INVESTIGATION AND HANDLING OF THE CORPORATE LIABILITIES AND OBLIGATIONS OF THE ACQUIRED COMPANY—THE LABOR AND EMPLOYMENT LAW PERSPECTIVE

• Jurisdiction: United States

Mergers and Acquisitions of Natural Resources Companies
(Nov 1994)
CHAPTER 8A
INVESTIGATION AND HANDLING OF THE CORPORATE LIABILITIES AND OBLIGATIONS OF THE ACQUIRED COMPANY—THE LABOR AND EMPLOYMENT LAW PERSPECTIVE
Jeffrey T. Johnson
Holland & Hart
Denver, Colorado

I. General rule — In a stock sale, the purchasing company will step into the shoes of the acquired company

A. As to union employees, this means the purchasing company will have the duty to recognize and bargain with the acquired company's union; it will be bound by the obligations of the acquired company's collective bargaining agreement with the union; and it will be obligated to remedy any unfair labor practices committed by the acquired company.

B. As to non-union employees, this means the purchasing company will be bound by the employment contracts and personnel policies and procedures of the acquired company, and it will be obligated to defend and remedy any claimed or actual violations of federal, state, or local labor and employment laws.

II. Union employees

A. General Rule — Where the acquired company has employees represented by a union:

1. The purchasing company has a duty to recognize and bargain with the union.

2. If a collective bargaining agreement is in effect between the acquired company and the union, the purchasing company is bound by the terms of such collective bargaining agreement.

3. If the acquired company has committed unfair labor practices, the purchasing company will be responsible for remedying such unfair labor practices.

TKB International Corp., 240 NLRB 1082, 1083, fn.4 (1979); Esmark, Inc. v. NLRB, 887 F.2d 739, 751 (7th Cir. 1989); NLRB v. Rockwood Energy & Mineral Corp., 942 F.2d 169, 173-75 (3rd Cir. 1991); but compare EPE, Inc. v. NLRB, 845 F.2d 483, 490 (4th Cir. 1988) (under some circumstances, where there has been a substantial change in operations in connection with a stock sale, the purchasing company's obligations may be governed by the successorship principles described below).

• Compare the situation in a sale of assets — A purchaser of assets is deemed to be a "successor" to the seller of assets only if there is a "substantial continuity in the employing

[Page 8A-2]

enterprise," including a substantial continuity in the business operations and a substantial continuity in the work force, i.e., a majority of the purchaser's work force came from the seller's work force; even then, the purchaser of assets has only the duty to bargain with the union, but no obligation to comply with the terms of the collective bargaining agreement between the union and the seller of assets.

• Caveat — The collective bargaining agreement between the union and the seller of assets may (and probably will) have a "successors and assigns" clause purporting to bind purchasers to the terms of the agreement or obligating the seller to insist on assumption of the contract as a condition of the sale.

B. Due diligence.

1. Is the acquired company under a duty to bargain with a union?

a. Nature of the duty — Voluntary recognition, certification following election, other.

b. History of relations between the acquired company and the union.

c. Information about the union and its leadership, both at the international and local levels; membership; militancy, including history of strikes.

d. Is the acquired company

...