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First Student, Inc. v. National Labor Relations Board

United States Court of Appeals, District of Columbia Circuit

September 3, 2019

FIRST STUDENT, INC., A DIVISION OF FIRST GROUP AMERICA, PETITIONER
v.
NATIONAL LABOR RELATIONS BOARD, RESPONDENT UNITED STEEL, PAPER AND FORESTRY, RUBBER, MANUFACTURING, ENERGY, ALLIED INDUSTRIAL & SERVICE WORKERS INTERNATIONAL UNION, AFL-CIO/CLC, LOCAL 9036, INTERVENOR

          Argued April 1, 2019

          On Petition for Review and Cross-Application for Enforcement of an Order of the National Labor Relations Board

          David A. Kadela argued the cause for petitioner, First Student, Inc. With him on the briefs was Erik Hult.

          Angelo I. Amador, Robert S. Seigel, Howard M. Bloom, Michael T. Mortensen, and Collin O'Connor Udell were on the brief for amicus curiae Restaurant Law Center in support of petitioner/cross-respondent.

          David Casserly, Attorney, National Labor Relations Board, argued the cause for respondent, National Labor Relations Board. With him on the brief were Peter B. Robb, General Counsel, John W. Kyle, Deputy General Counsel, David Habenstreit, Assistant General Counsel, and Kira Dellinger Vol, Supervisory Attorney.

          Maneesh Sharma argued the cause for intervenor Union. With him on the brief was Amanda M. Fisher.

          Before: Rogers and Wilkins, Circuit Judges, and Silberman, Senior Circuit Judge.

          OPINION

          ROGERS, CIRCUIT JUDGE

         This case involves a successor employer and application of the "perfectly clear" successor doctrine stemming from NLRB v. Burns International Security Services, Inc., 406 U.S. 272 (1972). First Student, Inc. is the largest provider of school transportation services in North America. Its bid to provide transportation services for Saginaw Public School District was first selected in October 2011, but the School District decided not to proceed because the academic year had already begun. First Student's bid was again selected in February 2012 and contract negotiations began. A few weeks later, First Student representatives met with School District transportation employees who were covered by a collective bargaining agreement and stated it would offer employment to existing employees, and expressed the desire to retain as many of them as possible. First Student now petitions for review of a Decision and Order of the National Labor Relations Board finding it was a "perfectly clear" successor employer and violated the National Labor Relations Act by changing the terms and conditions on which it would hire the incumbent employees without bargaining with their union. First Student contends that the Board applied the wrong legal standard, departed without justification from its precedent, and made factual findings regarding notice of the new terms and conditions that are not supported by substantial evidence. The Board has cross petitioned for enforcement of its Order. We deny First Student's petition and grant enforcement of the Board's Order in full.

         I.

         Congress enacted the National Labor Relations Act to "redress the perceived imbalance of economic power between labor and management . . . by conferring certain affirmative rights on employees and by placing certain enumerated restrictions on the activities of employers." Am. Ship Bldg. Co. v. NLRB, 380 U.S. 300, 316 (1965). Section 7 of the Act provides that employees have certain rights, including the right "to bargain collectively through representatives of their own choosing." 29 U.S.C. § 157. Section 8(a)(1) provides that it "shall be an unfair labor practice for an employer to interfere with, restrain, or coerce employees in the exercise of" their Section 7 rights. Id. § 158(a)(1). Similarly, Section 8(a)(5) makes it "an unfair labor practice for an employer to refuse to bargain collectively with the representatives of his employees." Id. § 158(a)(5). Consequently, an employer violates Section 8(a)(1) and (5) of the Act if it changes terms and conditions of employment unilaterally, i.e., without giving employees an opportunity to bargain collectively through their union. Enter. Leasing Co. v. NLRB, 831 F.3d 534, 546 (D.C. Cir. 2016) (citing NLRB v. Katz, 369 U.S. 736, 743 (1962)).

         The "perfectly clear" successor doctrine has its origins in the Supreme Court's decision in NLRB v. Burns International Security Services, Inc., 406 U.S. 272 (1972). Burns concerned unionized security guards employed by the Wackenhut Corporation, which provided security for a Lockheed Aircraft Service facility from 1962 to 1967. Id. at 274. In April 1967, the guards' union entered into a three-year collective bargaining agreement with Wackenhut. Id. at 275. Shortly thereafter Lockheed decided not to renew its security contract with Wackenhut and awarded a new contract to Burns International Security Services. Id. Burns hired 27 of the guards formerly employed by Wackenhut and brought in 15 other guards to work at the facility. Id. The incumbent union "demanded that Burns recognize it as the bargaining representative of Burns' [guards] at Lockheed and that Burns honor the collective-bargaining agreement between it and Wackenhut," but Burns refused to do either. Id. at 275-76.

         The Board agreed with the union. Burns was a "successor employer" to Wackenhut because the business of providing security for Lockheed "remained essentially the same despite the change in ownership." William J. Burns Int'l Detective Agency, Inc., 182 NLRB 348, 349 (1970). The incumbent union retained its position as representative of the security guards at the Lockheed facility because, the Board reasoned, the incumbent guards made up a majority of Burns' workforce and there was no reason to believe the change in management would affect the guards' selection of the union. Id. at 349-50; see 29 U.S.C. § 159(a).

         The Supreme Court upheld the Board's determination that Burns, as a successor employer, had an obligation to recognize and bargain with the incumbent union. Burns, 406 U.S. at 277- 81; see Fall River Dyeing & Finishing Corp. v. NLRB, 482 U.S. 27, 43-44, 46-47 (1987). Given that obligation, Burns' failure to recognize and bargain with the union violated Section 8(a)(1) and (5) of the Act. Burns, 406 U.S. at 281. But, the Court made clear, Burns' obligation to bargain with the union "did not mature" until it had "hired [a] full complement of employees"; only then did it become "evident" that the union "represent[ed] a majority of the employees in the unit." Id. at 295. Because Burns had no duty to bargain with the union until it finished hiring, it was "free to set initial terms on which it [would] hire the employees of [its] predecessor." Id. at 294- 95. Critically for present purposes, the Court acknowledged that there are situations in which prior to hiring "it is perfectly clear that the new employer plans to retain all of the [predecessor's] employees." Id. Under those circumstances, the Court stated it is "appropriate to have [the successor] initially consult with the employees' bargaining representative before he fixes terms." Id. at 295.

         The Board first interpreted the Supreme Court's statement about "perfectly clear" successorship in Spruce Up Corp., 209 NLRB 194 (1974), enforced, 529 F.2d 516 (4th Cir. 1975). Spruce Up Corporation employed a unionized workforce in 19 barbershops on a military base. Id. at 194. In early 1970, the base decided not to renew its contract with Spruce Up and awarded a new contract to Cicero Fowler. Id. When the incumbent union "learned that Fowler was the lowest bidder and likely to take over the operation of the Spruce Up barber shops, it requested Fowler to recognize and bargain with it." Id. Fowler told the union that he would have no duty to bargain until he began operations, that he intended to pay different rates of commission than Spruce Up had paid, and that he hoped to hire all incumbent barbers who were willing to work. Id. A few days before Fowler took over the barbershops, he sent letters to the incumbents inviting them to work for him on the basis of the new rates. Id.

         The Board found that Fowler was not a "perfectly clear" successor to Spruce Up because he "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 barbers would depend upon their willingness to accept those terms." Id. at 195 (emphasis added). The Board reasoned that Fowler's announcement of new terms created uncertainty about whether incumbents would elect to retain their jobs after the change in management. Id. As a result, it was not "perfectly clear" that Fowler "plan[ned] to retain all of" Spruce Up's former employees. Id. (quoting Burns, 406 U.S. at 294-95). Spruce Up thus restricted the "perfectly clear" successor doctrine "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 "has failed to clearly announce its intent to establish a new set of conditions prior to inviting former employees to accept employment." Id.

         Since then, the Board has refined the nature and scope of the "perfectly clear" successor doctrine. For one thing, the Board has long held that "perfectly clear" successor status may attach not only where a new employer "plans to retain all the [incumbent] employees" but also where it plans to hire "a lesser number but still enough to make it evident that the union's majority status will continue." Spitzer Akron, Inc., 219 NLRB 20, 22 (1975) (first quoting Burns, 406 U.S. at 295), enforced, 540 F.2d 841 (6th Cir. 1976); see, e.g., Nexeo Solutions, LLC, 364 NLRB No. 44, slip op. at 5 n.19 (July 18, 2016). First Student does not contest this.

         In addition, a host of post-Spruce Up decisions clarify that if a new employer "expresses an intent to retain the predecessor's employees," then it becomes a "perfectly clear" successor unless the new employer "clearly announce[s] its intent to establish a new set of conditions prior to, or simultaneously with, its expression of intent" to retain the employees. Nexeo, 364 NLRB No. 44, slip op. at 6; see, e.g., Creative Vision Res., LLC, 364 NLRB No. 91, slip op. at 2-3 (August 26, 2016), enforced, 882 F.3d 510 (5th Cir. 2018); Fremont Ford Sales, Inc., 289 NLRB 1290, 1296-97 (1988); Starco Farmers Mkt., 237 NLRB 373, 373-74 (1978). An employer that fails to make such an announcement "forfeit[s] the right to set initial terms" of employment. Fremont Ford, 289 NLRB at 1296; see Dupont Dow Elastomers LLC, 332 NLRB 1071, 1074 (2000), enforced, 296 F.3d 495 (6th Cir. 2002). The Board has explicitly rejected the view that an employer can avoid becoming a "perfectly clear" successor by announcing new terms prior to "the extension of unconditional offers of hire to the predecessor employees." Canteen Co., 317 NLRB 1052, 1053 (1995), enforced sub nom. Canteen Corp. v. NLRB, 103 F.3d 1355 (7th Cir. 1997); see Elf Atochem N. Am., Inc., 339 NLRB 796, 796, 807-08 (2003); Roman Catholic Diocese of Brooklyn, 222 NLRB 1052, 1055 (1976), enforcement denied in relevant part sub nom. Nazareth Reg'l High Sch. v. NLRB, 549 F.2d 873 (2d Cir. 1977). Instead, the Board has concluded that an employer can become a "perfectly clear" successor before it begins its hiring process. See, e.g., Paragon Sys., Inc., 364 NLRB No. 75, slip op. at 2 (Aug. 26, 2016); E G & G Fla., Inc., 279 NLRB 444, 452 (1986) (citing CME, Inc., 225 NLRB 514 (1976)). For example, the Board concluded in CME, Inc. that an employer became a "perfectly clear" successor by expressing an unqualified intent to retain all incumbents when it had not yet offered them jobs or even distributed employment applications. 225 NLRB at 514.

         This court has affirmed the Board's interpretation of the "perfectly clear" successor doctrine. See Int'l Ass'n of Machinists & Aerospace Workers, AFL-CIO v. NLRB, 595 F.2d 664, 672-676 (D.C. Cir. 1978). In Machinists, the court observed that the doctrine protects "a successor employer's freedom to alter - even remake - the acquired enterprise" by unilaterally imposing new terms of employment. Id. at 673. At the same time, the doctrine affords incumbent employees "an important measure of protection" by ensuring that "they are apprised promptly of impending reductions in wages or benefits" over which the union will have no opportunity to bargain. Id. at 674. More recently, the court reaffirmed that the doctrine "prevent[s] an employer from inducing possibly adverse reliance upon the part of employees it misled or lulled into not looking for other work." S & F Mkt. St. Healthcare LLC v. NLRB, 570 F.3d 354, 359 (D.C. Cir. 2009).

         Our sister circuits have also affirmed the Board's interpretation, acknowledging that "when it is clear that the new employer intends to hire the employees of the predecessor, those employees will place significant reliance on that situation and forego other employment opportunities." Canteen Corp. v. NLRB, 103 F.3d 1355, 1364 (7th Cir. 1997) (citing Machinists); see Creative Vision, 882 F.3d 510, 518-19, 525- 26 (5th Cir. 2018) (citing Machinists); Dupont Dow, 296 F.3d 495, 501-06 (6th Cir. 2002). These courts accept the Board's view that "perfectly clear" successor status may attach when a new employer expresses an intent to retain incumbents even if this precedes the formal hiring process. See Creative Vision, 882 F.3d at 518-19; Dupont Dow, 296 F.3d at 502; Canteen Corp, 103 F.3d at 1363-64. Of the circuits to address the issue, only one - in a pre-Machinists decision - has taken the more restrictive view that "perfectly clear" successorship cannot attach "solely on the basis of an expression of intention to rehire [the] predecessor's employees." See Nazareth Reg'l High Sch. v. NLRB, 549 F.2d 873, 881-82 (2d Cir. 1977).

         II.

         Through 2011, Saginaw Public School District directly employed approximately 55 bus drivers and other transportation employees. These employees (hereinafter "unit employees") were jointly represented by the United Steel Workers International Union and Local 8410 (collectively "the Union"). The most recent collective bargaining agreement ("CBA") between the Saginaw Board of Education and the Union covered the period of August 27, 2010 through August 31, 2012. The Board of Education voted in October 2011 to accept First Student's services but the School District's Superintendent decided not to proceed for that academic year; in November the School District informed First Student that it planned to open a new bidding process in 2012. It did, and First Student submitted a new bid on February 3, 2012. The School District again selected First Student as the winning bidder, and the parties began negotiating a transportation services contract.

         While contract negotiations were ongoing, the School District arranged for First Student officials to discuss the impending transition in management with the unit employees. On March 2, 2012, approximately 40 of the 55 unit employees attended a meeting with Douglas Meek, First Student's area general manager, and Daniel Kinsley, its development manager. Meek told the employees that once the contract was approved, First Student would offer employment to current employees who submitted an application and met its hiring criteria, which included a background check, physical examination, and drug screening, criteria that the Board found were similar to the School District's hiring criteria and common throughout the bus transportation industry. In responding to employees' questions, Meek testified that he told the employees that First Student "wanted to hire as many individuals as possible," that it would recognize the Union if it hired "51 percent of the existing workforce," and that it "typically" hires "80 to 90 percent of the existing workforce." Hr'g Tr. 420 (July 25, 2013). With respect to how many hours of work employees would be guaranteed, Meek stated that First Student "would know more about that" once it established bus routes for the coming year, which it would do "using the [School] District's routing system." Id. at 421. Meek also said matters such as paid time off, vacation pay, and sick pay would be "subject to negotiations." Id. at 421-22; see id. at 460 (July 26, 2013).

         The School District and First Student reached agreement on a five-year transportation services contract in early May 2012. On May 16, the Board of Education held a public meeting to consider whether to approve the contract. In response to Board questions, Kinsley stated that First Student would hire unit employees if they met its hiring criteria, that it "intended to maintain their current wages," and that if 51 percent or more of the incumbents were hired it would recognize the Union. Id. at 463-64, 480. The Board of Education voted to approve the contract. Later that day, Kinsley spoke with a Union representative and several unit employees, repeating that First Student's goal was to hire all unit employees who met the hiring criteria, that it would "recognize the Union if [it] hired 51 percent or more" of them, and that "their wages would be maintained." Id. at 466, 483. By its terms, the contract was a binding agreement as of May 16. The School Superintendent signed it on May 24 and First Student signed it on June 1.

         On May 17, the day after the Board of Education approved the contract and it took effect, First Student officials met with nearly all the unit employees. The officials distributed a memorandum inviting them to apply for employment. The terms and conditions of employment set forth in the memorandum deviated from the CBA in important respects. For example, the memorandum stated that First Student would maintain incumbent employees' current hourly rate of pay for transportation duties but reduce the rate of pay for "non-student transportation duties," such as "attending training, employee or school meetings, clerical work, bus washing, etc." Also, significantly, it guaranteed fewer hours of work than the CBA. Incumbent employees were instructed to submit employment applications no later than May 23 in order to retain their seniority and current wages.

         On May 18, the Union contacted First Student requesting to bargain over the terms of a new labor agreement, using the existing CBA as a starting point. First Student responded that it did not know whether it would hire enough of the unit employees to trigger its obligation to recognize and bargain with the Union. The Union agreed to follow up in July, when First Student would be further along in its hiring process. During July and August, the Union's repeated attempts to schedule bargaining with First Student produced no response.

         Meanwhile, First Student began hiring employees. After conducting interviews and background checks, it made offers of employment to 42 of the approximately 55 unit employees. Two offer letters were issued on June 27, a third on July 11, and the remainder on August 1. By August 17, 2012, First Student had hired 38 employees, 36 of whom had formerly worked for the School District. When First Student began its operations for the 2012-2013 academic year on August 27, it had hired 51 employees, 41 of whom were unit employees. That same day, First Student announced an employee attendance policy that differed from the policy in the Union's prior CBA with the School District. In late August, the Union renewed its request to bargain, but First Student still did not come to the bargaining table.

         On September 21, the Steel Workers Union (acting through another Local) filed charges with the Board's Regional Office alleging that First Student had violated Section 8(a)(1) and (5) of the Act by "refus[ing] to recognize and bargain with" the Union and by failing to negotiate "over initial terms and conditions of employment" even though it was a "perfectly clear" successor to the School District. On September 25, First Student offered to schedule collective bargaining negotiations in November. The Union responded that it would agree to wait until November provided First Student would abide by the terms of the prior CBA in the meantime. First Student replied that it had no obligation to abide by the CBA and offered to begin negotiations in October if the Union would drop the pending unfair-labor-practice charges. Although the Union did not drop the charges, the parties began collective bargaining negotiations on October 17, 2012.

         On April 30, 2013, the Acting General Counsel issued a complaint alleging that First Student had engaged in unfair labor practices in violation of Section 8(a)(1) and (5) of the Act. An administrative law judge ("ALJ") held an evidentiary hearing on July 24-26, 2013. The ALJ found that First Student was a successor to the School District but not a "perfectly clear" successor because it had announced new terms of employment when it distributed employment applications to unit employees on May 17. First Student, Inc., No. 07-CA- 092212, slip op. at 24, 2013 WL 6576819 (N.L.R.B. Div. of Judges Dec. 13, 2013) ("ALJ Decision"). The ALJ also found that Meek's statements on March 2 sufficed to notify employees that First Student planned to implement new working conditions. Id. at 22-23. The ALJ further found that First Student "had an obligation to recognize and bargain with the Union as of August 17," id. at 27, by which time it had "hired a substantial and representative complement of its employees," a majority of whom had previously worked for the School District, id. at 18 (citing Fall River, 482 U.S. at 52-53). Because of that obligation, the ALJ found that First Student violated Sections ...


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