Labor Unions

Acquiring a Unionized Business

Buying a business is a complicated process that involves a broad range of issues and concerns. But what if the business you are acquiring has a union workforce?

Congratulations on the purchase of your business.

If your workers aren't unionized, you're free to evaluate your new workforce, retaining only the best and brightest for your new venture. If your workers are unionized, you should be free to do pretty much the same thing, right? After all, you didn't have anything to do with the negotiation of the current union contract, so you can pretty much do whatever you think is necessary to turn a profit.

Unfortunately, it doesn't always work that way. If you did your job during the due diligence stage, you should know about the current union contract and its implications after the sale. In some cases, you will have the freedom to reshuffle the workforce - but in some cases, you won't.

According to the National Labor Relations Act, new owners are subject to a test called "substantial continuity". If your ownership is deemed to continue the arrangement that existed under the previous owner, you may be forced to honor the union contract. Here's what "substantial continuity" is all about and how it can affect your rights as the new owner of the company.

Substantial Continuity Overview

The substantial continuity test revolves around two issues: Assets and operations. The test is designed to determine whether a different employer - using the same assets, processes, and people - is continuing to run the business is a way that is essentially the same as his predecessor. If so, the union agreements created by the previous employer may continue to be relevant under the new regime. But if the new employer has significantly altered the business or its business model, the current contract can be nullified, necessitating either the creation of a new contract or a non-union workplace.

What Qualifies As Substantial Continuity?

If the successor acquires most of the former owners assets, produces the same products, maintains the same job descriptions (or job classes), and leaves the management structure unaltered, substantial continuity exists and the new owner will likely have to recognize current contractual obligations.

What Is Excluded from Substantial Continuity?

If there is a significant period of time between owners, a change in sales or marketing, a change in trade name, or a reduction in the labor force compared to the previous owner, the new owner may be exempt from substantial continuity and may be free to ignore union contracts that were negotiated by his predecessor.

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