United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 17, 2008 Decided June 30, 2009
No. 07-1439
S&F MARKET STREET HEALTHCARE LLC, D/B/A WINDSOR
CONVALESCENT CENTER OF LONG BEACH,
PETITIONER
v.
NATIONAL LABOR RELATIONS BOARD,
RESPONDENT
Consolidated with 07-1502
On Petition for Review and Cross-Application for
Enforcement
of an Order of the National Labor Relations Board
John H. Douglas argued the cause and filed the briefs for
petitioner.
Amy H. Ginn, Attorney, National Labor Relations Board,
argued the cause for respondent. With her on the brief were
Ronald E. Meisburg, General Counsel, John H. Ferguson,
Associate General Counsel, Linda Dreeben, Deputy Associate
General Counsel, and Jill A. Griffin, Supervisory Attorney.
2
Meredith L. Jason and Jason Walta, Attorneys, entered
appearances.
Before: GINSBURG and HENDERSON, Circuit Judges, and
RANDOLPH, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge GINSBURG.
GINSBURG, Circuit Judge: When S&F Market Street
Healthcare LLC acquired a nursing home previously operated
by a different company, it decided to meet its immediate
staffing needs in part by offering temporary employment to
employees of the prior operator. S&F informed the
employees it would consider hiring those who met S&F’s
“operational needs” and it would hire them on an at-will
basis, subject to a probationary period, to various drug and
background checks, and to their signing an arbitration
agreement. When it began operations, S&F implemented
these and other new terms and conditions of employment.
The National Labor Relations Board later held that,
because S&F failed to notify the employees that the terms and
conditions of their employment would change, S&F was a
“perfectly clear” successor within the meaning of NLRB v.
Burns International Security Services, 406 U.S. 272 (1972).
As such, S&F was bound by the collective bargaining
agreement (CBA) between its predecessor and the Service
Employees International Union and had violated § 8(a)(1) and
(5) of the National Labor Relations Act, 29 U.S.C. § 158(a)(1)
and (5), by unilaterally changing the terms and conditions of
employment prescribed in that CBA. Consequently, the
Board ordered S&F to restore the preexisting terms of
employment and to make the employees whole with back pay.
S&F petitions for review, and the Board cross-appeals for
enforcement, of that order.
3
We hold the Board erred in concluding S&F was a
“perfectly clear” successor and was not entitled to implement
new terms and conditions of employment. We therefore grant
in part the petition for review and deny in part enforcement of
the Board’s order. We enforce the Board’s order as it relates
to matters S&F does not contest.
I. Background
S&F Market Street Healthcare LLC (d/b/a Windsor
Convalescent Center of North Long Beach) is affiliated with a
chain of nursing and assisted living facilities managed by SnF
Management and operated under the Windsor name. In 2004
S&F purchased Candlewood Care Center from Covenant Care
Orange Inc. Covenant Care had collective bargaining
agreements with the SEIU, Local 434B, covering two
different bargaining units at Candlewood.
Prior to assuming control of the Candlewood facility,
S&F concluded it would need to increase the level of care,
replace the staff, and renovate the building. Closer to taking
over on July 1, 2004 S&F decided it could not replace the
entire staff at once because the turnover would be too
disruptive to the residents. Instead, S&F decided to hire some
of Candlewood’s employees for up to 90 days while it
continued to recruit new employees.
In June 2004 S&F caused applications for employment to
be distributed to the existing staff. A cover sheet informed
the employees that S&F “intends to implement significant
operational changes” and “[c]urrent Candlewood employees
interested in positions with [S&F] must submit the attached
application for employment.” Further, it advised, only
“[a]pplicants who meet the [Company’s] operational needs
will be interviewed,” and any offer of employment “will be
4
contingent on your passing a pre-employment physical, drug
test and acceptable reference and background checks.” The
job application itself required the applicant to affirm his or her
understanding that successfully passing the tests and checks
was a condition of employment, that any employment would
be at will, and that S&F “can change benefits, policies and
conditions at any time.”
At the end of June, S&F interviewed all the Candlewood
employees who had submitted applications. In each
interview, the applicant was informed that any possible
employment would be temporary and would last no more than
90 days.
S&F’s director of human resources sent to each employee
who was selected a letter dated June 30 with the subject line
“OFFER OF TEMPORARY EMPLOYMENT.” The letter
explained, “As a temporary employee of Windsor, you are not
eligible for company benefits. ... Other terms and conditions
of your employment will be set forth in Windsor’s personnel
policies and its employee handbook.” The letter further stated
the employment was temporary because S&F had not yet
been able to assess the employee’s “skills and abilities” or
“the building’s ongoing operational and staffing needs.” It
also noted that employment was at will and that “[n]o later
than the expiration of the 90-day period, which ends on
September 29th, your employment with Windsor will end,
unless you are selected for regular employment.” In order to
accept the offer the addressee was required to sign and date
the letter. Those hired also had to sign an “Agreement to be
Bound by Alternative Dispute Resolution Policy,” which
provided that arbitration would be the exclusive means of
resolving all disputes relating to termination of employment,
unlawful discrimination, and sexual harassment.
5
S&F began operations on July 1 with approximately 120
employees. Most were former Candlewood employees newly
employed on a temporary basis; 10 to 12 had not been
employed by Candlewood. Seventeen Candlewood
employees were not employed either because they had not
applied or because they were not chosen.
At a staff meeting on July 9, S&F distributed to the
employees handbooks describing Windsor’s policies and its
terms and conditions of employment. The temporary
employees received a handbook dated July 1, 2004 that did
not include information about employer-provided benefits.
The “regular” employees (i.e., those who had not worked for
Candlewood) received a handbook dated January 1, 2004,
reflecting the most recent revision of Windsor’s system-wide
policies; this version did include information about employer-
provided benefits.
S&F continued over the next three months to replace
former Candlewood employees with new employees. By
October 1 a majority of the company’s employees had been
hired from outside the Candlewood staff; some 30-40 of the
Candlewood employees hired initially as temporary
employees had been hired for regular employment and given
the January 1 version of the handbook.
Also following the takeover, S&F invested about
$500,000 to renovate the facility. Among other changes, S&F
repainted the employee lounge and the hallway where
Candlewood had hung a bulletin board for the use of the
Union, at which time S&F removed the bulletin board.
Meanwhile, on July 1 the Union requested bargaining
with S&F. The Company responded on July 7 that it had not
yet hired a representative complement of employees, so the
6
Union’s demand for bargaining was premature. The Union
filed unfair labor practice charges, and the Board General
Counsel issued a complaint alleging that when S&F began
operating the facility on July 1, 2004, it became “a successor
to Candlewood” but refused to bargain with the Union, in
violation of § 8(a)(1) and (5) of the Act. The complaint
further alleged that since July 1, 2004 S&F had made
unilateral changes at the former Candlewood facility —
removing union-related materials from a bulletin board,
prohibiting the posting of union materials, and implementing
new employment policies — again in violation of § 8(a)(1)
and (5), and had violated § 8(a)(3) in several ways unrelated
to the issue of successorship.
Following a hearing, an Administrative Law Judge found
S&F was a successor to Candlewood. According to the ALJ,
the “temporary” employees were actually akin to probationary
employees because their work was to be evaluated during the
period of temporary employment and they did not have a
definite anticipated termination date. Therefore the temporary
employees could be counted in determining whether S&F had
a substantial and representative complement of employees,
and whether a majority of that complement were from
Candlewood, when S&F began operations on July 1. Having
answered both questions in the affirmative, the ALJ
concluded S&F was obligated to recognize and to bargain
with the Union as of July 1.
At the same time, the ALJ found S&F, although a
successor to Candlewood, was not a “perfectly clear”
successor because S&F’s pre-employment communications to
the Candlewood employees put them on notice that the terms
and conditions of their employment would change.
Accordingly, although S&F was obliged to recognize and to
7
bargain with the Union, it was entitled first to establish the
initial terms and conditions of employment.
The Board affirmed the ALJ’s finding that S&F was a
successor to Candlewood but went on, with Member
Schaumber dissenting, to hold (1) as a matter of law, S&F
was a “perfectly clear” successor and, (2) as a matter of fact,
had “failed to clearly announce its intent to establish a new set
of conditions prior to inviting former [Candlewood]
employees to accept employment.” Windsor Convalescent
Ctr. of N. Long Beach, 351 N.L.R.B. 975, 980 (2007). The
Board concluded, therefore, that S&F did not have the right
unilaterally to set the initial terms and conditions of
employment. S&F petitions for review solely of the legal and
factual underpinnings of this determination.
The Board also held, and S&F does not contest, that S&F
refused to hire four union stewards, suspended or terminated
certain employees for engaging in protected activity, and
informed employees the facility would be nonunion, all in
violation of § 8(a)(1) and (3) of the Act; and, although a
successor employer, S&F failed to recognize and to bargain
with the Union, in violation of § 8(a)(5) of the Act. In
keeping with this court’s “longstanding rule,” Carpenters &
Millwrights, Local Union 2471 v. NLRB, 481 F.3d 804, 808
(2007), “[t]he Board is entitled to summary enforcement of
the uncontested portions of its order.” Flying Food Group
Inc. v. NLRB, 471 F.3d 178, 181 (2006).
II. Analysis
We turn now to the two rulings S&F does contest. First,
the Board held S&F was not only a successor but a “perfectly
clear” successor and therefore could not lawfully set the
initial terms and conditions of employment, as it did in
8
issuing the employee handbooks and removing the union
bulletin board, without first having bargained with the Union.
Second, the Board held that, even if S&F were not a
“perfectly clear” successor, it could not unilaterally change
the terms and conditions of employment because, it found,
S&F had not specifically announced the new terms prior to
becoming the incumbent employer on July 1.
We must uphold an order of the Board unless it rests
upon a finding not supported by “substantial evidence,” 29
U.S.C. § 160(f), or the Board failed to apply the proper legal
standard or departed from precedent without giving a
reasoned justification therefor. Mail Contractors of Am. v.
NLRB, 514 F.3d 27, 31 (D.C. Cir. 2008). In this case we
conclude the Board erred in applying the exception in NLRB
v. Burns International Security Services for “perfectly clear”
successors. 406 U.S. at 294-95. In addition, its finding that
S&F failed to notify the employees of its intent to establish
new terms and conditions is unsupported by substantial
evidence, and its conclusion that S&F could not implement
any terms or conditions it had not specifically announced
prior to July 1 is an unjustified departure from Board
precedent.
A. “Perfectly Clear” Successor Status
In Burns, the Supreme Court explained that, “although
successor employers may be bound to recognize and bargain
with the union,” except in rare circumstances “they are not
bound by the substantive provisions of a collective-bargaining
contract negotiated by their predecessors but not agreed to or
assumed by them.” Id. at 284. The rare exception is for
“instances in which it is perfectly clear that the new employer
plans to retain all of the employees in the [bargaining] unit.”
Id. at 294-95. That is, “a successor employer is ordinarily
9
free to set initial terms on which it will hire the employees of
a predecessor,” but a so-called “perfectly clear” successor
must bargain with the employees’ representative before it
changes any terms to which its predecessor had agreed. Id.
The “perfectly clear” exception is and must remain a
narrow one because it conflicts with the “congressional policy
manifest in the Act ... to enable the parties to negotiate for any
protection either deems appropriate, but to allow the balance
of bargaining advantage to be set by economic power
realities.” Id. at 288. In the Board’s leading case on the
“perfectly clear” exception, Spruce Up Corp., 209 N.L.R.B.
194 (1974), enf’d per curiam 529 F.2d 516 (4th Cir. 1975),
which came fast on the heels of Burns itself, the Board
recognized the importance of the employer’s right to set the
initial terms and conditions of employment and the correlative
narrowness of the “perfectly clear” exception. The employer
there had expressed a “general willingness” to hire his
predecessor’s employees, but also announced he was going to
change their commission rates. The employer “thereby made
it clear from the outset that he intended to set his own initial
terms, and that whether or not he would in fact retain the
incumbent [employees] would depend upon their willingness
to accept those terms.” 209 N.L.R.B. at 195. For that reason,
it could not be said the employer “plan[ned] to retain all the
employees in the unit” and the Board held the “perfectly
clear” exception did not apply. Id. The Board explained:
the caveat in Burns ... should be restricted to
circumstances in which the new employer has
either actively or, by tacit inference, misled
employees into believing they would all be
retained without change in their wages, hours,
or conditions of employment, or at least to
circumstances where the new employer ... has
10
failed to clearly announce its intent to establish
a new set of conditions prior to inviting former
employees to accept employment.
Id. Thus, at bottom the “perfectly clear” exception is intended
to prevent an employer from inducing possibly adverse
reliance upon the part of employees it misled or lulled into not
looking for other work.
The Board adhered to its original understanding of Burns
as recently as Ridgewell’s, Inc., 334 N.L.R.B. 37 (2001),
enf’d 38 Fed. Appx. 29 (D.C. Cir. 2002). In that case, the
successor employer announced it would retain the incumbent
employees but only as independent contractors. The Board
found they continued to work as employees within the
meaning of the Act rather than as independent contractors.
334 N.L.R.B. at 37. Nevertheless, the employer’s
announcement, although legally erroneous, was sufficient to
avoid the “perfectly clear” exception because it “portended
employment under different terms and conditions” and
thereby put the employees “on notice that a new set of
employment conditions would be in effect.” Id.
In the present case the ALJ found S&F “informed the
Candlewood applicants that they would be employed only in a
temporary or probationary status for 90 days,” which “should
have signaled to the applicants that terms and conditions of
employment with [S&F] were not going to be identical with
those of its predecessor.” 351 N.L.R.B. at 1001. As in
Ridgewell’s, the employer’s announcement portended
employment under different — indeed, significantly different
— terms and conditions. Therefore, the ALJ held S&F did
not violate the Act by setting the initial terms and conditions
of employment.
11
The Board, however, reversed the ALJ and applied the
“perfectly clear” exception because it found S&F had failed to
announce its intent to establish new terms and conditions
before it invited the former Candlewood employees to accept
employment. That finding is unsupported by substantial
evidence. On the undisputed facts of this case, no employee
could have failed to understand that significant changes were
afoot. The cover letter attached to each job application
foretold “significant operational changes,” identified various
pre-employment checks and tests to be passed, and explained
that any employment offered would be both temporary and at
will. The Board discounted the cover letter on the ground that
it “lacked any mention of intended changes to employees’
terms and conditions of employment.” Id. at 981. Yet under
Candlewood’s collective-bargaining agreements with the
Union, as any employee would know, each employee with 90
days on the job had vested “seniority rights” and could not be
terminated except for cause, which the Union could contest
through the negotiated grievance and arbitration procedure.
By announcing that any employment with S&F would be at
will, therefore, S&F was announcing a very significant
change in the terms and conditions of employment — both for
those who had been employed by Candlewood for 90 days or
more and for those who expected to be. In addition, by
requiring its new employees to agree to its own alternative
dispute resolution policy, S&F made it clear the grievance
mechanism the Union had negotiated with Candlewood would
not be available.
The Board not only muffed its reading of the record; it
also misread Burns to require more from the successor
employer than a portent of employment under different terms
and conditions. Recall that the “perfectly clear” exception
applies only to cases in which the successor employer has led
the predecessor’s employees to believe their employment
12
status would continue unchanged after accepting employment
with the successor. Here, as we have seen, the employees had
every indication — from S&F’s job applications, interviews,
and letters offering employment — that S&F intended to
institute new terms of employment. Under a proper reading
of Burns and Ridgewell’s, therefore, S&F cannot be
considered a “perfectly clear” successor.
The Board attempts to distinguish Ridgewell’s as follows:
“An announcement that workers will be hired as ‘independent
contractors’ necessarily signals an intent to establish a new set
of [employment] conditions, because it signals an intent to
divest the predecessor’s employees of ‘employee’ status
altogether.” Id. at 981 n.28 (internal citation and quotation
marks omitted). That is obviously true but irrelevant: A
successor need not signal an intent to divest the predecessor’s
employees of their status as statutory employees in order to
signal its intent, as did S&F here, to establish new terms and
conditions of employment under which some of the
predecessor’s employees may be hired.
The Board quibbles over when the employees may have
received the June 30 offers of temporary employment,
suggesting that some employees may have received their
letters after S&F took over operations on July 1. The
anachronism, if it occurred, changes nothing, however. First,
as we have seen, the June 30 letter was not the only indication
S&F provided to the Candlewood employees that the terms
and conditions of their employment would change.
Furthermore, because that letter was the very instrument by
which the Company invited employees to accept employment
with S&F, it was necessarily received “prior to inviting
former employees to accept employment.” Spruce Up Corp.,
209 N.L.R.B. at 195. That some employees may have
received the letter immediately after the Company took over
13
the operation rather than immediately before cannot make the
crucial difference under Burns unless the employees were
misled into expecting the terms of employment to continue
wholly without change.∗
∗
In that regard the Board recounts in a footnote testimony
indicating three former Candlewood supervisors told employees not
to worry about their employment prospects or future salaries. 351
N.L.R.B. at 981 n.29. But, as the Board acknowledges, the ALJ
made no finding that these statements occurred, id. at 981, let alone
that they were made by agents of S&F, which argues, fairly enough,
that former Candlewood supervisors were not authorized to speak
for S&F. In any event, the statements do not contradict S&F’s
announcement that any employment would be temporary and at
will. As the Board recognized in Spruce Up, Burns was not meant
to force an employer “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”; the
“perfectly clear” exception must be read narrowly so as not to
“encourage employer action contrary to the purposes of th[e] Act”
or “discourage continuity in employment relationships for such
legalistic and artificial considerations.” 209 N.L.R.B. at 195.
The only testimony that could provide support for the
contention that S&F misled employees is that of a Candlewood
employee who claimed S&F’s director of human resources, in
responding to employees’ concerns about their wages being
decreased, said “nothing was going to change.” In fact, the only
relevant evidence in the record is that nothing about their wages did
change during their period of temporary employment. In any event,
the alleged statement was denied both by another Candlewood
employee and by S&F’s human resources director and the ALJ did
not resolve the dispute. Taking into account the totality of S&F’s
communications to the Candlewood employees, even if credited
this piece of evidence is insufficient to support a finding that S&F
materially misled the Candlewood employees. See Pacific
Micronesia Corp. v. NLRB, 219 F.3d 661, 665 (D.C. Cir. 2000)
(“To meet the requirement of ‘substantial evidence,’ the Board
14
Nevertheless, the Board concluded “there is no evidence
that [S&F], prior to the takeover, informed Candlewood
employees that those who were retained would be working
under different core terms and conditions of employment.”
351 N.L.R.B. at 981. We see two errors of law in this
restatement of the “perfectly clear” standard.
First, the focus upon “core” terms and conditions
misstates the rule, which is that the successor employer must
simply convey its intention to set its own terms and conditions
rather than adopt those of the previous employer. Granting
that a trivial change in employment conditions may not
suffice, there is no requirement in Burns or Spruce Up that the
intended change(s) involve “core” terms. Whatever that term
may mean, however, it surely includes instituting at-will
employment and eliminating the negotiated grievance and
arbitration procedure.
Second, the Board’s holding achieves precisely what
Burns and Spruce Up sought to avoid. In those cases the
Supreme Court and the Board respectively started from the
presumption that a successor employer may set its own terms
and conditions of employment and reserved the “perfectly
clear” exception for cases in which employees had been
misled into believing their terms and conditions would
continue unchanged. See Burns, 406 U.S. at 294-95; Spruce
Up, 209 N.L.R.B. at 109. In this case, the Board presumed
the predecessor’s terms and conditions must remain in effect
unless the successor employer specifically announces it will
change “core” terms and conditions. Thus does the exception
must produce ‘more than a mere scintilla’ of evidence; it must
present on the record ‘such relevant evidence as a reasonable mind
might accept as adequate to support a conclusion,’ taking into
consideration the ‘record in its entirety … including the body of
evidence opposed to the Board’s view’”) (internal citation omitted).
15
in Burns swallow the rule in Burns. Under the proper
standard, S&F clearly comes within the protection of the rule
rather than the straightjacket of the exception: It was never
“perfectly clear that the new employer plan[ned] to retain all
of the employees in the unit,” Burns, 406 U.S. at 294-95, let
alone that it did so “with no notice that they would be
expected to work under new and different terms,” Spruce Up,
209 N.L.R.B. at 195 n.7. On the contrary, the Company
announced it would retain only those who met certain pre-
employment tests and stated its intent to set new initial terms
and conditions of employment.
B. Announcing Terms and Conditions After the July 1
Takeover
The Board held in the alternative that even if S&F had
expressed a “sufficiently clear intent to change employment
terms” and thus avoided being deemed a “perfectly clear”
successor, S&F “still had an obligation to bargain over any
unannounced specific changes to terms and conditions of
employment occurring after July 1, including dismantling the
bulletin board and issuing new handbooks.” 351 N.L.R.B. at
982 n.31. In the Board’s view, that is, a successor employer
may change preexisting terms and conditions of employment
only to the extent it has specified those changes in advance of
assuming control over the operation.
The Board’s novel rule in this case misapplied its own
precedent and that of the Supreme Court. In Burns, the
Supreme Court was perfectly clear that a successor employer
is not bound by the substantive provisions of a CBA
negotiated by its predecessor: “It is difficult to understand
how [the successor employer] could be said to have changed
unilaterally any pre-existing term or condition of employment
without bargaining when it had no previous relationship
16
whatsoever to the bargaining unit and, prior to July 1, no
outstanding terms and conditions of employment from which
a change could be inferred.” 406 U.S. at 294. True to this
teaching, the Board in Spruce Up did not require the employer
to announce in advance all (or indeed any) new terms it
intended to establish upon taking over; it was sufficient that
the employer had announced its intention to establish new
terms. See 209 N.L.R.B. at 195. S&F, having put the
employees on notice of that intention, was not bound by the
Candlewood CBA but was free unilaterally to implement its
own initial terms and conditions of employment.
In support of its view, the Board offers Banknote Corp. of
Am., 315 N.L.R.B. 1041 (1994), enf’d 84 F.3d 637 (2d Cir.
1996). In that case the Board correctly stated that an
employer is free to set initial terms and conditions prior to
hiring its predecessor’s employees. 315 N.L.R.B. at 1042.
The wrinkle in that case was that, when interviewing for jobs
with the new employer, “the employees were told [working
conditions] would be about the same.” Id. at 1043.
Subsequent changes were thus a deviation from the terms
under which the employees were told they were being hired.
Banknote therefore stands for the principle that once an
employer has hired its predecessor’s employees under any
specified terms and conditions of employment — its own or
those in its predecessor’s CBA — it must bargain over
subsequent changes.
In this case, the offer of temporary employment S&F
made to former Candlewood employees, which they had to
sign in order to accept employment with S&F, incorporated
by reference the employee handbook; and the handbook
expressly stated the initial terms and conditions of
employment that S&F set when it hired the employees. To
reiterate the relevant facts, the successor employer: (1) before
17
soliciting job applications, informed the predecessor’s
employees of its intention to change the terms and conditions
of employment; (2) upon hiring the predecessor’s employees,
explained that the new terms and conditions were set out in
detail in the employee handbook; and (3) shortly after
assuming operations, gave each employee a copy of the
handbook. These steps together constitute the process by
which the employer set the initial terms and conditions; it did
not accept its predecessor’s terms nor set its own initial terms,
hire the employees upon those terms, and then unilaterally
change them. Because the employer did not change any terms
it previously established but merely replaced its predecessor’s
terms with its own, it was not required first to bargain with
the Union over the content of the employee handbook or its
removal of the bulletin board during its initial renovation.
III. Conclusion
For the reasons set out above, we hold S&F was not a
“perfectly clear” successor under Burns, nor was it obligated
to bargain over initial terms and conditions simply because
those terms had not been specifically announced prior to July
1, 2004. We therefore grant the petition for review and deny
enforcement of the Board’s order insofar as it requires that
S&F restore the terms and conditions of employment
established by its predecessor and make its employees whole
for losses caused by its failure to apply the terms and
conditions of employment that existed prior to its
commencing operations. We grant the Board’s cross-
application for enforcement with respect to those aspects S&F
does not contest.
So ordered.