National Labor Relations Board v. Fall River Dyeing & Finishing Corp.

ALVIN B. RUBIN, Circuit Judge.

The National Labor Relations Board found that Fall River Dyeing & Finishing Corporation (the Company) was the successor to Sterlingwale Corporation, most of whose assets the Company acquired when Sterlingwale became insolvent and was liquidated. The Board also found that a premature demand for collective bargaining made by the Union that had represented Sterlingwale’s employees continued in force and became effective against Fall River upon its employment of a representative complement of Sterlingwale employees. Because Fall River, upon reaching its representative complement of employees, did not recognize and bargain with the Union, the Board found that it had violated Section 8(b)(5) and (1) of the National Labor Relations Act. We enforce the Board’s order, finding that substantial evidence on the record as a whole supports the Board’s conclusions and the legal principles it applied do not violate the Act.

I.

For more than thirty years before 1982, Sterlingwale, which was owned by the An-sin family, operated a plant at Fall River, Massachusetts, in which it engaged primarily in dyeing and finishing textiles. Ster-lingwale bought unfinished fabrics for its own account, dyed and finished them, then offered the fabrics for sale to apparel manufacturers. This business is known in the trade as “converting.” Sterlingwale also dyed and finished fabrics owned by other customers to the customers’ specifications, a business known as “commission finishing.” In 1981, sixty to seventy percent of Sterlingwale’s volume was converting and the rest commission finishing.

The process for dyeing and finishing fabrics is the same whether the work is done for resale or on commission. However, the financing and customer relations aspects of the two types of businesses are different. Converting requires capital to buy merchandise and a sales force. Several major national firms are engaged in this business, and it is intensely competitive. Commission finishing serves a different market and involves supplying only the services designated by the customer.

Adverse economic conditions and foreign competition afflicted the textile industry in the 1970’s. Sterlingwale’s business became unprofitable but Ansin, its president and principal stockholder, tried to stay in business because he thought that he “owed that to the community” and to the company’s employees, many of whom had been employed by it for over twenty-five years. Early in 1982, after years of losses amounting to millions of dollars, Sterlingwale ran out of cash and could no longer buy fabric for its converting business. Consequently, Ansin ceased normal production operations and began to liquidate the company, laying off employees and selling its inventory. In July 1982, Sterlingwale employed a professional liquidator to sell the firm’s remaining assets. Sterlingwale then executed an assignment of its assets for the benefit of its creditors.

Through another company, Arthur Friedman, who is now the President of Fall River, acquired Sterlingwale’s equipment *428and the real property formerly used by it at a mortgage foreclosure sale. Friedman’s company conveyed the equipment and leased part of the original Sterlingwale plant to Fall River Dyeing & Finishing.

Fall River, operating out of one of the three former Sterlingwale buildings, began hiring employes on September 20, 1982. The employees then spent approximately four to six weeks on start-up operations, cleaning, relocating and repairing machines. They spent the next four to five weeks on experimental production to ensure that everything was in working order. Following the start-up stage, employees did much the same work they had done for Sterlingwale. The Company conducted all of its operations in what had been Sterling-wale’s production building, using the same machinery and the same basic process. It did commission work, as Sterlingwale had done, but did no converter work.

By a letter dated October 19, the union demanded that Fall River recognize it as its employees’ collective bargaining agent. The Company replied that it did not intend to comply with the request. At that time, the Company was still engaged in start-up operations, and, as the Board found, did not have a representative complement of employees.

The Company’s initial production goal was to have one full shift operation employing fifty-five to sixty employees. Upon reaching that goal, the Company intended to “see how business would be,” and planned to expand to a two-shift operation by April 1983. Such a sixteen-hour operation is desirable, indeed almost essential to the production process because the fabrics emerge from the process wet and the entire operation, including drying, cannot be completed in eight hours.

By November 1982, employees had been hired in virtually all job classifications. In mid-January 1983, the first shift was in full operation and the Company had begun a second shift. At that time, the Company had hired at least fifty percent of those it would ultimately employ in the majority of existing job classifications and 55 of the 106-109 employees it was to employ in April, the month in which the Company reached its anticipated employee complement. Of the fifty-five employees hired by mid-January, approximately thirty-six were former Sterlingwale employees. Eight of the Company’s twelve supervisors were former Sterlingwale supervisors and three of the other four were former Sterlingwale employees. Over half of the dollar volume of the Company’s business came from former customers of Sterlingwale.

The Board found that, as of January 15, 1983, the Company had employed a representative complement of employees in an appropriate unit and that at that time the Company was a successor employer to Sterlingwale. The Board further found that the Union’s bargaining request constituted a continuing demand for recognition and bargaining and that the Company violated Section 8(a)(5) and (1) of the National Labor Relations Act1 by refusing to recognize and bargain with the Union once its successor bargaining obligation arose.

Member Hunter dissented on the ground that the Company did not have a representative complement of unit employees at the time of the Union’s October 19 recognition demand and the Company’s October 22 refusal. Absent a renewed Union bargaining demand at a time when the Company had reached a representative complement, Member Hunter would find no bargaining obligation.

II.

“[A] mere change of employers or of ownership in the employing industry,” the Supreme Court held in NLRB v. Burns International Security Services, Inc.,2 does not affect the Board’s certification of a bargaining unit. The successor employer’s obligation to bargain is founded on the mandate of Sections 8(a)(5) and 9(a) of the *429Act3—an employer must bargain with “[Representatives designated or selected for the purposes of collective bargaining by the majority of the employees in a unit appropriate for such purposes.”4 The successor employer’s obligation also arises from the rule that a mere change in ownership does not destroy the presumption of continuing employee support for a certified union.5 “The basic rationale is that a mere change in ownership, without an essential change in working conditions, would not be likely to change employee attitudes toward representation.”6 If, after a change in ownership, the essential nature of the enterprise remains unchanged, and a majority of the “new” firm’s employees or management were employed by the predecessor company, the new employer is considered the old employer’s “successor.” As such, the new employer must recognize the incumbent union and deal with it as the bargaining representative of the employees.7

In determining whether an employer must recognize and bargain with a union that has represented the employees of the former employer, “the Board looks to the totality of the circumstances to determine whether there has been a substantial and material alteration in the employing enterprises.”8 In making this determination, the Board considers various factors, among them the percentage of employees who were employed by the previous employer, the extent to which their former supervisors have been retained, the identity of skills used and functions performed by the employees, the continuation of the business in the same physical facility with the same or similar equipment, the continuity of products sold or services rendered, and the identity of the customers.9 Significant changes in the scope of the new employer’s business are to be considered, but alone they do not negate the possible successor-ship status of the new business.10 The critical inquiry is whether any changes in operation have significantly altered the employees’ working conditions, the employment relationship, and correspondingly, the employees’ expectations and needs with regard to representation.11

The seven-month hiatus between the cessation of production at Sterlingwale and the commencement of the Company’s operations is to be considered, but it is similarly not dispositive.12 A hiatus does not of itself preclude a successorship finding because the inquiry focuses on employee expectations of rehire in the light of indications during this interim of plans to resume plant operations under new management. The interim period may be viewed as part of “the normal concomitants of a new management and a new approach to a failing business, not a break in the continuity of the employing industry.”13

*430Because the enterprise-continuity determination is based on the totality of circumstances, decisions turn “to a great extent on the precise facts involved.” 14 A reviewing court’s inquiry is limited to whether the Board’s findings are supported by substantial evidence, viewing the record as a whole.15

The Board’s finding in this case that the Company was substantially continuous to Sterlingwale is supported by substantial evidence in the record, considered as a whole, as the evidence summarized above demonstrates. The Company did not assume Sterlingwale’s liabilities or acquire its trade name but these facts do not preclude a finding of suceessorship.16 Although the Company operated exclusively as a commission dyer and finisher and did not continue the converter work performed by Sterlingwale, this change did not alter the essential nature of the employees’ responsibilities because both types of work involve essentially the same production process. The differences between the Company’s business and Sterlingwale’s are not sufficiently significant to require a finding that the continuity of the enterprise, viewed from the employees’ standpoint, was broken. The changes in purchasing, sales, marketing, and financial operations brought about by the switch to a straight commission operation are only indirectly related to the interests of the unit production and maintenance employees.17 The change from three shifts to two and the reduction in the number of supervisors might rationally be found to represent only a reduction in the size and scope of the operation, not an essential change in the employing enterprise.

III.

In a suceessorship situation, the bargaining obligation can normally be determined at the time of transfer or when operations begin.18 In other instances, however, such as when an employer is rebuilding a collapsed business or is operating at a substantially reduced capacity, a delay in making the determination may be appropriate. As the Supreme Court has noted, a determination regarding the successor’s obligation to bargain may have to wait “until the successor employer has hired his full complement of employees ..., since it will not be evident until then that the bargaining representative represents a majority of employees in the unit as required by § 9(a) of the Act.” 19

This “full complement” principle, however, has not been interpreted to require that the examination of the workforce composition be postponed until the business is operating at its maximum capacity or until the employer has completed hiring all of its bargaining unit employees. Courts have agreed that, in cases in which the succes-sorship obligation cannot be determined at the very outset of the transition, fixing the appropriate date at which the bargaining obligation arises “involves balancing the objective of insuring maximum employee participation in the selection of a bargaining agent against the goal of permitting *431employees to be represented as quickly as possible.”20

These interests are effectively reconciled in the “substantial and representative complement” standard applied by the Board in this case.21 This “standard embodies the balance between early representation and maximum participation that lies at the heart of the ‘full complement’ concept,”22 and it has met with general acceptance in courts that have considered this type of suceessorship problem.23

The Company’s contention that the Board’s representative complement standard is “at variance with the Ninth and Tenth Circuits” is not supported by the cases cited. In Pacific Hide & Fur Depot, Inc. v. NLRB,24 the Ninth Circuit declined to enforce the Board’s order to bargain in part because it read the Board’s decision in that case as rejecting altogether the proposition that the Burns “full complement” dictum was relevant to the question whether a suceessorship obligation exists. While the court implied in dicta that strict adherence to the “full complement” standard was proper, it also recognized that a “full complement” could be defined “only by considering the facts of each case” in the light of the general goals to be attained.25 The Ninth Circuit has since made clear its acceptance of the “substantial and representative complement” standard as an appropriate means of satisfying the interests recognized in Bums.26 Similarly, in NLRB v. Pre-Engineered Building Products,27 the Tenth Circuit, while it declined to enforce the Board’s order on the basis of the record evidence, rejected a rigid interpretation of the “full complement” standard that would postpone the obligation to bargain until the employer achieved its ultimate objectives and acknowledged the necessity of balancing the objectives of early representation and maximum employee participation.28

In determining whether a representative complement existed at a given date, the Board first looks to see whether the job classifications for the operation were “filled or substantially filled” and whether the operation was in “normal or substantially normal production.”29 The Board also considers the size of the complement on that date, the time expected to elapse before a substantially larger complement would be hired, and the relative certainty of the expected expansion.30

Considering these guides, the Board reasonably found that the Company employed a substantial and representative complement of its workforce in mid-January. By then the Company had hired employees in virtually all job classifications, had hired at least fifty percent of those it *432would ultimately employ in the majority of those classifications, and it employed a majority of the employees it would eventually employ when it reached full complement. No workers having new skills were later employed. The Company had also reached substantially normal production in mid-January, at which time the first shift was in full operation and a second shift had begun.

IV.

In successorship situations, when a union’s clear request for bargaining in an appropriate unit has been rejected outright and unconditionally by the employer, the Board has treated the demand as continuing and has not required the union to renew the demand later, even if the employer’s bargaining obligation was not mature at the time of the original request.31 The Board has applied this doctrine in cases in which a union, lacking a majority at the time of its original demand, did not renew the demand upon gaining a majority32 and in cases in which an employer, seeking to defend against an unfair labor practice charge, asserts the charge is barred by the Act’s statute of limitations33 because of the union’s failure to renew its demand within six months of the charge’s filing.34

The Company argues, however, that the Third Circuit’s rejection of the continuing demand concept in Hedstrom Co. v. NLRB35 controls the present case. In Hedstrom, a case not involving a successor enterprise, the initial demand was made by a union lacking majority support. The court reasoned that to recognize as continuing a demand made when the union lacked majority designation would force employers “to tread the fine line between” 36 violating Section 8(a)(2) of the Act,37 which prohibits recognizing a minority union, and violating Section 8(a)(5) of the Act,38 which requires employers to bargain with the majority union. Under the circumstances present in Hedstrom, if the initial immature demand were to be deemed continuing, the employer’s obligation to bargain would arise simply upon the union’s reaching majority status. Such a rule would require an employer to monitor the union’s status in order to avoid violating Section 8(a)(5) of the Act.

The rationale of Hedstrom is nullified in successorship cases. When a continuity in the enterprise has been found, as is the case here, “the presumption of majority status by the union under the predecessor ... is not affected by a change in ownership.” 39 “A union is not required to substantiate anew its majority status when a successor assumes an employer’s business.” 40 The rationale behind this presumption of majority status derives from the fact that a successor’s obligation to bargain with the union arises when the employer reaches a “substantial and representative complement” of its work force.41 The employer, unlike the union, can readily reach this determination on its own by examining whether the job classifications for the operation have been “filled or substantially filled” and whether the operation is in *433“normal or substantially normal production.” 42 Thus, in the successorship context, the continuing demand concept does not present the risks the Hedstrom court found unfair.

In the successorship context, moreover, the Board’s continuing demand rule is practical. Unions often lack precise information about when a change in ownership of a firm is to take place, how it is to take place, and what plans, if any, the new owners have for expansion or modification of the enterprise; it is thus not uncommon for bargaining demands to be made before the bargaining obligation actually arises.43 In none of the successorship cases was it even claimed that the Board could not properly find a Section 8(a)(5) violation because the initial bargaining demand was not renewed, and the Company has cited no successor-ship case that supports that proposition.

The doctrine applied by the Board may not be one that we would ourselves devise. Given the discretion imparted to it to interpret and enforce the Act, we do not find the Board’s ruling “arbitrary or contrary to law.”44

V.

At the unfair labor practice hearing, the Company sought to introduce two petitions disclaiming employee support for the Union. The petitions had been signed by the employees on April 29, 1983, three days before the unfair labor practice hearing commenced. The administrative law judge rejected these exhibits because, given their timing, they could not justify the Company’s refusal to bargain on January 15. The administrative law judge properly declined to consider the petitions on the ground that they were made after the time when the Company became obligated to bargain with the Union and failed to do so. As in the analogous situation of an employer withdrawing recognition from a union because it in good faith doubts the union’s majority status, no useful purpose is served by permitting the employer to defend the propriety of an earlier refusal to bargain by relying on subsequent events that had nothing to do with the refusal.45 Furthermore, once it has been determined that an employer has unlawfully withheld recognition of an employees’ bargaining representative, the employer cannot defend against a remedial bargaining by pointing to an intervening loss of employee support for the union when such loss of support is a foreseeable consequence of the employer’s unfair labor practice.46

Had the Company voluntarily bargained with the Union in January, the employees’ wage concerns might have been addressed and the employees might not have signed these petitions. If the employees had nonetheless signed petitions disclaiming support for the Union after such bargaining, the Company might have had a basis for withdrawing recognition; having behaved lawfully, it would be free to withdraw recognition on the basis of any evidence that established actual loss of majori*434ty or supported good faith doubt.47 However, the Board found the Company did not bargain when it should have; hence, these petitions cannot properly serve either to justify the earlier refusal to bargain or to affect the order remedying that refusal.48

For these reasons, the Board’s order is ENFORCED.

. 29 U.S.C. § 158(a)(5) & (l).

. 406 U.S. 272, 279, 92 S.Ct. 1571, 1577, 32 L.Ed.2d 61, 68 (1972).

. 29 U.S.C. §§ 158(a)(5) & 159(a).

. Id. § 159(a).

. See NLRB v. Burns Int'l Sec. Servs., 406 U.S. at 277-79, 92 S.Ct. at 1577, 32 L.Ed.2d at 67-68; see also Aircraft Magnesium, 265 N.L.R.B. 1344, 1345 (1982), enforced, 730 F.2d 767 (9th Cir.1984) (table).

. Premium Foods, Inc. v. NLRB, 709 F.2d 623, 627 (9th Cir.1983) (emphasis in original); see NLRB v. Band-Age, Inc., 534 F.2d 1, 6 (1st Cir.1976), cert. denied, 429 U.S. 921, 97 S.Ct. 318, 50 L.Ed.2d 288 (1976).

. NLRB v. Burns Int'l Sec. Servs., 406 U.S. at 279-81, 92 S.Ct. at 1577-79, 32 L.Ed.2d at 68-69; NLRB v. Band-Age, Inc., 534 F.2d at 3.

. NLRB v. Boston Needham Indus. Cleaning Co., Inc., 526 F.2d 74, 77 (1st Cir.1975).

. See NLRB v. Burns Sec. Servs., Inc., 406 U.S. at 279-80 n. 4; 92 S.Ct. at 1578 n. 4; 32 L.Ed.2d at 68-69 n. 4; NLRB v. Middleboro Fire Apparatus, Inc., 590 F.2d 4, 7-8 (1st Cir.1978); NLRB v. Band-Age, Inc., 534 F.2d at 3-4, 6 (1st Cir.1976).

. NLRB v. Jeffries Lithograph Co., 752 F.2d 459, 463, 465-66 (9th Cir.1985); NLRB v. Hudson River Aggregates, Inc., 639 F.2d 865, 869 (2d Cir.1981).

. See NLRB v. Band-Age, Inc., 534 F.2d at 6; NLRB v. Boston Needham Indus. Cleaning Co., Inc., 526 F.2d at 77; NLRB v. Jeffries Lithograph Co., 752 F.2d at 464.

. NLRB v. Band-Age, Inc., 534 F.2d at 5.

. NLRB v. Middleboro Fire Apparatus, 590 F.2d at 8.

. Howard Johnson Co. v. Detroit Local Joint Executive Bd., 417 U.S. 249, 256, 94 S.Ct. 2236, 2240, 41 L.Ed.2d 46, 53 (1974) (quoting NLRB v. Burns Int'l Sec. Servs., 406 U.S. 272, 274, 92 S.Ct. 1571, 1575, 32 L.Ed.2d 61, 65 (1972)). See also International Union of Elec., Radio & Mach. Workers v. NLRB, 604 F.2d 689, 694 (D.C.Cir.1979).

. Universal Camera Corp. v. NLRB, 340 U.S. 474, 490, 71 S.Ct. 456, 466, 95 L.Ed. 456, 468 (1951); NLRB v. Middleboro Fire Apparatus, Inc., 590 F.2d at 6; NLRB v. Boston Needham Indus. Cleaning Co., Inc., 526 F.2d at 76.

. Cf. NLRB v. Band-Age Inc., 534 F.2d at 5; Tom-a-hawk Transit, Inc. v. NLRB, 419 F.2d 1025, 1026-27 (7th Cir.1969).

. See NLRB v. Interstate 65 Corp., 453 F.2d 269, 273 (6th Cir.1971).

. NLRB v. Hudson River Aggregates, Inc., 639 F.2d 865, 870 (2d Cir.1981); see also NLRB v. Ideal Laundry Corp., 422 F.2d 801, 804 (10th Cir.1970).

. NLRB v. Burns Sec. Servs., Inc., 406 U.S. at 295, 92 S.Ct. at 1586, 32 L.Ed.2d at 77.

. NLRB v. Pre-Engineered Bldg. Prods., Inc., 603 F.2d 134, 136 (10th Cir.1979); accord Premium Foods, Inc. v. NLRB, 709 F.2d 623, 628 (9th Cir.1983); NLRB v. Hudson River Aggregates, Inc., 639 F.2d at 870-71.

. See, e.g., Indianapolis Mack Sales and Serv., Inc., 272 N.L.R.B. No. 108, 117 L.R.R.M. 1335 (1984); enforcement appeal filed, No. 84-3061 (7th Cir. Dec. 7, 1984); Aircraft Magnesium, 265 N.L.R.B. 1344, 1345 (1982), enforced, 730 F.2d 767 (9th Cir.1984) (table).

. Premium Foods, Inc. v. NLRB, 709 F.2d at 628.

. NLRB v. Jeffries Lithograph Co., 752 F.2d at 467; NLRB v. Hudson River Aggregates, Inc., 639 F.2d at 870; see also NLRB v. Pre-Engineered Bldg. Prod., Inc., 603 F.2d at 136 & n. 1 (10th Cir.1979).

. 553 F.2d 609 (9th Cir.1977).

. Id. at 613.

. See NLRB v. Jeffries Lithograph Co., 752 F.2d 459, 467 (9th Cir.1985) (citing Premium Foods, Inc. v. NLRB, 709 F.2d 623, 628-29 (9th Cir. 1983)).

. 603 F.2d 134 (10th Cir.1979).

. Id. at 136.

. Premium Foods, Inc. v. NLRB, 709 F.2d at 628; accord NLRB v. Jeffries Lithograph Co., 752 F.2d at 467 (9th Cir.1985); Indianapolis Mack Sales and Serv., Inc., 272 N.L.R.B. No. 108, 117 LRRM 1335 (1984), enforcement appeal filed, No. 84-3061 (7th Cir. Dec. 7, 1984); see also Hayes Coal Co., Inc., 197 N.L.R.B. 1162, 1163 (1972).

. NLRB v. Jeffries Lithograph Co., 752 F.2d at 467-68; Premium Foods, Inc. v. NLRB, 709 F.2d at 628.

. Aircraft Magnesium, 265 N.L.R.B. 1344, 1345 n. 9 (1982), enforced, 730 F.2d 767 (9th Cir.1984) (table).

. Schwab Foods, Inc., 223 NLRB 394, 413 (1976), enforced 549 F.2d 805 (7th Cir.1977) (table); Local No. 152 v. NLRB, 343 F.2d 307, 310 (D.C.Cir.1965).

. National Labor Relations Act § 10(b); 29 U.S.C. § 160(b).

. Enterprise Prods. Co., 265 NLRB 544, 563 (1982).

. 558 F.2d 1137, 1146-48 (3rd Cir.1977), cert. denied, 450 U.S. 996, 101 S.Ct. 1699, 68 L.Ed.2d 196 (1981).

. Id. at 1148.

. 29 U.S.C. § 158(a)(2).

. Id. § 158(a)(5).

. Aircraft Magnesium, 265 N.L.R.B. 1344, 1345 (1982), enforced, 730 F.2d 767 (9th Cir.1984) (table).

. Id. at 1346.

. See supra text accompanying notes 19-30.

. Premium Foods, Inc. v. NLRB, 709 F.2d at 628; see also Hayes Coal Co., Inc., 197 N.L.R.B. 1162, 1163 (1972).

. See, e.g., NLRB v. Hudson River Aggregates, 639 F.2d at 867-68, 870 (2d Cir.1981); Aircraft Magnesium, 265 N.L.R.B. 1344, 1344-45, 1346 (1982), enforced, 730 F.2d 767 (9th Cir.1984); cf. Premium Foods, Inc. v. NLRB, 709 F.2d at 625-26, 629 (though union demand timely, sent to wrong company also involved in the transfer).

. Charles D. Bonanno Linen Serv., Inc. v. NLRB, 454 U.S. 404, 413, 102 S.Ct. 720, 725, 70 L.Ed.2d 656, 664 (1982); see also Beth Israel Hosp. v. NLRB, 437 U.S. 483, 501, 98 S.Ct. 2463, 2473-74, 57 L.Ed.2d 370, 385 (1978) (“The judicial role is narrow: The rule which the Board adopts is judicially reviewable for consistency with the Act, and for rationality, but if it satisfies those criteria, the Board’s application of the rule, if supported by substantial evidence on the record as a whole, must be enforced.”).

. See Terrell Machine Co. v. NLRB, 427 F.2d 1088, 1090 (4th Cir.), cert. denied, 398 U.S. 929, 90 S.Ct. 1821, 26 L.Ed.2d 91 (1970); NLRB v. Gulfmont Hotel Co., 362 F.2d 588, 589 (5th Cir. 1966).

. Franks Bros. Co. v. NLRB, 321 U.S. 702, 702-04, 64 S.Ct. 817, 818, 88 L.Ed. 1020, 1022-23 (1944).

. Landmark Int'l Trucks, Inc. v. NLRB, 699 F.2d 815, 819 (6th Cir.1983); Harley-Davidson Transp. Co., 273 N.L.R.B. No. 192, 118 L.R.R.M. 1204 (Jan. 22, 1985).

. Aircraft Magnesium, 265 N.L.R.B. 1344, 1346 (1982), enforced, 730 F.2d 767 (9th Cir.1984).