ACADEMY OF HOSPITALITY INDUSTRY ATTORNEYS SPRING MEETING 2010

1. ACADEMY OF HOSPITALITY INDUSTRY ATTORNEYSSPRING MEETING 2010 LEGAL ISSUES INVOLVED IN THE ACQUISITION OF UNIONIZED PROPERTIES Daniel T. Berkley, EsqGordon & Rees LLPSan Francisco, CA

2. HOSPITALITY IN DISTRESS:EMPLOYMENT, TRANSACTIONAL AND OPERATIONAL ISSUES Legal Issues Involved in the Acquisition of Unionized Properties • The purchase of unionized properties presents special labor and employment law problems for the purchaser; • Often there is confusion on the part of many prospective buyers; • Perceived binding effect of so-called successorship clauses in existing collective bargaining agreements between the seller and various labor organizations.

3. Legal Issues Involved in the Acquisition of Unionized Properties…(con’t) • THE RULES OF THE GAME UNDER THE NLRA: • What is successorship? • Successorship clauses purport to make the CBA binding on successors and assigns. • NOTE: whether or not there is a CBA in place and regardless of whether that agreement contains a “successorship clause” the buyer is not bound to assume that agreement, because the successor (here, the buyer) was not a party to the CBA and cannot be obligated to comply with any of its terms.

4. Legal Issues Involved in the Acquisition of Unionized Properties…(con’t) • THE RULES OF THE GAME UNDER THE NLRA: • When does successorship apply? • If, and only if, the buyer hires or agrees to hire a majority of the employees who were covered by the old CBA, will the buyer have any obligation to the union.

5. Legal Issues Involved in the Acquisition of Unionized Properties…(con’t) • THE RULES OF THE GAME UNDER THE NLRA: • What happens if successorship applies? • Assuming the buyer hires or agrees to hire the majority referred to above, the buyers only legal obligation is to recognize the union as the majority representative, and upon the union’s request, bargain in good faith. • The buyer should therefore always try to preserve its absolute discretion to staff the property as it sees fit. • Wherever possible, the buyer should avoid agreeing in advance to absorb anyone from the seller’s workforce.

6. Legal Issues Involved in the Acquisition of Unionized Properties…(con’t) • THE RULES OF THE GAME UNDER THE NLRA: • Majority hired: then what? • If the buyer announces its intent to hire all or a majority of the incumbent unionized employees, and… • The union demands that the buyer enter into negotiations, then… • The buyer will be required to maintain in effect the previously existing terms and conditions of employment (i.e., the old union contract), until the parties reach a new agreement or lawful impasse.

7. Legal Issues Involved in the Acquisition of Unionized Properties…(con’t) • THE RULES OF THE GAME UNDER THE NLRA: • Majority NOT hired: then what? • If the buyer makes no commitment to hire all or a majority of the incumbent employees and instead solicits applications from inside and outside the incumbent group, then… • The buyer may implement its own terms and conditions of employment. • The buyer’s new Ts&Cs remain in effect until and unless the majority of the “bargaining unit” (i.e., the positions previously covered by the old agreement) positions are filled by former employees and … • The buyer and the union either negotiates a new CBA or reaches impasse in bargaining.

8. Legal Issues Involved in the Acquisition of Unionized Properties…(con’t) • THE RULES OF THE GAME UNDER THE NLRA: • Majority NOT hired – is that legal? • It is illegal under the NLRA to refuse to hire or otherwise discriminate against anyone on the basis of their union affiliation or sympathies; • There is no “disparate impact” theory of liability under the NLRA similar to that existing under state and federal employment discrimination laws.

9. Legal Issues Involved in the Acquisition of Unionized Properties…(con’t) • THE RULES OF THE GAME UNDER THE NLRA: • Majority NOT hired – is that legal? • If the buyer uses a neutral standard to screen employees (e.g. declining to hire anyone who has received a negative performance evaluation or a disciplinary notice within the previous 12 months) and • The application of that neutral standard has the effect of excluding some unionized employees from reemployment, those employees should not prevail if they later file unfair labor practice charges. • “Should Not Prevail”: unfortunately, the NLRB seldom analyzes such cases objectively. As a result, the buyer may find itself involved in legal proceedings regardless of the merits of its position.

10. Legal Issues Involved in the Acquisition of Unionized Properties…(con’t) • THE RULES OF THE GAME UNDER THE NLRA: • Good Faith Bargaining: • If the buyer is obligated to bargain with the union, it can bargain in good faith without rolling over • If the buyer bargains in “good faith” (a term of art generally meaning meeting at reasonable intervals and evidencing a willingness to reach agreement by exchanging proposals) and reaches impasse, it will be able to unilaterally implement its last offer to the union. • The buyer is not obligated to reach an agreement.

11. Legal Issues Involved in the Acquisition of Unionized Properties…(con’t) • THE RULES OF THE GAME UNDER THE NLRA: • Seller’s Possible Liability: • If the CBA between the seller and the union contains a “successorship clause” and … • The buyer does not assume the agreement, the union would have no legal recourse against the buyer. However… • The union might have recourse against the Seller for … • Damages equivalent to the difference between what the employees and/or the union received in wages and benefits (e.g., pension contributions) before the sale and what they received from the buyer after the sale.

12. Legal Issues Involved in the Acquisition of Unionized Properties…(con’t) SUGGESTIONS AND OBSERVATIONS: • BUYERS: • Do not assume an existing CBA; • Do not agree to rehire all or a majority of incumbent Employees; • Solicit applications from inside and outside the bargaining unit; • Offer employment based upon Buyer’s own terms and conditions of employment rather than those embodied in the old union agreement.

13. Legal Issues Involved in the Acquisition of Unionized Properties…(con’t) SUGGESTIONS AND OBSERVATIONS: • BUYERS: • If deciding to assume a CBA, or agreeing to rehire a majority of the seller’s employees… • Under no circumstances should the buyer agree to do so or allow the seller to reveal that it has agreed to do so without… • First securing a satisfactory quid pro quo from the union involved. • The buyer’s right to re-staff gives it tremendous leverage at the bargaining table. • That leverage disappears the moment it is revealed that the buyer has agreed to either assume the existing contract or rehire a majority of the employees.

14. Legal Issues Involved in the Acquisition of Unionized Properties…(con’t) SUGGESTIONS AND OBSERVATIONS: • BUYERS: • Closure of the property following the sale could be very helpful in restaffing. • Many former employees would be likely to accept employment elsewhere and unlikely to return. • If enough employees decline to interview for available positions, the buyer will reduce the number of potential claims of discriminatory refusal to hire and lessen the leverage otherwise available to the union. • The longer the closure the better.

15. Legal Issues Involved in the Acquisition of Unionized Properties…(con’t) SUGGESTIONS AND OBSERVATIONS: • BUYERS: • As a last resort, if the previous options are not possible, it might be possible to cut a deal with the unions to assume the CBA subject to a long probationary period, some restaffing, and various other concessions.

16. Legal Issues Involved in the Acquisition of Unionized Properties…(con’t) SUGGESTIONS AND OBSERVATIONS: • BUYERS: • If restaffing the property by soliciting applications from inside and outside: • very few people should be involved in the hiring process - - possibly only the General Manager and the company attorney. • have access to the seller’s personnel files… • to develop a set of objective standards to screen out undesirable incumbent applicants; and • minimize the chance that applicants will later be able to persuade the NLRB that they were rejected because of their union membership.

17. Legal Issues Involved in the Acquisition of Unionized Properties…(con’t) CASE STUDIES Q & A 275 Battery Street, Suite 2000San Francisco, CA 94111Phone: (415) 986-5900Fax : (415) 986-8054 www.gordonrees.com Daniel T. Berkley Partner Labor & Employment dberkley@gordonrees.com