What is the effect for an Employer who is a new purchaser of a company with a union contract in asset purchase or stock purchase
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1.If an employer has a union contract without a successorship clause, whether a new purchaser must honor the union contract depends on the nature of the sale and what happens afterward. Here's a breakdown based on U.S. labor law under the National Labor Relations Act (NLRA) and relevant case law:
2. A. Asset Sale (Only the Assets Are Purchased)
3.General Rule: In an asset sale, the buyer is NOT automatically bound by the seller’s collective bargaining agreement (CBA).
4.However, under successorship doctrine (see NLRB v. Burns International Security Services, 406 U.S. 272 (1972)), if the buyer:
5.Retains a majority of the predecessor’s workforce, and
6. Continues a substantially similar business,then the buyer is a "successor employer" and must recognize and bargain with the union—but does not have to adopt the existing contract.
7.Key Point: The buyer must not explicitly or implicitly agree to assume the union contract unless they want to.
8. B. Stock Sale (Ownership of Company Changes, Not the Entity Itself)
9.In a stock sale, the legal entity remains the same, only the ownership changes.
10.The existing CBA and union relationship remain in effect because the employer is still the same legal entity.
11.So, the buyer cannot avoid the union contract by purchasing the business through a stock transaction.
12. If an Employer has any issues regarding the purchase of a company with a union contract , or any other labor relations issue at the NLRB, please contact Sanford Rudnick JD At 1-800-326
3046 sandy@rudnickpro.com or www.Theunionexpert.com
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