NLRB Advice Memoranda, Arcadia Medical Resort of Parkside, National Labor Relations Board, (Apr 5, 2022)

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] We conclude that the Employer is a "perfectly clear" successor that forfeited the right to set initial employment terms. Given that the Employer is a "perfectly clear" successor under extant 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. [2] Finally, the Region should solicit an amended charge alleging that the Employer unilaterally ceased dues checkoff and, if warranted, use this case to argue that the Board should overrule Valley Hospital Medical Center [3] and return to the holding of Lincoln Lutheran of Racine. [4]

FACTS

Prestige Care Center (Union Gap), Inc. d/b/a Prestige Care and Rehabilitation - Parkside ("the Predecessor") operated a nursing home located in Union Gap, Washington, and had a collective-bargaining agreement with Local 775 of the Service Employees International Union ("the Union") effective January 15, 2020 through December 31, 2021. The agreement covered a unit that included licensed practical nurses, certified nursing assistants, registered nurses, and restorative aides. In 2020, Goldner Capital Management, LLC ("Goldner") approached the Predecessor with an interest in buying the facility. Goldner created a limited liability corporation with the name Prest OP LLC ("the Employer"), to own and manage the facility, rebranding it as a "medical resort" doing business as Arcadia Medical Resort of Parkside.

On January 4, 2021, [5] pursuant to Article 26 of the collective-bargaining agreement, the Predecessor's administrator gave the required 60-day notice of sale of the facility to the Union's representative. On February 25, the Employer posted a "Welcome Letter" next to the timeclock. It remained there through May 21, the date on which the Employer assumed operations. The letter began, "Welcome to Goldner Capital Management and Arcadia Healthcare of Parkside! We are thrilled to have you join the Arcadia team …. Goldner Capital Management oversees 28 facilities across 5 states and [we] are excited to welcome you to the family!" The letter also announced, in relevant part:

About your Position. We look forward to welcoming each one of you to our family, we are looking forward to getting to know the facility, its individual needs, and operations and of course the front-line staff that makes all this wonderful skilled nursing care possible.

Pay Day. You will be paid your current rate by the facility every two weeks …. If there are any discrepancies or mistakes, we encourage you to bring this to your HR representatives' attention right away so that we may investigate and rectify where needed.

Benefits. We are in the process of putting together a benefit package that we hope you will be pleased with. Your HR representative and insurance broker will answer all questions or concerns you might have regarding benefits during open enrollment. All employees who are currently employed with the facility will be eligible day 1.

On Behalf of Goldner Capital Management and Arcadia Leadership, Welcome Aboard! [6]

Aside from the Welcome Letter, the Employer did not communicate with employees prior to assuming operations. However, sometime prior to the transition, the Predecessor's management convened a meeting with employees to inform them about the transition. The management indicated that there would be new owners but assured employees that they would not be fired. They also indicated that there would be no application process such that everyone working at the facility would be automatically hired by the new owners. Finally, the Predecessor's management was unable to answer certain employee questions, such as whether anything would be changing and whether the Union would still represent employees.

On March 19, the Union representative emailed the Predecessor's administrator, asking to be connected to the facility's new owners. The administrator provided an email address for a contact at Goldner who was coordinating human relations functions on behalf of the new owner. On March 24, the Union representative emailed the contact at Goldner and requested a time to talk the week of April 5. In early April, the Employer's attorney called the Union representative and informed the Union that they would be representing the Parkside facility and another Union-represented nursing home overseen by Goldner, Arcadia Medical Resort of Talbot. [7]

From April 13 to 19, the Employer held an open enrollment period for employees to sign up for medical, dental, vision, and other insurance benefit plans. Many of the Predecessor's employees signed up for coverage at this time. The open enrollment benefit plans differed from those offered by the Predecessor, which were dictated by the collective-bargaining agreement. The new benefit plans had different deductibles, co-pays, and employee contribution rates, included new insurance benefits not previously available to employees, and eliminated flexible spending accounts and health savings accounts.

On May 21, the Predecessor's administrator emailed the Union representative to tell them that the Employer had taken over operations as of 12:01 a.m. that day. There was no hiatus between the Predecessor's operation of the nursing home and the Employer's. Employees completed their night shifts on May 20 and showed up for work for their day shifts on May 21 as they always did. At some point between May 21 and May 25, the Employer held a meeting and told employees to go online and provide W-4 forms, I-9 forms, and their contact information. Employees did not go through any formal hiring process, nor is there evidence that the Employer sought new hires from outside the preexisting workforce.

Shortly after the takeover, the Union learned that the Employer deviated from certain terms and conditions of employment prescribed in the collective-bargaining agreement with the Predecessor. [8] In this regard, the Employer stopped following the so-called "Baylor Shift" rule, which allowed a nurse to work 16 hours on a Saturday or Sunday and be paid for a 40-hour week even if they only worked 32 hours. The Employer also: reduced paid time off accrual rates; changed the day on which employees were paid; [9] stopped reimbursing employees for renewal fees associated with their licenses, certificates, and permits; removed Union flyers from the bulletin board; and refused to honor the Union's visitation rights. In addition, the Employer failed to deduct and remit dues to the Union.

On June 28, the Union formally requested bargaining and proposed dates to negotiate new collective-bargaining agreements for both the Parkside and Talbot facilities. Although the parties have held a number of bargaining sessions, they have not reached agreement on a new contract for either facility.

ACTION

We conclude that the Employer is a "perfectly clear" successor under Spruce Up that had an obligation to bargain with the Union prior to setting initial terms and conditions. Accordingly, the Employer violated Section 8(a)(5) by unilaterally eliminating certain shift pay differentials, changing employees' pay day, reducing paid time off accrual rates, failing to reimburse employees for license, permit, and certificate renewal fees, denying the Union access to the facility, and effectively prohibiting Union materials from the facility's bulletin board-regardless of whether such changes are construed as part of its initial terms or constitute post-takeover changes to initial terms. Given that the Employer violated the Act under extant law, the Region should use this case as a vehicle to urge the Board to overrule Spruce Up and find that the Employer is a "perfectly clear" successor based on the plain language of the Supreme Court's "perfectly clear" caveat in Burns. [10] Finally, the Region should solicit an amended charge alleging that the Employer violated Section 8(a)(5) by failing to deduct and remit dues and, if warranted, [11] use this case to urge the Board to overrule Valley Hospital. [12]

I. 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. [13] 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. [14]

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." [15] 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, [16] or at least fails to "clearly announce" its intent to establish new terms and conditions prior to or simultaneous with its invitation to accept employment. [17] 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, [18] or fails to give "sufficiently clear" notice that employees' existing working conditions will change. [19] For example, an announcement of new terms and conditions that is too "general" or "speculative" will not suffice. [20]

Where an employer is a "perfectly clear" successor, its obligation to bargain over initial terms arises "when it displays an intent to employ the predecessor's employees." [21] A successor's later announcement of new terms before making formal offers of employment or before the successor commences operations "will not vitiate the bargaining obligation" that was triggered when the successor displayed "an intent to retain the predecessor's employees without making it clear that their employment [was] conditioned on the acceptance of new terms." [22]

Here, we conclude that the Employer is a perfectly clear successor based on its Welcome Letter, its failure to announce specific terms prior to or simultaneous with the Welcome Letter, and the absence of any genuine hiring process. It is undisputed that the Employer continued the Predecessor's business in substantially unchanged form and that the Employer hired virtually all of its workforce from among the Predecessor's employees. As an initial matter, we find that the Employer expressed a clear intent to retain the Predecessor's employees by posting its Welcome Letter on February 25, which contained equivalent assurances of employment as in Walden Security. [23] In that case, the successor employer sent a transition letter to the predecessor's employees before taking over operations. The letter welcomed the predecessor's employees as "our new security officers" and made statements such as "you have joined the premier security services provider in the industry" and "we would like to welcome you to our company." Taken as a whole, the transition letter in Walden Security was viewed as having "overwhelmingly indicated" that the successor would retain the predecessor's workforce. [24] The same is true of the Employer's Welcome Letter here. It greeted the Predecessor's employees with ebullient promises of continued employment, such as "we are thrilled to have you join [our] team" and "are excited to welcome you to the family!" It assured them that the Employer would pay them their "current rate" and encouraged employees to report any pay discrepancies so that "we may investigate and rectify where needed." It finished by proclaiming, "[o]n Behalf of … [the Employer's] Leadership, Welcome Aboard!" In the eyes of the Predecessor's employees, there could be no mistaking that the Employer would hire them. [25]

Furthermore, we find that nothing in the Welcome Letter clearly conveyed any changes to employment terms. The letter explicitly assured employees that their pay rate would remain the same and the Employer's promise of bi-weekly pay was consistent with the Predecessor's practice. The announcement that the Employer was "in the process of putting together a benefit package we hope you will be pleased with" was insufficient to put employees on notice that their employment would be under materially different terms than they had enjoyed under the Predecessor. This vague language did not communicate that employees' benefits would definitely and materially change, let alone specify what those changes would be. Such general statements of future, unspecified changes, are insufficient to forestall a finding of "perfectly clear" successorship. [26] In this regard, the language here is similar to that used in the transition letter in Walden Security. That letter stated that the successor would later provide "more information" such as "benefit package details, information, policies, etc." [27] and the Board found that the announcement was not sufficiently clear under Spruce Up. [28] Finally, we note that the Board has found more discernable indications of an intent to alter working conditions, such as requiring that employees serve a probationary period without benefits or making independent contractors fill out W-4 forms, to be insufficient notice that terms would change. [29] Thus, we reject the proposition that the Welcome Letter effectively communicated to employees any distinct, impending changes simultaneous with its assurances of future employment.

The Employer's absence of a genuine hiring process further reinforces the conclusion that the Employer planned to hire all of the Predecessor's employees from the outset. Where a successor employer offers employment to the predecessor's workforce without first requiring completed employment applications, the Board has found that this constitutes evidence that the successor planned to hire the predecessor's employees. [30] Here, the Employer did not require the Predecessor's employees to go through any hiring process, such as submitting job applications, attending interviews, or demonstrating that they possessed adequate qualifications. Instead, only after assuming operations with the Predecessor's employees, did the Employer ask them to provide W-4 forms, I-9 forms, and contact information. The fact that the Employer did not even require job applications, much less utilize any other formal hiring mechanisms, only bolsters the conclusion that it intended to hire all of the Predecessor's employees from the very beginning.

Finally, we reject the Employer's argument that it cannot be a "perfectly clear" successor because employees accepted employment with materially different terms by enrolling in benefit plans that differed from the Predecessor's. While we recognize that employees would have understood from open enrollment that some benefit adjustments would be forthcoming, this fact is simply irrelevant. Open enrollment occurred after the posting of the Welcome Letter, which expressed an intent to retain the Predecessor's employees. The Board has made clear that belated announcements of new terms, even if made before formal offers of employment are extended, do not vitiate a preexisting bargaining obligation. [31] Thus, the April open enrollment could not void the bargaining obligation that attached in February upon posting of the Welcome Letter. [32]

II. The Region Should Urge the Board to Overrule Spruce Up and Return to the "Perfectly Clear" Caveat Set Forth in Burns

Given that the Employer is already a "perfectly clear" successor under extant law, this case presents an opportunity to urge the Board to overrule Spruce Up and find that the Employer is a "perfectly clear" successor under the Supreme Court's caveat in Burns. [33] In Burns, the Supreme Court carved out an exception to the general rule that a successor employer may unilaterally set initial terms and conditions of employment. Under this exception, when it is "perfectly clear" that a successor plans to retain the predecessor's workforce, the successor must first bargain with the union that represents that workforce before fixing initial terms. [34] However, in Spruce Up, the Board limited this exception to cases where the successor failed to announce its intent to fix new initial terms or otherwise misled employees about changing their terms of employment. [35] The purpose of the Spruce Up doctrine is to protect employees from relying to their detriment on indications that they will be hired at the same terms by the successor. [36] But this self-imposed limitation by the Board is inconsistent with the clear language of Burns, relies on faulty policy grounds rooted in a misreading of Burns itself, and needlessly limits the right of employees to full representation by their chosen bargaining representative even where there is no doubt as to the union's majority status. The limitation has also produced confusing and often inconsistent Board and court decisions, prompting at least one apparently frustrated former ALJ to suggest that the Board may wish to revisit this area. [37] Furthermore, because the number and scale of corporate mergers and acquisitions has increased dramatically over recent decades, "much more is at stake in the Board's approach to successorship issues-and in getting it right." [38] Accordingly, the Region should urge the Board to overrule Spruce Up and return to the "perfectly clear" caveat set forth in Burns.

As noted by Members Fanning and Penello in their dissents in Spruce Up, the holding there conflicts with the plain language of Burns. [39] Recognizing that the incumbent union will continue to enjoy majority status when no wholesale changes to the workforce are planned, the Supreme Court in Burns noted that there would be "instances in which it is perfectly clear that the new employer plans to retain all of the employees in the unit and in which it will be appropriate to have him initially consult with the employees' bargaining representative before he fixes terms." [40] This rule recognizes what the Court has described as "the significant interest of employees in being represented as soon as possible." [41]

In Spruce Up, the Board majority disregarded the Court's plain meaning, and instead limited the obligation to initially consult with the union to where the employer either (1) misled the predecessor's employees into believing that their terms of employment would remain unchanged; or (2) failed to announce its intent to establish new terms. [42] The Board majority reasoned that because the successor cannot "realistically anticipate" whether the predecessor employees will agree to work under changed terms, it cannot be "perfectly clear" to the successor that it can actually "plan to retain all of the employees in the unit." [43] The Board based this limitation not on any legal precedent but on policy grounds: in the majority's view, adherence to the plain language of the Burns "perfectly clear" caveat would encourage a successor to "refrain from commenting favorably at all upon employment prospects of old employees for fear he would thereby forfeit his right to unilaterally set initial terms." [44] Moreover, the Board determined that successor employers would be discouraged from hiring predecessor employees if mere intent to hire caused a bargaining obligation to attach. [45] To hold otherwise, the Board reasoned, would discourage continuity in employment relationships for "legalistic and artificial considerations." [46]

In essence, the Board determined that without Spruce Up's limitations, a successor employer would be encouraged to violate the Act by not hiring predecessor employees so it could retain the right to unilaterally set initial terms. However, it is longstanding Board policy that pre-takeover bargaining in the "perfectly clear" successor context promotes both job retention and labor peace. [47] Furthermore, there is no evidence that Spruce Up has actually done anything to curtail discrimination by a putative successor employer against its predecessor's employees. Even if Spruce Up did reduce the incentives to violate the Act, weakening the Act's protections in order to reduce such incentives is both counterproductive and unprecedented.

But even assuming the majority's concerns in Spruce Up were well-grounded, they are based on a misreading of Burns. As Chairman Gould observed in his concurrence in Canteen, the "Supreme Court in no way even suggested, much less stated, that the ‘desire’ of employees or their ‘willingness’ to accept the new employer's offer was to be considered in determining whether the employer planned to retain all of the employees in the unit." [48] The key factor according to the Court, as Member Fanning observed in his dissent to Spruce Up, is not the intent of the employees but of the employer. [49] If the successor "plans to retain" the predecessor's employees, the Court deemed that those employees' bargaining representative should be consulted before fixing initial terms. [50] By creating an exception that allows employers to ignore those employees' representative while simultaneously planning on using their labor, the Board has acted contrary to the Court's plain meaning.

In addition to relying on dubious policy considerations and ignoring the plain language of Burns, the majority opinion in Spruce Up also disregarded the compelling policy reasons supporting a plain reading of the Court's description of a "perfectly clear" successor. An important goal of the Act is permitting employees to be represented by their chosen collective-bargaining agent as quickly as possible. [51] The Supreme Court has recognized that this significant interest is "especially heightened" in successor situations, since a delay in recognition "disrupts the employees' morale, deters their organizational activities, and discourages their membership in unions." [52] Allowing an employer to delay recognition when it intends to hire the predecessor's workforce frustrates this objective.

A plain reading of Burns would also serve another important policy of the Act: greater stability in labor relations. Both Congress and the Supreme Court have stated that collective bargaining promotes stable and harmonious labor relations, a vital goal of the Act. [53] But as Member Fanning noted in his dissent in Spruce Up, the majority opinion sanctions a period of direct dealing where the employer may ignore the employees' representative, creating conflict and undermining labor peace. [54] While a plain reading of Burns would bring the "mediatory influence of negotiation" when an employer wishes to alter employment terms, the Board's decision in Spruce Up produces the "anomalous, if not absurd" result that collective bargaining is only required where there is no controversy. [55]

Furthermore, the Board in Spruce Up, without explanation, shifted the balance struck by the Court in Burns between collective bargaining and labor peace on the one hand and entrepreneurial freedom on the other. In Burns, the Supreme Court recognized that national labor policy requires that "the rightful prerogative of owners independently to rearrange their businesses" must be balanced against the interest of employees in continued representation by their union. [56] Because a transition between employers places unions and employees in a "peculiarly vulnerable position," particularly amenable to the labor peace and stability promoted by collective bargaining, the Court determined that a successor employer must bargain with the union. [57] On the other hand, the Court also determined that a successor is not required to adopt the predecessor's collective-bargaining agreement. [58] With regard to the setting of initial terms, a successor may do that unilaterally unless its intention is to adopt the predecessor's workforce as its own. By limiting the Court's "perfectly clear" caveat, the Board altered this balance, significantly undermining industrial peace in favor of entrepreneurial prerogatives.

Instead, the original "perfectly clear" caveat laid out by the Court in Burns amply accommodates the successor employer's need for flexibility in restructuring and organizing its enterprise. An employer can, for non-discriminatory reasons, hire new employees, or a combination of new and predecessor employees, and in that circumstance, it can unilaterally set initial terms. Or an employer can choose to essentially adopt the predecessor's experienced workforce, in which case it must bargain with the employees' representative before fixing new initial terms. And, even in that latter circumstance, the successor is not prevented from having new terms upon commencing operations; it is merely required to bargain with the incumbent union before setting those terms. [59]

Finally, Spruce Up has produced inconsistent and confusing Board and court decisions. Because Spruce Up changed the focus of the "perfectly clear" test from whether the employer plans to retain the incumbent employees to whether the employees are likely to accept employment, the Board has spent considerable energy analyzing whether the potential successor has actively or tacitly misled employees, whether it failed to clearly announce new terms, and the legal effect of when "the successor employer announces its offer of different terms of employment in relation to its expression of intent to retain the predecessor's employees." [60] Confusion, while obviously not a defense under extant law, reigns as to when an employer must announce new terms to preserve its right to set initial terms, [61] how explicit its announcement of new terms must be, [62] and whether an employer forfeits its right to set initial terms by merely failing to announce new terms or only forfeits that right when it misleads employees into thinking their terms will remain unchanged. [63] Indeed, when a majority of a Board panel criticized Spruce Up in Canteen, the Seventh Circuit welcomed the Board's willingness to reexamine the case, and pointedly based its enforcement of the Board's order on only Burns, not Spruce Up. [64]

Applying the plain language of Burns, we conclude that the Employer would likewise be considered a "perfectly clear" successor. It is abundantly clear that the Employer intended from the outset to hire all of the Predecessor's employees. The language of February 25 Welcome Letter amply demonstrated that the Employer, long before taking over operations, already considered the Predecessor's employees to be its future workforce. There is no evidence that the Employer looked elsewhere for job applicants or advertised open positions. Indeed, the Employer did not even require the Predecessor's employees to fill out job applications, attend interviews, or demonstrate that they had the necessary degrees and certifications. Rather, the Employer dispensed with all hiring formalities and simply had the Predecessor's employees provide W-4s, I-9s, and contact information after they had already been hired. Simply put, it was "perfectly clear" that the Employer planned to retain the Predecessor's employees.

III. The Region Should Solicit an Amended Charge Concerning the Cessation of Dues Checkoff and Urge the Board to Overrule Valley Hospital and Return to Lincoln Lutheran

Finally, the Region should solicit an amended charge alleging that the Employer violated Section 8(a)(5) by failing to collect and remit dues, issue complaint, absent settlement, if so amended and warranted [65] and use this case as a vehicle to ur:e the Board to overrule Valle Hospital [66] ​   ​ The General Counsel has taken the position that the Board should restore its well-reasoned prior holding in Lincoln Lutheran [67] that dues checkoff is not exempt from the basic rule that an employer may not unilaterally alter terms and conditions of employment. Although Lincoln Lutheran and Valley Hospital involved an employer's conduct after an existing collective-bargaining agreement has 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. [68]

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. [69] Although the Predecessor's collective-bargaining agreement provided for dues checkoff, the Employer deviated from that status quo by discontinuing the collection and remittance of dues to the Union, and did so without consulting with the Union. This action cut employees off from their chosen representative in more than a theoretical sense-as one employee put it, employees used to have a union but it "went away," pointing to the fact that dues were no longer withheld from employee paychecks. And it did so at a time when the Union and employees were in a "peculiarly vulnerable position." [70] 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, [71] urge the Board to overturn Spruce Up, solicit a charge alleging that the Employer unlawfully ceased dues checkoff, and, if appropriate, [72] use this case to urge the Board to overrule Valley Hospital.

/s/

R.A.B.

ADV.19-CA-280613.Response.Arcadia Medical Resort of Parkside.​   ​

cc: Injunction Litigation Branch