For decades, following the Supreme Court’s decision in NLRB v. Burns International Security Services, the National Labor Relations Board generally required a buyer that purchased a unionized operation and retained a majority of the incumbent workforce to negotiate with the existing union. The buyer is a “successor,” and the Board has, in turn, established the “successor bar” doctrine requiring a successor to recognize and bargain with the incumbent union—regardless of any good-faith belief or evidence as to the incumbent union’s lack of majority support.

Two significant decisions issued this summer have reshaped that landscape for employers: first, the board affirmed that successor contractors can be required to bargain with incumbent unions; and second, the D.C. Circuit struck down the successor bar doctrine.

Competitive Bidding Does Not Shield Contractors from Successor-Employer Obligations

On June 9, the board held that a government contractor that replaces an incumbent contractor may be required to recognize and bargain with the incumbent contractor’s union, even where the successor contractor lacks any common ownership or privity of contract with the incumbent employer. In Parking Systems Plus, Inc. the company was awarded a contract by Stony Brook University Hospital, a public hospital in New York, to take over the hospital’s valet parking services. Learning that it was assuming operations over a unionized company, Parking Systems immediately recalculated the cost of applying the Collective Bargaining Agreement’s (CBA) higher wages and benefits and sought to establish its own terms by informing incumbent employees that they would only be hired if they expressly agreed to abandon their union membership. The union filed unfair labor practice charges alleging that Parking Systems had unlawfully refused to recognize and bargain with the union.

Parking Systems argued that it was not a “successor employer” because it “did not purchase stock, assets, or a right held by” the incumbent contractor. Rather, it obtained the contract through a competitive bidding process. On that basis, it owed no duty to the incumbent union, its employees or under the CBA. The company maintained that, because it had disclaimed any intent to ever retain any of the incumbent employees, it was free to operate the newly awarded contract on its own terms.

The NLRB rejected these arguments. While the board recognized that successorship issues most commonly arise when a new employer purchases the stock, assets or rights of the predecessor employer, it affirmed that the successorship doctrine similarly binds a contractor—even when there is no common ownership or privity of contract with the prior contractor—so long as there is “substantial continuity” between the two. Based on the facts before it, the board found that Parking Systems continued a nearly identical business operation and would have retained all the incumbent employees but for their union status. It therefore held that Parking Systems was a successor employer and was, accordingly, obligated to: (1) recognize and bargain with the incumbent union; and (2) refrain from making any unilateral changes to wages, hours, or other terms and conditions of employment. The board also ordered extensive make-whole remedies for affected employees.

Parking Systems is significant for government contractors that assume unionized service contracts because it confirms that a competitive-bidding process does not, by itself, preclude a finding of successorship. Where there is substantial continuity between the predecessor’s and successor’s operations, the new contractor may be required to recognize and bargain with the incumbent union and honor the existing predecessor’s terms and conditions of employment under the existing CBA, even absent an acquisition of the predecessor’s business or assets.

Employer Takeaways

• Government contractors can be successor employers—not just buyers.
• Ensure that, when bidding to take over a government contract that involves a unionized workforce, your company has properly budgeted for the increased costs and expenses that come with employing a unionized workforce.

D.C. Circuit Decision Opens the Door for Buyers to Challenge an Incumbent Union’s Majority Support

Historically, under the “successor bar” doctrine, when a new employer takes over a unionized business and retains a majority of the existing workforce, the incumbent union generally could not be challenged as the employees’ exclusive bargaining agent for up to one year—even if the union no longer enjoyed majority support of the employees. For decades, the board justified the doctrine as a policy decision necessary to preserve “the stability of the existing collective bargaining relationship.” The doctrine survived repeated challenges from employers because, prior to Loper Bright—the landmark 2024 Supreme Court decision holding that courts must exercise their own independent judgment when interpreting statutes, rather than defer to executive agencies such as the NLRB—federal courts upheld the doctrine as a “reasonable” exercise of the interpretation of the NLRA.

But on July 21 the D.C. Circuit vacated the board’s application of the doctrine in Hospital Menonita de Guayama v. NLRB, finding that the board lacked statutory authority to impose the successor bar because it effectively prevented employees and employers from testing whether the incumbent union maintained majority support of bargaining unit employees. Therefore, in applying Loper Bright, the court found that the successor bar was inconsistent with the board’s protections for employees’ right to choose their representative and the requirement that a union be supported by a majority of employees in the bargaining unit.

The D.C. Circuit’s rejection of the doctrine has significant implications for companies involved in mergers, acquisitions, and other corporate transactions, giving successor employers greater opportunity to determine whether the incumbent union continues to enjoy majority support following the transaction, rather than being required to recognize it based on an irrebuttable presumption. This is particularly significant for successor employers seeking to modify terms and conditions of employment established under collective bargaining agreements negotiated by the predecessor employer, as the union’s continued representative status may determine the successor’s bargaining obligations.

Employer Takeaways

• Successor employers need not wait a year before challenging the incumbent union’s majority support.
• Guayama gives employers favorable circuit court precedent to challenge an incumbent union’s majority support.
• Beyond the successor bar doctrine, Guayama suggests that other board policy doctrines are vulnerable to legal challenges by employers.
• Employers should still closely coordinate with labor counsel before withdrawing recognition of an incumbent union (or challenging other NLRB doctrines).

Miles & Stockbridge’s Labor, Employment, Benefits & Immigration team will continue to monitor developments related to the board and how its evolving jurisprudence may affect M&A, staffing, contractor, franchise and other business arrangements.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.