by Best Lawyers

The 2022 “Best Law Firms” publication includes all “Law Firm of the Year” recipients, national and metro Tier 1 ranked firms and editorial from thought leaders in the legal industry.

The 2022 Best Law Firms Awards

Announcing the 2022 Best Lawyers in Canada™

by Best Lawyers

The results include an elite field of top lawyers listed in the 16th Edition of The Best Lawyers in Canada™ and 1st Edition of Best Lawyers: Ones to Watch in Canada.

Announcing the 2022 Best Lawyers in Canada™

Education by Trial: Cultivating Legal Expertise in the Courtroom

by Margo Pierce

The intricacies of complex lawsuits require extensive knowledge of the legal precedent. But they also demand a high level of skill in every discipline needed to succeed at trial, such as analyzing technical reports and deposing expert witnesses.

Cultivating Legal Expertise in the Courtroom

Announcing The Best Lawyers in France™ 2023

by Best Lawyers

The results include an elite field of top lawyers and firms from France.

Blue, white and red strips

Wage and Overtime Laws for Truck Drivers

by Greg Mansell

For truck drivers nationwide, underpayment and overtime violations are just the beginning of a long list of problems. Below we explore the wages you are entitled to but may not be receiving.

Truck Driver Wage and Overtime Laws in the US

Caffeine Overload and DUI Tests

by Daniel Taylor

While it might come as a surprise, the over-consumption of caffeine could trigger a false positive on a breathalyzer test.

Can Caffeine Cause You to Fail DUI Test?

Announcing the 2022 Best Lawyers™ in Australia

by Best Lawyers

The results include an elite field of top lawyers and firms.

Announcing the 2022 Best Lawyers™ in Australi

Announcing The Best Lawyers in Australia™ 2023

by Best Lawyers

The results include an elite field of top lawyers and firms from Australia.

The Best Lawyers in Australia™ 2023

Announcing The Best Lawyers in The United Kingdom™ 2023

by Best Lawyers

The results include an elite field of top lawyers and firms from the United Kingdom.

The Best Lawyers in The United Kingdom 2023