Local 348 v. Meridian Management

07-0080-cv
Local 348 v. Meridian Management
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
_____________________
August Term, 2007
(Argued: June 20, 2008 Decided: October 2, 2009)
Docket No. 07-0080-cv
_____________________
LOCAL 348-S, UFCW, AFL-CIO,
Plaintiff-Appellee,
-v.-
MERIDIAN MANAGEMENT CORP.,
Defendant-Appellant.
_______________________
BEFORE: HALL, LIVINGSTON, Circuit Judges, and McMAHON, District Judge.*
_______________________
The district court issued an order compelling Defendant-Appellant Meridian Management
Corporation (“Meridian”) to submit to arbitration the issue of whether it was bound by the terms
of a collective bargaining agreement (“CBA”) between Plaintiff-Appellee Local 348-S, UFCW,
*
The Honorable Colleen McMahon, of the United States District Court for the Southern
District of New York, sitting by designation.
1
AFL-CIO (“Local 348”) and Cristi Cleaning Services, Inc. (“Cristi”), Meridian’s predecessor
employer. On appeal, Meridian argues that it is not bound by the arbitration provision contained
in the CBA because it was not a party to that agreement. We hold that, as the successor of Cristi,
Meridian is obligated to arbitrate the question of whether and to what extent it is bound by the
substantive terms of the CBA. Accordingly, the judgment of the district court is AFFIRMED.
Judge Livingston dissents in a separate decision.
_______________________
Robert G. Riegel, Jr., Coffman, Coleman, Andrews & Grogan, P.A., Jacksonville,
Florida, for Defendant-Appellant.
J. Warren Mangan, O’Connor & Mangan, P.C., New Rochelle, New York, for
Plaintiff-Appellee.
_______________________
HALL, Circuit Judge:
Plaintiff-Appellee Local 348-S, UFCW, AFL-CIO (“Local 348”) brought suit against
Defendant-Appellant Meridian Management Corporation (“Meridian), alleging that Meridian had
failed to contribute to the union’s Health and Welfare Fund as required by a collective bargaining
agreement (“CBA”) that was between Local 348 and Cristi Cleaning Services, Inc. (“Cristi”),
Meridian’s predecessor. The complaint sought an order compelling Meridian to arbitrate the
fund dispute under the terms of the CBA. The district court found that because Meridian was the
successor employer to Cristi, Meridian was required to arbitrate the issue of whether it was
bound by any of the terms of the CBA. On appeal, Meridian urges us to adopt the holding of the
Third Circuit in AmeriSteel Corp. v. International Brotherhood of Teamsters, 267 F.3d 264 (3d
Cir. 2001), and conclude that, even if Meridian is obligated to arbitrate under the CBA, because
2
it is not bound by the specific terms of that agreement, arbitration would be futile because no
arbitration award could receive judicial sanction. We disagree, and hold that, while Meridian’s
status as Cristi’s successor does not automatically bind Meridian to the substantive terms of the
pre-existing CBA, Meridian is required to arbitrate the issue of whether and to what extent it is
bound by the terms of that agreement. We offer no opinion regarding the extent to which
Meridian is bound by the substantive terms of the CBA between Cristi and Local 348. We leave
that question to the arbitrator to decide in the first instance. Accordingly, the judgment of the
district court is AFFIRMED.
BACKGROUND
I. Meridian Management Corporation Contracts with Cristi Cleaning Services, Inc.
In October 2003, Meridian successfully bid for a contract with the Port Authority of New
York and New Jersey to provide engineering and janitorial services at the Jamaica Air Train
Terminal (the “Terminal”) for the period from October 2003 until September 2006. Meridian
elected to perform the engineering services itself and to subcontract the janitorial services to
Cristi under a contract that was to begin in December 2003 and continue until December 2004
and would thereafter automatically renew on a month-to-month basis until one party gave the
other party 30-day notice of its intent to terminate the agreement.
At the time of the subcontract between Cristi and Meridian, Local 348 represented Cristi
employees who worked at JFK International Airport. The CBA between Cristi and Local 348
required Cristi to contribute to Local 348’s Health and Welfare Fund for each of its full-time
employees. The CBA contained an arbitration clause which provided that all disputes between
Cristi and Local 348 would be resolved through arbitration. The terms of the CBA were binding
3
upon Cristi and Local 348 as well as their “successors.” After Meridian awarded Cristi the
subcontract at the Terminal, Local 348 and Cristi agreed to amend the CBA to apply to Cristi
employees who worked at the Terminal.
In September 2005, Meridian gave Cristi 30-day notice of its intent to terminate the
subcontract for the janitorial services at the Terminal, effective November 1, 2005. Although
Meridian initially accepted bids from other cleaning services, it eventually elected to perform the
janitorial services at the Terminal rather than subcontracting the work to another company. Prior
to November 1, 2005, Meridian hired a majority of Cristi employees who had worked at the
Terminal. Eventually, Local 348 sought from Meridian recognition as the bargaining
representative of the Meridian employees who performed the janitorial work at the Terminal.
Meridian declined to recognize Local 348 as the employees’ representative.
II. Local 348 Brings an Action Seeking to Arbitrate the Dispute
In January 2006, Local 348 filed a complaint against Meridian pursuant to the Labor
Management Relations Act (“LMRA”), 29 U.S.C. §§ 141, et seq., and the Employee Retirement
Income Security Act (“ERISA”), 29 U.S.C. §§ 1001, et seq. Local 348 alleged that after
November 1, 2005 there had “been a continuation of the Cristi cleaning services work” at the
Terminal and that employees represented by Local 348 had “continuously performed that work
by the same methods.” According to the complaint, after November 1, 2005, Meridian failed to
make the contributions to the Health and Welfare Fund that were required by the CBA. Local
348 asserted that “Meridian, by its continuation of the cleaning services work” at the Terminal,
had “assumed Cristi’s obligations under the CBA and . . . had a duty to contribute to the Fund” as
4
required by the terms of the CBA. The Union requested that the district court enter judgment
compelling Meridian to submit the Health and Welfare Fund dispute to arbitration.
In July 2006, Local 348 filed a motion for summary judgment in which it argued that the
arbitration provision of the CBA applied to Meridian because there was a “substantial continuity
in the identity of the business” before and after Meridian assumed the janitorial services at the
Terminal. Thereafter, Meridian also sought summary judgment, arguing that it was not bound by
the terms of the CBA between Cristi and Local 348.
III. The District Court Compels Meridian to Arbitrate with Local 348
In November 2006, the district court issued an order granting Local 348’s motion for
summary judgment and denying Meridian’s motion for summary judgment. The court ordered
Meridian to arbitrate. In doing so, the court determined that there was “obvious continuity in the
workforce employed by [Meridian] and Cristi.” It also concluded that there was “continuity in
the work performed by the terminal employees under Cristi and [Meridian],” noting that, despite
Meridian’s claim that it had made “sweeping changes” to the nature of the cleaning work at the
terminal, “the fact remains that Cristi and [Meridian] were required by contract to perform the
exact same cleaning services at the terminal.” Noting that Local 348 sought contributions to the
Fund “for the period following [Meridian’s] hiring only,” the court rejected Meridian’s claim that
because Cristi remained a viable entity, Local 348 could have sought relief from that company.
The court concluded that “[b]ecause of the circumstances presented . . . it [was] appropriate for
the arbitrator to decide if [Meridian] is bound, as a successor, to any terms of the CBA beyond
the obligation to arbitrate.” In December 2006, the district court issued an order granting
5
Meridian’s motion for a stay of its order compelling the company to arbitrate, pending the
outcome of this appeal.
Meridian appeals.
DISCUSSION
On appeal, Meridian raises three issues to support its argument that it is not obligated to
arbitrate in this case. Meridian first argues that the continuing identity of the workforce between
Cristi and Meridian is not sufficient to bind Meridian to the terms of the CBA between Local 348
and Cristi. Second, it contends that if the district court’s analysis were correct, it would bind
every successor employer to the terms of a pre-existing CBA. Third, according to Meridian, this
Court should adopt the Third Circuit’s reasoning in AmeriSteel Corp. v. International
Brotherhood of Teamsters, 267 F.3d 264 (3d Cir. 2001), and find that arbitration is futile because
Meridian is not bound by the specific terms of the CBA and, thus, no award could receive
judicial sanction.
This Court reviews a district court’s grant of summary judgment de novo, viewing the
evidence in the light most favorable to the nonmoving party. See Coosemans Specialities, Inc. v.
Gargiulo, 485 F.3d 701, 705 (2d Cir. 2007). In this case, the issue before this Court is not the
fact-based question of whether Meridian is the successor employer to Cristi. In its brief and at
oral argument, Meridian expressly denied that it was challenging the district court’s conclusion
on this point. Rather, we consider the legal issue of the extent to which a successor employer
either 1) is obligated to arbitrate under or 2) is bound by the substantive terms of a CBA between
a union and that successor employer’s predecessor. We review de novo the district court’s
determination of this question of law. Id.6
As discussed below, the development of the case law on this topic compels the
conclusion that a successor employer is not automatically bound by the substantive terms of a
pre-existing CBA, even if that successor employer retains a majority of its predecessor’s
workforce. However, on the unique facts of this case, we agree with the district court that this
particular successor employer has an obligation to arbitrate the issue of whether, and to what
extent, it is bound by the substantive terms of the CBA that governed the workforce it inherited.
I. John Wiley & Sons, Inc.
The Supreme Court first addressed the issue of successor employers in John Wiley &
Sons, Inc. v. Livingston, 376 U.S. 543 (1964). In that case, certain employees of Interscience
Publishers, Inc. (“Interscience”) were represented by an AFL-CIO union with which Interscience
had entered into a CBA. In 1961, Interscience merged with John Wiley & Sons, Inc. (“Wiley”),
another publishing firm, and ceased to operate as a separate entity. Although Wiley retained the
majority of Interscience’s former employees, the company refused to recognize the union as the
employees’ bargaining representative. Wiley argued that the merger of the companies had
terminated the CBA and that it had never been a party to the CBA. The union filed a complaint
under § 301 of the Labor Management Relations Act (“LMRA”), 29 U.S.C. §§ 141, et seq.,
seeking to compel arbitration.
The Supreme Court concluded that Wiley was required to arbitrate with the union under
the pre-existing CBA. 376 U.S. at 548. The Court began by acknowledging “the central role of
arbitration in [e]ffectuating national labor policy,” and noting that it had previously “described
arbitration as ‘the substitute for industrial strife’ and as ‘part and parcel of the collective
bargaining process itself.’” Id. at 549 (quoting United Steelworkers of Am. v. Warrior & Gulf
7
Navigation Co., 363 U.S. 574, 578 (1960)). According to the Court, “[i]t would derogate from
‘[t]he federal policy of settling labor disputes by arbitration’ . . . if a change in the corporate
structure or ownership of a business enterprise had the automatic consequence of removing a
duty to arbitrate previously established.” Id. (quoting United Steelworkers of Am. v. Enterprise
Wheel & Car Corp., 363 U.S. 593, 596 (1960)).
The Court then pointed to the necessity of balancing the interests of business owners with
those of the employees, noting “[t]he objectives of national labor policy . . . require that the
rightful prerogative of owners independently to rearrange their businesses and even eliminate
themselves as employers be balanced by some protection to the employees from a sudden change
in the employment relationship.” Id. According to the Court, in this context, continuing to
resolve employees’ claims through arbitration would “ease[]” the transition from one employer
to another and avoid “industrial strife.” Id. The Court acknowledged that under general
principles of contract law a non-consenting successor would not normally be bound to the terms
of a contract to which that party did not agree. Id. at 550. The Court noted, however, that “a
collective bargaining agreement is not an ordinary contract,” and that “the impressive policy
considerations favoring arbitration [were] not wholly overborne by the fact that” the successor
employer had not signed the contract being construed. Id.
Finally, the Court acknowledged that the duty to arbitrate does not survive in every case
in which corporate ownership or structure changes. The Court recognized that “there may be
cases in which the lack of any substantial continuity of identity in the business enterprise before
and after a change would make a duty to arbitrate something imposed from without . . ..” Id. at
551. The Court noted that in the case of Wiley, “relevant similarity and continuity of operation
8
across the change in ownership [was] adequately evidenced by the wholesale transfer of
Interscience employees to the Wiley plant, apparently without difficulty.” Id.
II. Burns International Security Services, Inc.
The Supreme Court next addressed the issue of a successor employer’s obligations under
a pre-existing CBA in NLRB v. Burns International Security Services, Inc., 406 U.S. 272 (1972).
In that case, Burns International Security Services (“Burns”) took over the task of providing
security to a Lockheed facility in California. Security services at the facility had previously been
provided by Wackenhut Corporation (“Wackenhut”). At the time of the changeover of security
companies, Wackenhut had recently entered into a CBA with the United Plant Guard Workers of
America (“UPG”), which had been recently certified as the bargaining representative of
Wackenhut guards. Burns chose to retain 27 of the former Wackenhut guards. Thereafter, Burns
declined to recognize UPG as the employees’ bargaining representative and refused to honor the
CBA between UPG and Wackenhut. UPG filed an unfair labor practice charge with the National
Labor Relations Board (“NLRB”). The NLRB concluded that Burns had violated the National
Labor Relations Act (“NLRA”) by failing to recognize and bargain with UPG and refusing to
honor the CBA. On review, this Court held that the Board had exceeded its powers by ordering
Burns to honor the CBA.
The Supreme Court affirmed this Court’s decision, concluding that while Burns, as the
successor employer to Wackenhut, had a duty to bargain, the company was not bound by the
substantive terms of the CBA between UPG and Wackenhut. 406 U.S. at 281-82. The Court
began by acknowledging with approval the NLRB’s conclusion that Burns, as Wackenhut’s
successor, had an obligation to bargain with the union. Id. at 278-79. As the Court observed,
9
“where the bargaining unit remains unchanged and a majority of the employees hired by the new
employer are represented by a recently certified bargaining agent there is little basis for faulting
the Board’s implementation of the express mandates of [the NLRA] by ordering the employer to
bargain with the incumbent union.” Id. at 281.
The Court also determined, however, that the duty to bargain with the incumbent union
did not extend to bind Burns to the substantive terms of the existing CBA. Id. at 281-82. The
Court noted that “Congress has consistently declined to interfere with free collective bargaining
and has preferred that device, or voluntary arbitration, to the imposition of compulsory terms as a
means of avoiding or terminating labor disputes.” Id. at 282. The Court pointed to the NLRB’s
prior decisions which, to that point, had “consistently held that, although successor employers
may be bound to recognize and bargain with the union, 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.
III. Howard Johnson
In Howard Johnson Co. v. Hotel and Restaurant Employees, 417 U.S. 249 (1974), the
Court revisited its holdings in Wiley and Burns. In Howard Johnson, the Grissom family entered
into an agreement with the Howard Johnson Company whereby the family would sell certain
equipment to the company and lease the company a restaurant and motor lodge that had
previously been operated by the family and its wholly-owned corporation. When the family
operated the facilities, the employees of the restaurant and motor lodge had been represented by
the Hotel & Restaurant Employees & Bartenders International Union (“Hotel & Restaurant
Employees”). In its agreement with the Grissoms, Howard Johnson expressly declined either to
10
recognize the CBA between the Grissoms and the union or to assume any obligations or
liabilities arising from the CBA. Howard Johnson retained only nine of the forty-five employees
who had worked for the Grissoms. Characterizing Howard Johnson’s failure to hire all of the
Grissom’s employees as an illegal lock out, the union filed a complaint under § 301 of the
LMRA, seeking to compel Howard Johnson to arbitrate the extent of its obligations to the
Grissom employees under the CBA. The district court held that Howard Johnson was required to
arbitrate, and the Sixth Circuit affirmed. Both the district court and the court of appeals relied on
the Court’s decision in Wiley to determine that Howard Johnson, as the successor employer to the
Grissoms, was required to arbitrate with the union.
The Supreme Court reversed the Sixth Circuit’s decision and decided that Howard
Johnson had no duty to arbitrate under the CBA. 417 U.S. at 256. The Supreme Court
acknowledged the lower courts’ suggestion that the holding in Wiley– that a successor employer
is bound to arbitrate with an incumbent union– and the holding in Burns– that a successor
employer is not automatically bound to the substantive terms of the CBA between the
predecessor employer and the incumbent union– were “to some extent inconsistent.” Id. at 254.
The Court rejected the lower courts’ reasoning that Wiley controlled the result in Howard
Johnson’s case simply because Wiley involved a suit brought under § 301 of the LMRA, while
Burns on the other hand involved an NLRB order resulting from an unfair labor practice charge.
Id. at 255. The Court pointed to its prior decisions holding that, while § 301 of the LMRA
“authorized the federal courts to develop a federal common law regarding enforcement of
collective-bargaining agreements,” it was “clear that this federal common law must be
‘fashion[ed] from the policy of our national labor laws.’” Id. (citing and quoting Textile Workers
11
Union v. Lincoln Mills, 353 U.S. 448, 456 (1957)). The Court reasoned, “[i]t would be plainly
inconsistent with this view to say that the basic policies found controlling in an unfair labor
practice context may be disregarded by the courts in a suit under § 301, and thus to permit the
rights enjoyed by the new employer in a successorship context to depend upon the forum in
which the union presses its claims.” Id. at 256.
However, the Court also concluded that it was “unnecessary . . . to decide in the
circumstances of th[e] case whether there is any irreconcilable conflict between Wiley and Burns”
because “even on its own terms, Wiley does not support the decision of the courts below.” Id.
The Court went on to note several relevant distinctions between the facts presented in Howard
Johnson and the facts of Wiley. One of these distinctions was that Wiley involved a merger, “as a
result of which the initial employing entity completely disappeared,” while Howard Johnson
“involves only a sale of some assets[ ] and the initial employers remain in existence as viable
corporate entities . . ..” Id. at 257. According to the Court, this distinction was relevant because,
as recognized in Wiley, New York State law “‘embodied the general rule that in merger situations
the surviving corporation is liable for the obligations of the disappearing corporation.’” Id.
(quoting Burns, 406 U.S. at 286). Furthermore, unlike the former employer in Wiley, because the
former employer in Howard Johnson continued to exist, the union had “a realistic remedy to
enforce their contractual obligations” against that former employer. Id.According to the Court, the “more important” of the relevant distinctions between the
facts of Wiley and the facts of Howard Johnson was that in Wiley “the surviving corporation
hired all of the employees of the disappearing corporation.” Id. at 258. The Court noted that,
because John Wiley & Sons had hired the majority of its predecessor’s employees, “[t]he claims
12
which the union sought to compel Wiley to arbitrate were thus the claims of Wiley’s employees
as to the benefits they were entitled to receive in connection with their employment. It was on
this basis that the Court in Wiley found that there was ‘substantial continuity of identity in the
business enterprise’ . . . which it held necessary before the successor employer could be
compelled to arbitrate.” Id. at 259 (quoting Wiley, 376 U.S. at 551). In Howard Johnson,
however, “the primary purpose of the Union in seeking arbitration . . . [was] not to protect the
rights of Howard Johnson’s employees,” but, rather, to protect the rights of “the former Grissom
employees who were not hired by Howard Johnson.” Id. at 260.
According to the Supreme Court, because there was no “substantial continuity of identity
in the business enterprise” before and after Howard Johnson assumed the operation of the hotel
and restaurant, under Wiley, Howard Johnson had no duty to arbitrate under the CBA. Id. at 263
(quoting Wiley, 376 U.S. at 551). In arriving at this conclusion, the Court observed “[t]his
continuity of identity in the business enterprise necessarily includes . . . a substantial continuity in
the identity of the work force across the change in ownership. The Wiley Court seemingly
recognized this, as it found the requisite continuity present there in reliance on the ‘wholesale
transfer’ of Interscience employees to Wiley.” Id. According to the Court, interpreting Wiley to
focus on the continuity of the identity of the workforce correctly balanced the interest of workers
with the interest of business owners:
This interpretation of Wiley is consistent also with the Court’s concern with
affording protection to those employees who are in fact retained in “[t]he
transition from one corporate organization to another” from sudden changes in the
terms and conditions of their employment, and with its belief that industrial strife
would be avoided if these employees’ claims were resolved by arbitration rather
than by “the relative strength . . . of the contending forces.” At the same time, it
recognizes that the employees of the terminating employer have no legal right to
13
continued employment with the new employer . . .. This holding is compelled . . .
if the protection afforded employee interests in a change of ownership by Wiley is
to be reconciled with the new employer’s right to operate the enterprise with his
own independent labor force.
Id. at 264 (citation omitted).
IV. Fall River
The holdings of Wiley, Burns and Howard Johnson, taken together, reflect the Court’s
identification of several principles that must influence any consideration of a successor
employer’s obligations under a pre-existing CBA. The decisions, particularly Wiley, emphasize
the central role of collective bargaining and arbitration in furthering the goals of national labor
policy – specifically by avoiding industrial strife and encouraging the peaceful resolution of labor
disputes. See, e.g., Wiley, 376 U.S. at 549; Burns, 406 U.S. at 282. They also demonstrate the
Court’s concern with balancing the interests of the parties most affected by changes in ownership
or corporate restructuring: (1) the employees represented by the incumbent union and (2) the
successor employer. In Wiley, the Court identified the successor employer’s duty to arbitrate as a
means by which the employees represented by an incumbent union would be protected from a
sudden change in the employment relationship. 376 U.S. at 549. In Burns, the Court declined to
bind a successor employer to the substantive terms of a pre-existing CBA, thus emphasizing the
successor employer’s right to rearrange or restructure its business. 406 U.S. at 281-82.
However, even in declining to extend a successor employer’s obligations to include the
substantive terms of the CBA, the Court emphasized the important role of collective bargaining
and arbitration, pointing to Congress’s preference for the use of arbitration and collective
14
bargaining over the imposition of compulsory terms as means of avoiding labor disputes. Id. at 282.
In Howard Johnson, the Court reiterated the importance of the continuity of the identity
of the work force as a benchmark for determining whether a successor employer is obligated to
arbitrate under the pre-existing CBA. In so doing, the Court again stressed the necessity of
balancing the interests of employees represented by an incumbent union with the interests of a
successor employer. 417 U.S. at 264. Although in Howard Johnson the Court declined to
extend Wiley to the facts presented in that case, the Court’s explanation for that refusal
emphasized the importance of the workers’ interest in being shielded from sudden changes in the
employment relationship. The Court’s determination that Howard Johnson was not required to
arbitrate under the CBA was based in large part on the fact that Howard Johnson’s work force
was not composed of the same people as the Grissoms’ work force. In other words, the Howard
Johnson’s workers on whose behalf the union was advocating had not had an employment
relationship with the Grissoms and, thus, did not suffer changes in that relationship from which
they needed protection. Howard Johnson did not limit the holding in Wiley. Rather, in declining
to compel the Howard Johnson Company to arbitrate, the Court relied on the policies identified
and addressed by Wiley’s reasoning and determined that these policies would not have been
furthered by an order compelling arbitration.
The Court most recently revisited the issue of successor employers in Fall River Dyeing
& Finishing Corp. v. NLRB, 482 U.S. 27 (1987). There the Court discussed the rationale for
extending the bargaining obligation – and recognizing the incumbent union’s presumption of
majority status – in this context. The Court described a union’s precarious position during a
change in ownership or corporate restructuring:
15
During a transition between employers, a union is in a peculiarly vulnerable
position. It has no formal and established bargaining relationship with the new
employer, is uncertain about the new employer's plans, and cannot be sure if or
when the new employer must bargain with it. While being concerned with the
future of its members with the new employer, the union also must protect
whatever rights still exist for its members under the collective-bargaining
agreement with the predecessor employer.
482 U.S. at 39. Further, the Court noted that employees facing such transitions “may well feel
that their choice of a union is subject to the vagaries of an enterprise’s transformation. This
feeling is not conducive to industrial peace.” Id. at 39-40 (emphasis added).
In Fall River, the Court reiterated the holding of Burns that successor employers are not
bound by the substantive terms of their predecessors’ CBAs. Id. at 40. It also extended the
bargaining obligation to cases, unlike Burns, in which the union’s certification was not recent:
We now hold that a successor’s obligation to bargain is not limited to a situation
where the union in question has been recently certified. Where, as here, the union
has a rebuttable presumption of majority status, this status continues despite the
change in employers. And the new employer has an obligation to bargain with
that union so long as the new employer is in fact a successor of the old employer
and the majority of its employees were employed by its predecessor.
Id. at 41.
The Court also revisited the fact-based approach to determining whether a new employer
is a successor to a previous employer. Id. at 43. It acknowledged, with approval, the NLRB’s
analysis that focused on “whether those employees who have been retained will understandably
view their job situations as essentially unaltered.” Id. (internal quotation marks omitted).
According to the Court, “[t]his emphasis on the employees’ perspective furthers the [NLRA’s]
policy of industrial peace. If the employees find themselves in essentially the same jobs after the
employer transition and if their legitimate expectations in continued representation are thwarted,
16
their dissatisfaction may lead to labor unrest.” Id. at 43-44. Fall River demonstrates the
continued applicability of the Court’s oft-stated interest in affording represented workers
protection from changes in an employment relationship that result from a change in ownership.
The decision also confirms that imposing on a successor employer a duty to bargain or arbitrate
remains the most effective way to afford employees that important protection.
V. Synthesis of Case Law and the Present Case
In view of the foregoing, the district court properly concluded that Meridian was
obligated to arbitrate the question of whether, and to what extent, it must comply with the
substantive terms of the CBA between Local 348 and Cristi. Neither party disputes that here,
as was the case in Wiley, Meridian retained a majority of Cristi’s employees after assuming the
cleaning duties previously performed by Cristi; nor does anyone dispute that those employees
continued to perform substantially the same duties for Meridian as they had for Cristi. We
acknowledge that in Wiley the identical situation came about as a result of a merger, while in this
case the reason was the termination of Cristi’s subcontract. However, we do not believe that
Wiley can or should be limited to situations in which a merger occurs. Rather, as the Supreme
Court recognized in Howard Johnson, the issue is whether there exists a “substantial continuity
of identify of the work force.” Howard Johnson, 417 U.S. at 263. The merger of two
companies, resulting in the hiring of one company’s entire workforce by the other, undoubtedly
creates the continuity of identity contemplated by the Court. But we can imagine other ways in
which the same identity could come about. This case presents one of them.
In accordance with the Supreme Court’s decision in Fall River, the existence or non-
existence of substantial continuity in the context of assessing the duty to bargain is determined by
17
looking at: whether the business of both employers is essentially the same; whether the
employees of the new company are doing the same jobs in the same working conditions under
the same supervisors; whether the new entity has the same production process, produces the same
products, and basically has the same body of customers. We have previously used the Fall River
factors to make a fact-specific finding that a successor corporation was bound by a predecessor’s
CBA, at least to the extent of its arbitration clause. See Stotter Div. of Graduate Plastics Co. v.
Dist. 65, 991 F.2d 997, 1001 (2d Cir. 1993). Looking at those factors in this case, it is apparent
that this particular employer, Meridian, should be required to arbitrate the degree to which it is
otherwise bound by the CBA.
The key factor in our analysis is a particular fact that was not present in any of the prior
jurisprudence on this subject: at all times from the time that the employees represented by Local
348 began to work at the Terminal (including when Cristi was the employer of record), those
employees were essentially working for Meridian. Meridian had the contract to clean the
terminal. Meridian elected to fulfill its contractual obligations by retaining Cristi – a shop that
employed union workers pursuant to an existing CBA – to do Meridian’s work. Their wages
came from Cristi, of course, but Cristi was in turn paid by Meridian to perform the janitorial
services required by the contract between Meridian and the Port Authority. Cristi was simply the
middleman between Meridian and those workers. Put otherwise, when it entered into its
agreement with the Port Authority and obligated itself to provide janitorial services at the
Terminal, Meridian knowingly and voluntarily elected to carry out its obligation by hiring a
subcontractor that employed workers represented by Local 348, pursuant to a collective
bargaining agreement negotiated by Local 348. Eventually, Meridian decided to eliminate the
18
middleman and, in November 2005, entered into a direct employment relationship with
approximately three-quarters of the janitorial workers at the Terminal. Otherwise, nothing
changed. The same people went to the same locations and performed janitorial services that
Meridian -- not Cristi -- had all along been contractually bound to provide for the Port Authority.
Looking at the Fall River factors against the backdrop of this crucial fact, it is clear that
the district court reached the correct conclusion.
First, both Meridian and Cristi are in the business of providing janitorial services to
commercial enterprises in the New York metropolitan area. Although Meridian provides more
than just janitorial services, as a part of its more general provision of building maintenance
services, Meridian undertakes to keep its buildings clean. To the extent that Meridian uses its
own employees to perform that task, it is in the same business as Cristi.
Second, the employees who woke up one morning to find that they were now employed
by Meridian rather than Cristi went to the same location -- the Terminal -- and performed the
same job -- cleaning -- in substantially the same working conditions as they always did.
Third, Meridian continues to the use those same workers to provide the same product to
the same customer. While Cristi, the predecessor employer, was technically providing janitorial
services to Meridian, not the Port Authority, that is a distinction without a difference, because
Cristi was acting as Meridian’s subcontractor for the purpose of providing services to the Port
Authority.
It is true that Cristi was not extinguished as a corporation when Meridian decided to
supplant it as the provider of janitorial services. There has been no merger here and there was
not even a sale of assets. Our dissenting colleague suggests that Local 348 could look to Cristi to
19
provide the benefits the union seeks to obtain through arbitration. In this case, however, the
continued existence of Cristi is irrelevant. As in Wiley, Local 348 would likely have no way of
obtaining the relief it has sought from Meridian by filing suit against Cristi. In Wiley, the original
employer ceased to exist after the merger and, thus, the union could not obtain relief by filing suit
against that original employer. Here, because Christi no longer employed the union members
after its agreement with Meridian was terminated, Cristi had no legal responsibility to make
further contributions to the Fund. There would thus be no basis upon which Local 348 could
obtain those contributions from Cristi. It is neither legally required nor equitably appropriate to
force Cristi to pay benefits that are owed to Meridian’s employees for work being performed by
Meridian. Given the nature of Local 348’s claims, only Meridian can provide Local 348 with the
relief it seeks.
The Supreme Court identified interests to be balanced in Burns and Howard Johnson.
This, however, is not a case like Burns, where one security service outbid its competitor and so
obtained the right to provide security services to Lockheed, the ultimate customer, and where the
issue was which of two union contracts would protect the security guards. Neither is this a case
like Howard Johnson, where most of the predecessor’s employees were fired and the union was
actually seeking to vindicate the rights of those displaced employees — not the rights of the few
who actually remained on the job. In this case, the union is seeking health and welfare
contributions for the employees who remained on the job, and who had a legitimate expectation
that they would continue to receive the same compensation (including benefits) for doing the
same work on behalf of the same ultimate contracting party.
20
Enforcing a duty to arbitrate the issue of Meridian’s obligation to comply with the
substantive terms of the agreement is the most effective way to balance those interests recognized
by the Supreme Court in Wiley, as well as Burns and Howard Johnson. Arbitration provides a
forum in which the two parties can offer evidence and arguments regarding their dispute.
Although the obligation to arbitrate arises out of the agreement, and the case law clearly
establishes that a successor is not automatically obligated by the substantive terms, requiring
arbitration on this issue is the most efficient and fair means by which the parties can settle their
dispute, particularly in cases like this one where the dispute arises out of the employer’s refusal
to honor a particular term of the CBA. The duty to recognize the union is separate from the duty
to arbitrate grievances arising out of the existing CBA, and the two have different purposes. The
former may lead to negotiation of a new agreement between the successor employer and the
incumbent union. The latter protects the established right of union members to rely on the
protections negotiated for them by their union, at least until that union negotiates a new
agreement with their new employer. See Howard Johnson, 417 U.S. at 264 (noting that
interpreting Wiley to require a successor employer to arbitrate “is consistent . . . with the Court’s
concern with affording protection to employees who are . . . retained in the transition from one
corporate organization to another . . ..”) (internal quotation marks omitted). The narrow issue
before this Court arises from a dispute regarding the substantive terms of the CBA, not whether
Meridian violated its duty to bargain or recognize Local 348. See Wiley, 376 U.S. at 551 (“This
Union does not assert that it has any bargaining rights independent of the Interscience agreement;
it seeks to arbitrate claims based on that agreement . . . not to negotiate a new agreement.”).
Accordingly, the district court’s order of arbitration was appropriate in this case in that it required
21
the commencement of an arbitration that would decide two questions: first, the extent to which
Meridian is bound by the particular provisions of the CBA at issue, and second, if Meridian is
bound, then the nature of the relief available to Local 348.
We note Meridian’s argument that under the district court’s analysis all successor
employers will be bound by the substantive terms of pre-existing CBAs. This overstates the
relief awarded by the district court, however, as the very question to be considered by the
arbitrator in the first instance is whether and to what extent Meridian is required to comply with
the terms of the pre-existing CBA. We emphasize that our holding on this point is a narrow one.
We do not intend a rule that binds all successor employers to the substantive terms of pre-
existing agreements between their predecessors and the unions that represent the predecessors’
employees. Rather, we conclude that, as in this case, where there are sufficient indicia of
substantial continuity of identity of the workforce, it is possible that a successor employer will be
bound at least by some of the substantive terms of a pre-existing CBA. Determining the extent to
which the successor employer is bound by the preexisting agreement, however, is a question for
the arbitrator. See AmeriSteel, 267 F.3d at 287-88 (“Wiley’s holding necessarily means that, in
the right circumstances, some substantive terms of a predecessor’s CBA may be imposed on an
unconsenting non-alter-ego successor corporation. . . . [T]his case involves only arbitrating the
applicability of the CBA . . ..”) (Becker, J., dissenting) (emphasis in original). We offer no
opinion regarding the extent to which Meridian is bound by the substantive terms of the CBA
1
between Cristi and Local 348. We leave that question to the arbitrator.
1
Contrary to the dissent’s assertion, the balancing test that we undertake is not
“freewheeling.” See slip dissent at 11. Rather, as we have explained it above and as we apply it
here, its factors are those established by the Supreme Court. The situation before us, in which
22
VI. AmeriSteel
Meridian relies on the Third Circuit’s decision in AmeriSteel to argue that the district
court improperly compelled it to arbitrate with Local 348. The facts of AmeriSteel are simple
and, in this context, familiar. In 1999, AmeriSteel Corporation (“AmeriSteel”) purchased
various assets of Brocker Rebar, including a facility in York, Pennsylvania, where certain
employees were represented by the Teamsters. Brocker Rebar had entered into a CBA with the
Teamsters prior to the purchase of the facility by AmeriSteel. That company hired all but six of
the employees represented by the Teamsters. Despite this, AmeriSteel consistently maintained
that because it was not bound by the substantive terms of the CBA, it was not required to
arbitrate under the agreement. Prior to the effective date of the agreement between AmeriSteel
and Brocker Rebar, the Teamsters filed a grievance challenging changes at the location that
would occur after the purchase agreement was consummated. After the parties were unable to
resolve the dispute, the union requested arbitration pursuant to the terms of the CBA.
AmeriSteel filed a complaint in district court seeking an injunction prohibiting the union and the
American Arbitration Association from proceeding to arbitration with AmeriSteel as a party.
The district court granted AmeriSteel the injunction, finding that because AmeriSteel was not the
alter ego of Brocker Rebar and had not agreed to abide by the terms of the CBA, it had no duty to
arbitrate.
On appeal, the Third Circuit agreed with the district court. 267 F.3d at 265. The court
began by examining the facts and holdings of Wiley and Burns and by asserting that the two cases
the employees represented by Local 348 were working indirectly and then directly for Meridian
at all times that they worked at the terminal, presents a relatively unusual, if not unique, set of
facts to which we have applied that test.
23
“appear to be in direct conflict.” Id. at 270. According to the Third Circuit, “[o]n the one hand,
the holding in Wiley necessarily implies that uncontesting successor employers may be bound by
the substantive terms of pre-existing CBAs. But on the other hand, Burns endorses the idea that
unwilling successors cannot be bound by such terms.” Id. It went on to examine the Supreme
Court’s holding in Howard Johnson, and concluded that “Howard Johnson does not bridge the
gap between Wiley and Burns, nor does it establish broadly applicable guiding principles that
should be implemented when analyzing labor law successorship problems.” Id. at 272.
According to the Third Circuit, in Howard Johnson, the Supreme Court “downplay[ed] the
significance of Wiley” and “t[ook] an expansive view of Burns, repeatedly extolling its
reasoning.” Id. The circuit court went on to presume that, because – in that court’s opinion –
Howard Johnson relied heavily on Burns and limited the holding of Wiley, “after Howard
Johnson, Burns rests on solid ground.” Id. at 273. Finally, the court concluded that, because
“Burns . . . provides more persuasive guidance than the limited holding in Wiley,” AmeriSteel
“cannot be bound by the substantive terms of the CBA,” and “because AmeriSteel cannot be
bound by the substantive terms of the CBA, no arbitration award to the Union – which of course
would be based on the substantive terms of the CBA – could receive judicial sanction, and
therefore AmeriSteel cannot be compelled to submit to arbitration.” Id. at 273-74.
With all due respect, we disagree with the Third Circuit’s analysis of Howard Johnson.
While Howard Johnson arguably did not announce any new principles in this context, it did
reinforce the Supreme Court’s emphasis on assessing the protectable interests in question and the
means by which those interests are most effectively protected. In Howard Johnson, the Court
discussed the rationale of Wiley at length and clearly established the contours of its holding. The
24
Court considered the reasoning and policies underlying both Burns and Wiley and rejected neither
case. As discussed above, in declining to apply Wiley to the facts presented by Howard Johnson,
the Court described the policies underlying the rationales of both Wiley and Burns. This is
further evidenced by the Supreme Court’s decision in Fall River, which reiterated and extended a
successor employer’s duty to arbitrate or bargain with an incumbent union.
The result of the holding in AmeriSteel is clear, as it eviscerates the protection of
employees represented by incumbent unions—a protection that has been well identified in the
Supreme Court’s decisions to this point. AmeriSteel’s controlling rationale incorrectly minimizes
the Supreme Court’s clear reasoning in Howard Johnson and fails to account for the discussion
in Howard Johnson of the importance of the policies first identified in Wiley. Further,
AmeriSteel does not account for the oft-recognized importance of the role of arbitration in
settling labor disputes. In sum, the majority in AmeriSteel misperceived the reasoning of
Howard Johnson and minimized, if not ignored, the Supreme Court’s repeated descriptions of
the important interests at play in the context of successor employers and their obligations to
incumbent unions. The result in AmeriSteel is one-sided in a way that is in clear conflict with the
policies identified in Wiley and reinforced in Howard Johnson. We agree with the dissent in
AmeriSteel and will not adopt the majority’s reasoning in that case “because its logical
consequence flatly contradicts the holding of Wiley . . ..” AmeriSteel, 267 F.3d at 281 (Becker,
J., dissenting). As discussed in Section V, supra, imposing a duty to arbitrate the issue of the
successor employer’s obligations under the substantive terms of the CBA is the most efficient
way of balancing the interests recognized by the Supreme Court in Wiley, Burns, and Howard
Johnson. Accordingly, the district court did not err in concluding that Meridian had an
25
obligation to arbitrate under the CBA between Cristi and Local 348, and that it was appropriate
for an arbitrator to determine the extent of Meridian’s obligation to comply with the substantive
terms of the CBA.
CONCLUSION
For the reasons stated, we AFFIRM the judgment of the district court.
26
DEBRA A. LIVINGSTON , Circuit Judge, dissenting:
The majority opinion confuses the circumstances in which a “successor employer”
has a duty to recognize and bargain with a labor union, with the much more limited
circumstances in which that employer is bound to arbitrate with a union under a collective
bargaining agreement to which it has not agreed. This confusion may be understandable, given
“the difficulty of the successorship question,” see Howard Johnson Co. v. Detroit Local Joint
Executive Bd., 417 U.S. 249, 256 (1974), and its history of bedeviling courts. See Ameristeel
Corp. v. Int’l Bhd. of Teamsters, 267 F.3d 264, 267 (3d Cir. 2001) (referencing the “treacherous
waters” of the Supreme Court’s labor law successorship doctrine); Edward B. Rock & Michael L.
Wachter, Labor Law Successorship: A Corporate Law Approach, 92 Mich. L. Rev. 203, 203
(1993) (“Courts have struggled repeatedly to define the legal obligations of the buyer of a
business that has unionized workers.”). The fact remains, however, that the majority
misinterprets what until today had become a settled, if not well-charted, area of law. This error
leads the majority to an erroneous result in this case, and to an analysis that either will confound
the “successor employer” labor law of this Circuit indefinitely or that must be limited to “the
unique facts of this case,” slip op. at 7 — in which event today’s decision is little more than an
aberrational and unjustified departure from precedent.
* * *
It is well-settled that a “successor employer” — i.e., an employer whose business
has a “substantial continuity” with that of its predecessor — has a duty to recognize and bargain
with an existing union. Fall River Dyeing & Finishing Corp. v. NLRB, 482 U.S. 27, 40, 43
27
(1987). This duty arises as a consequence of federal labor law, not from any contract, and
whether the “substantial continuity” test is met does turn on at least the main factors that the
majority opinion discusses. Meridian has conceded on appeal that the “substantial continuity”
test is met in today’s case and that Meridian therefore is a successor employer. Consequently,
Meridian concedes that it is obligated to recognize and bargain with the union, and I therefore do
not find it necessary to discuss the application of the “substantial continuity” test to these facts.
“Successor employers,” in some situations — but not all, as the majority at points
admits — also are bound by the terms of a collective bargaining agreement (“CBA”) entered into
by the predecessor employer, and therefore might be required to arbitrate with the union (if that
agreement contains an arbitration provision). It is not necessary exhaustively to catalog the
situations in which a “successor employer” might be bound by the pre-existing collective
bargaining agreement, but previous cases generally have required a company to abide by a
collective bargaining agreement where there has been a merger, where the company expressly or
impliedly assumed the CBA, or where the “successor employer” is in fact simply an alter ego of
the predecessor employer. See Howard Johnson Co., 417 U.S. at 259 n.5 (discussing alter ego);
John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 548-49 (1964) (merger); Southward v.
South Cent. Ready Mix Supply Corp., 7 F.3d 487, 493 (6th Cir. 1993) (assumption of liability).
All three theories are widely accepted outside the labor law context as grounds for
imposing successor liability on an entity that has not itself entered into a contract but is closely
related to another entity that has. See 1 Fletcher Cyc. Corp. § 41.10 (updated 2008) (“The alter
ego doctrine has been adopted by courts in cases where the corporate entity has been used as a
subterfuge and to observe it would work an injustice.”); 15 id. § 7121(“[I]n all jurisdictions
28
today, the surviving corporation in a statutory merger has the statutory obligation to assume the
duties and liabilities of a constituent corporation.”); id. § 7142 (“An implied assumption of
liabilities is one of the exceptions to the general rule of nonliability for a corporation that merely
purchases the assets of another corporation.”); cf. Howard Johnson, 417 U.S. 249 (declining to
impose liability under a CBA on a corporation that merely purchased the assets of the
predecessor employer, albeit on the theory that the “substantial continuity” requirement was not
met).
The majority in today’s decision, however, nowhere suggests that Meridian was
an “alter ego” of its predecessor or that Meridian expressly or impliedly assumed the agreement
at issue here, or that there was a merger. Nor does the majority argue that some other widely
accepted grounds for imposing successor liability on a contract applies to this case. On the facts
before us, such an argument is not available. Instead, the majority seems to hold simply that,
whenever there is a “substantial continuity of identity of the workforce” between a predecessor
and successor employer, the successor employer is bound at least by the arbitration clause of the
CBA. In other words, all successor employers who hire the bulk of a predecessor’s employees
have a duty not only to bargain with and recognize a union but also to arbitrate with it the extent
to which it is bound by the previous CBA. This is apparently the case even if the successor
employer, as here, is simply a contractor who elects no longer to subcontract work that another
has performed, and where there has been no merger, consolidation, stock acquisition, purchase of
assets, or any voluntary assumption, explicit or implicit, of any terms of the CBA, including its
arbitration provision.
29
This is hard to square with what has gone before. The Supreme Court has held
that “although successor employers may be bound to recognize and bargain with the union, 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.” NLRB v. Burns Int’l Sec. Servs., Inc., 406
U.S. 272, 284 (1972). Granted, the Court has recognized that “in a variety of circumstances
involving a merger, stock acquisition, reorganization, or assets purchase,” a successor employer
may properly be found as a matter of fact to have assumed the obligations of an existing CBA.
Id. at 291. Such obligations, however, do not “ensue as a matter of law from the mere fact that
an employer is doing the same work in the same place with the same employees as his
predecessor. . . .” Id.; see also Fall River, 482 U.S. at 40 (“[A]lthough the successor has an
obligation to bargain with the union . . . it is not bound by the substantive provisions of the
predecessor’s collective-bargaining agreement.” (citing Burns, 406 U.S. at 284)). If they did,
such obligations would amount to imposing “something . . . from without, not reasonably to be
found in the particular bargaining agreement and the acts of the parties involved,” which the
Court has made clear is impermissible. John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 551
(1964).
The majority might have argued that an arbitration clause is not a “substantive
provision” of the collective-bargaining agreement — a position that would at least have
attempted to reconcile the holding here with relevant Supreme Court authority. But even if the
arbitration clause were not a “substantive provision” of the collective-bargaining agreement,
ordering arbitration when the Supreme Court has clearly held that the substantive provisions are
not binding on a successor employer would be futile and therefore unwarranted. See Ameristeel
30
Corp. v. Int’l Bhd. of Teamsters, 267 F.3d 264, 276-77 (3d Cir. 2001). To avoid the evident
futility of its order of arbitration, the majority suggests that “it is possible that a successor
employer will be bound at least by some of the substantive terms of a pre-existing CBA.” Slip
op. at 22. The majority can find no authority, however, to support this conclusion, at least
insofar as it suggests that the substantive terms of a CBA might be binding on a successor in
circumstances analogous to those presented here.
The majority tries to justify its result by heavy reliance on John Wiley & Sons, Inc.
v. Livingston, 376 U.S. 543 (1964), but in so doing misreads Wiley and ignores several
subsequent Supreme Court cases that have interpreted Wiley not to permit what the majority does
today. Cf. Howard Johnson, 417 U.S. at 253 (reversing lower courts that “relied heavily on . . .
Wiley”). In Wiley, the Supreme Court held that, following a merger, the merged company would
be bound to arbitrate pursuant to a collective bargaining agreement entered into by one of the
predecessor companies. 376 U.S. at 548. This result can be understood as a straightforward
application of the widely accepted rule that a merged corporation is liable on all contracts of both
predecessor corporations. Although the Supreme Court did not rely principally on common law
successor liability rules in Wiley, it did refer to those principles as a partial explanation for its
result. See id. at 550 n.3. Moreover, although the Court did not touch on the question whether
terms of the CBA other than the arbitration clause might also be binding on the merged
corporation, given the state law background rule, it would appear quite clear that the arbitrator
could indeed find that the entire CBA was so binding. Arbitration was not futile in Wiley as it is
here.
31
In every subsequent case construing Wiley, the Supreme Court has given a clear
indication that lower courts should not read too much into Wiley’s failure specifically to ground
its decision in common law successor liability rules. The Court has emphasized that the
background common law successor liability rule was important to the result in that case. In
Burns, for instance, Burns International Security Services, Inc. (“Burns”) successfully competed
for a contract to provide plant protection services to Lockheed Aircraft Service Company
(“Lockheed”) and replaced the Wackenhut Corporation (“Wackenhut”) as Lockheed’s security
company. Burns thereafter hired a substantial number of former Wackenhut employees to do the
work under its new contract. The NLRB invoked precisely the policy concerns that the majority
invokes today — “the peaceful settlement of industrial conflicts” and protection of employees
against sudden changes — to argue that Burns was bound to Wackenhut’s collective bargaining
agreement with the union. 406 U.S. at 285. But the Supreme Court rejected this argument in no
uncertain terms:
[T]he claim is that Burns must be held bound by the contract
executed by Wackenhut, whether Burns has agreed to it or not and
even though Burns made it perfectly clear that it had no intention of
assuming that contract. Wiley suggests no such open-ended
obligation. Its narrower holding dealt with a merger occurring against
a background of state law that embodied the general rule that in
merger situations the surviving corporation is liable for the
obligations of the disappearing corporation.
Id. at 286. Similarly, in Howard Johnson, the Court warned against “an unwarranted extension
of Wiley beyond any factual context it may have contemplated,” emphasizing again the
importance in that case of the state law background rule about merger liability. 417 U.S. at 257.
32
The majority attempts to distinguish this precedent by arguing that the present
case is different in that the members of Local 348 “were essentially working for Meridian” all
along because Cristi was merely Meridian’s subcontractor. Slip op. at 18. This argument is in
serious tension with Burns, however, which involved a materially indistinguishable contracting
arrangement. Lockheed terminated its existing contractor and selected a new one, which hired a
majority of the previous contractor’s employees. 406 U.S. at 275. Nevertheless, the new
contractor was not bound by any provision of the previous CBA. The majority’s analysis
suggests that if Lockheed had simply fired its first security company and then elected to do the
work itself, hiring many of that company’s employees, then it would have been bound by the
CBA’s arbitration clause. But Burns holds that if it hired a new contractor to do the exact same
thing, neither that contractor nor Lockheed would be bound. Burns nowhere suggests that its
holding turns on such formalities. Its reasoning — that successor employers should not be bound
by CBAs “negotiated by their predecessors but not agreed to or assumed by them,” 406 U.S. at284 — applies just as readily to the former case as it does to the latter.
In other words, in the major cases on which the majority itself focuses, the
Supreme Court has given every indication that a successor employer generally will only need to
arbitrate under a CBA where some common law theory would support successor liability on the
contract. And until today’s decision, the circuit courts appear to have been in accord in
interpreting the law in this fashion. See 3750 Orange Place Ltd. P’ship v. NLRB, 333 F.3d 646,
654 (6th Cir. 2003) (“[A] new employer is not bound by the substantive terms of a collective
bargaining agreement entered into by its predecessor absent an express or implied assumption of
the agreement . . . .”); AmeriSteel, 267 F.3d at 277 (“AmeriSteel, which is not bound by the
33
substantive terms of the CBA, cannot be compelled to submit to arbitration . . . .”); Road
Sprinkler Fitters Local Union No. 669 v. Indep. Sprinkler, 10 F.3d 1563, 1567 (11th Cir. 1994)
(“[A] successor is only bound to collectively bargain and is not bound to any extent by an
existing contract between the union and the predecessor.”); New England Mech., Inc. v. Laborers
Local Union 294, 909 F.2d 1339, 1342 (9th Cir. 1990) (“The flaw in the district court’s
reasoning is that it assumed that all successor employers will always be bound by the terms of a
predecessor’s CBA. However, the Supreme Court has continually indicated that a successor
employer is only bound to bargain with a union which had a CBA with the predecessor.”); Hosp.
& Institutional Workers Local 250 v. Pasatiempo Dev. Corp., 627 F.2d 1011, 1012 (9th Cir.
1980) (“[A] successor employer is not bound by the substantive terms of a collective bargaining
agreement unless it expressly or impliedly assumes them. . . . Nor are we persuaded that the
statutory duty to bargain in good faith obligates an employer in Pasatiempo’s situation to
arbitrate.”); Int’l Union of Elec., Radio and Mach. Workers v. NLRB, 604 F.2d 689, 693 (D.C.
Cir. 1979) (“[T]he successor employer is bound to recognize and bargain with the representative
of his employees . . . . [but] is not bound by the predecessor’s bargaining agreement . . . .”).
The majority reads Howard Johnson’s discussion of a “substantial continuity in
identity of the work force,” 417 U.S. at 263, as license to depart from this consensus. Indeed, the
majority leads off its synthesis of the case law by stating that “the issue is whether there exists a
‘substantial continuity of identity of the work force.’” Slip op. at 17 (citing id.). But Howard
Johnson could not have made this the issue without expressly overruling Burns, which made
clear that substantial continuity of identity of the workforce “is a wholly insufficient basis for
implying either in fact or in law that [the successor employer] had agreed or must be held to
34
have agreed to honor [the predecessor employer’s] collective-bargaining contract.” Burns, 406
U.S. at 286. And Howard Johnson did no such thing. See AmeriSteel, 267 F.3d at 272 (“It is
important . . . to appreciate the limited scope of the Court’s decision in Howard Johnson.”);
Southward, 7 F.3d at 494 (“Howard Johnson reaffirmed the Burns holding and further limited
Wiley.”). After stating that the “the reasoning of Burns must be taken into account,” the Howard
Johnson Court merely held that “Wiley [did] not” apply because, inter alia, there was no
substantial continuity of identity of the workforce in that case. 417 U.S. at 256. Howard
Johnson thus treats such continuity as a necessary but not sufficient condition for concluding that
a successor employer is bound to arbitrate under a predecessor’s CBA. See AmeriSteel, 267 F.3d
at 269 (“[T]he ‘substantial continuity’ concept . . . should properly be viewed as a necessary but
not a sufficient condition for the imposition of arbitration on an unconsenting successor.”). This
does not undercut the clear language of Burns — which the majority fails to cite, let alone
account for in its analysis.
The majority purports to rely on this Court’s decision in Stotter Division of
Graduate Plastics Co. v. District 65, 991 F.2d 997 (2d Cir. 1993), to support its holding. In that
case, however, the “successor employer” entered its own collective bargaining agreement with
the union that “expressly adopted the provisions of the [predecessor’s] Contract with only
immaterial exceptions.” Id. at 1002. Thus, this case provides no support for the notion that an
agreement will become binding, solely based on a “substantial continuity” of business operations.
Because the successorship doctrine is a creature of federal common law, federal
courts must decide exactly which theories of successor liability to recognize. See 1 Fletcher Cyc.
Corp. § 41 (updated 2008) (“The tests and factors that the courts consider to determine whether
35
to disregard the corporate form differ from state to state.”); see also Wiley, 376 U.S. at 548(“State law may be utilized so far as it is of aid in the development of correct principles or their
application in a particular case, but the law which ultimately results is federal.” (citation
omitted)). But the Supreme Court has, in every decision on point, indicated that the arbitration
provision of a CBA is a creature of contract and therefore there must be some principled basis for
saying that the defendant to be charged with the contract either has agreed to it or is so closely
related to another entity that has that it is appropriate, essentially, to pierce the corporate veil and
hold the defendant bound to the agreement. The repeated indication that a “successor employer”
is not bound on the CBA makes clear that the mere “substantial continuity” test that the majority
relies on — which makes an entity a “successor employer” bound to recognize and bargain with
the union — is not enough to make the employer subject to the CBA.
It is true that some courts have described Wiley as creating a narrow “merger”
exception to the general rule that a successor is not liable for the substantive terms of a pre-
existing CBA — rather than reading Wiley, as I do, as simply an application of the general rule
that the entire CBA may be binding on the successor employer when there is an accepted
common law basis for imposing contractual successor liability on the successor employer. E.g.,
Indep. Sprinkler, 10 F.3d at 1567 (11th Cir. 1994) (“In some narrow circumstances [, i.e., if the
status of successor arises out of a merger,] . . . there may be an exception to the rule that the
successor inherits only a duty to bargain and does not inherit a preexisting collective bargaining
contract.”); New England Mech., 909 F.2d at 1342 (9th Cir. 1990) (“In only one case has the
Supreme Court indicated that a successor employer may be bound to some of the terms of a
predecessor’s CBA.” (citing Wiley)). But these particulars make no difference in substance: the
36
courts of appeals, at least since Fall River, have held that neither the arbitration provision nor any
other terms of the CBA will be binding on a successor employer unless the successor has
assumed the contract, is an alter ego of the predecessor, is the product of a merger with the
predecessor, or another analogous basis exists for imposing contractual liability. From this
widely understood set of rules the majority today departs, based on little more than a refusal to
follow the relatively clear interpretation that the Supreme Court has given to Wiley.
* * *
The majority tries to justify its decision today on the theory that requiring
arbitration “is the most effective way to balance those interests recognized by the Supreme Court
in Wiley, as well as Burns and Howard Johnson.” Slip op. at 21. The majority thus seems to
believe that whether a duty to arbitrate will be imposed will depend on a freewheeling balancing
test in which each panel of this Court is free to decide what result would most effectively
“balance [the various] interests” at stake. In contrast, I read the Supreme Court’s discussion of
the relevant policy considerations as merely a partial explanation for the rule of law that the
Supreme Court was laying down in those earlier cases — not as an invitation to the lower courts
to decide whether successor employers are bound to arbitrate on an ad hoc basis, driven by our
perceptions of what result in a given case will best balance the interests of employers and
employees.
Even if it were appropriate to consider such policy factors in deciding whether to
impose a duty to arbitrate in an individual case, the majority’s discussion of them is
unilluminating, involving little more than the invocation of generalities about the importance of
“avoiding industrial strife and encouraging the peaceful resolution of labor disputes.” Slip op. at
37
14. The majority gives no indication of why it believes that these policy ends support its result in
this case, as opposed to in any other case in which a union might seek arbitration, and it gives no
guidance to district courts in this Circuit as to how to determine when these factors will or will
not require arbitration.
Indeed, a proper consideration of the very policy factors that the majority relies on
would support a contrary result in this case. Wiley recognized that the duty to arbitrate should
not be “something imposed from without, not reasonably to be found in the particular bargaining
agreement and the acts of the parties involved.” 376 U.S. at 551. “Saddling [a successor]
employer with the terms and conditions of employment contained in the old collective-bargaining
contract may make . . . changes impossible and may discourage and inhibit the transfer of
capital.” Burns, 406 U.S. at 288. These factors strongly cut against imposing an obligation to
arbitrate in the circumstances here.
The majority’s principal policy factor in favor of requiring arbitration is that
otherwise, “Local 348 would likely have no way of obtaining the relief it has sought . . . [because
the predecessor employer has] no legal responsibility to make further contributions to the [Health
and Welfare] Fund.” Slip op. at 20. Although the Supreme Court did recognize such a factor as
important in Wiley, where the predecessor employer no longer existed in any form other than the
merged company, see 376 U.S. at 548, Cristi did not cease to exist when Meridian terminated its
relationship with the company. Moreover, the collective bargaining agreement before us
expressly addresses Cristi’s obligations in the event of a takeover or transfer of its business
operation. See Agreement Between Cristi Cleaning Servs. & Local 348-S UFCW AFL-CIO
(effective Jan. 1, 2002) (“In the event the entire operation or any part thereof is sold, leased,
38
transferred or taken over by the sale, transfer, lease, assignment, receivership or bankruptcy
proceedings, such operation shall continue to be subject to the terms and conditions of this
agreement for the life thereof. . . . Employees working under this agreement shall at all times be
entitled, acting through the Union as their representative, to hold the Employer directly
responsible for the full performance of all terms and conditions of this agreement.”). Even if this
provision is not applicable in the circumstances presented here, similar provisions appearing in
other labor cases to have reached this Circuit suggest that it is not uncommon for unions to
protect their interests by requiring predecessors to ensure that successors agree to the terms of
existing collective bargaining agreements. See, e.g., In re Chateaugay Corp., 891 F.2d 1034,
1035 (2d Cir. 1989) (“[E]ach Employer promises that its operations covered by this Agreement
shall not be sold, conveyed, or otherwise transferred or assigned to any successor without first
securing the agreement of the successor to assume the Employer’s obligations under this
Agreement.” (emphasis omitted) (quoting the National Bituminous Coal Wage Agreement of
1984) (internal quotation marks omitted)). The availability of such contractual protections
strongly suggests that labor unions have the ability through bargaining to protect their interests
against changes in the employer. Thus, even assuming it were appropriate to rely on such a
factor given the case law that binds us, there is no need to do violence to the principle that the
labor laws do not impose a duty to arbitrate “from without,” Wiley, 376 U.S. at 551, in order to
protect unions.
Lastly, the majority’s policy analysis focuses on what seems best ex post for the
particular union before the court, and fails to give due consideration to the ex ante incentives that
the majority’s rule will create. Employers who take over an operation, as Meridian did here,
39
have no legal obligation to hire the old unionized employees or even to give them preference in
hiring — even if the entity plans to continue doing the exact same work. See Howard Johnson,
417 U.S. at 261 (“[N]othing in the federal labor laws requires that an employer . . . who
purchases the assets of a business be obligated to hire all of the employees of the predecessor . . .
.” (internal quotation marks omitted)). If the new employer refuses to rehire most of the old
unionized employees, the new employer will not be bound by the CBA, and in fact, it won’t have
to recognize or bargain with the union at all. See id. at 263 (holding that “continuity of identity
in the business enterprise necessarily includes, we think, a substantial continuity in the identity of
the work force across the change in ownership”). Although a new employer cannot refuse to
rehire the old employees solely because they are in a union, I am not the first to note that
employers will often be able to find ample business reasons to justify refusing to rehire old
employees, rendering the protection afforded by the majority today more ephemeral than real.
See Saks & Co. v. NLRB, 634 F.2d 681, 690 (2d Cir. 1980) (Meskill, J., dissenting) (“Although it
can be argued that discriminatory practices are condemned by and actionable under . . . the
National Labor Relations Act, it is obvious that the perspicacious, well-counselled employer will
hire just few enough of the subcontractor’s employees to elude the grasp of the successorship
doctrine.” (citation omitted)); see also Fall River, 482 U.S. at 40-41 (“[T]o a substantial extent
the applicability of Burns [, i.e., the successor employer’s obligation to bargain with the union,]
rests in the hands of the successor.”). Certainly, increasing the incentives for would-be successor
employers to simply fire the unionized employees and start over is hardly a manifest victory for
the cause of organized labor.
* * *
40
In my view, the majority misreads Supreme Court precedent. Therefore, I
respectfully dissent.
41