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Systems Management, Inc. v. N.L.R.B.

filed: April 17, 1990; As Amended May 11, 1990.


On Petition for Review and Cross-Application for Enforcement of an Order of the National Labor Relations Board, Board Nos. 6-CA-19321, 6-CA-19465, 6-CA-19407, 6-CB-7147 & 6-CB-7194.

Sloviter, Greenberg and Garth, Circuit Judges.

Author: Garth


GARTH, Circuit Judge:

This petition for enforcement brought by the National Labor Relations Board (NLRB) presents us with a number of issues, the most significant of which involve questions as to: (1) whether Systems Management (Systems), an employer of only part-time employees, may be deemed to be a "successor" to a predecessor janitorial and maintenance service which employed only full-time personal; and (2) if so, whether the "make whole" remedy ordered by the Board may be imposed in favor of Systems' part-time employees, as well as the full-time employees of Systems' predecessor.

The NLRB, in an administrative hearing and order, had ruled that Systems violated sections 8(a)(1), (3) and (5) of the National Labor Relations Act (29 U.S.C. ยง 158(a)),*fn1 when Systems, in seeking to become the low bidder on a janitorial contract, refused to hire its predecessor's full-time employees and refused to recognize their union, Service Employees International Union, Local 29, AFL-CIO (Local 29). Instead, Systems recognized Local 327 of the International Brotherhood of Painters and Allied Trades of the United States and Canada, AFL-CIO (Local 327), a union Systems had dealt with in the past. On February 21, 1989, the NLRB approved the ALJ's findings, conclusions and remedies.

Our standard of review in this case prescribes that as to issues of fact, the NLRB's findings of fact may only be set aside if they are not supported by substantial evidence, Graham Architectural Products Corp. v. NLRB, 697 F.2d 534, reh'g denied, 706 F.2d 441, (3d Cir. 1983). On the other hand, "review of the Board's application of legal precepts to the fact is plenary," Allbritton Communications Co. v. NLRB, 766 F.2d 812, 817 (3d Cir. 1985).*fn2


Systems is a janitorial service company that services office buildings in the downtown Pittsburgh metropolitan area. Systems has achieved success in its business by providing a low cost janitorial service based on its policy of hiring only part-time workers for its janitorial staff thereby ensuring lower labor costs. To implement this policy, Systems hires personnel with little or no career ambitions in the janitorial services field -- typically students or housewives seeking temporary work.


This proceeding had its origins in 1985 when the First Union Bank solicited bids from various companies to provide janitorial services at two buildings it managed in downtown Pittsburgh, one at 300 Sixth Avenue (300 Sixth), and the other the Porter building (Porter). This contract for janitorial services was initially awarded to Pritchard Services, Inc. (Pritchard), effective November 1, 1985 through November 30, 1988. That contract, which contained a profit increment, included labor costs of only $116,000 per year, as opposed to $153,000 per year under First Union's previous contract. Pritchard attempted to achieve labor cost savings by hiring new part-time employees at wages below the union wage instead of retaining its prior unionized incumbent full-time employees.

Local 29, which had represented the workers dismissed by Pritchard, protested Pritchard's action by picketing various Pritchard locations in Pittsburgh. The Union threatened as well to engage in informational picketing at Pritchards other work sites. Confronted by Local 29's response, Pritchard agreed to terminate its new part-time employees, and rehire its former full-time employees at the prior, and higher, wage rate.

Pritchard then met with First Union and sought to convince First Union to renegotiate its contract in order to reflect the higher wage costs that Pritchard was now required to bear. First Union refused to modify the contract and on January 20, 1986, Pritchard terminated its contract with First Union as it was permitted to do under its contract. First Union then cast about for a new janitorial service for both the Porter and 300 Sixth buildings.

First Union and Systems commenced negotiations on February 3, 1986. At that meeting First Union informed Systems that the Pritchard employees had been represented by Local 29. Systems in turn informed First Union that it had had prior collective bargaining agreements and a "good business relationship" (S.A. 228-231) with Local 327, and that Local 327 would be interested in representing System's employees at both of the First Union buildings.

Systems then commenced negotiations with Local 327 with the aim of having Local 327 represent its employees. These negotiations culminated in Systems and Local 327 entering into a collective bargaining agreement on January 3, 1986, notwithstanding Local 29's status as the recognized union for the janitorial employees servicing the First Union buildings. On February 13, 1986, Systems and First Union signed a contract calling for Systems part-time workers to start working on February 16, 1986. Systems employees were to be represented by Local 327 at a wage rate less than half the full-time rate paid to the Pritchard employees who had been represented by, and were members of, Local 29.

Systems began hiring new employees in early February 1986. None of Pritchard's employees were informed that Systems was hiring workers for janitorial positions, and nor were any offered employment in the buildings. The new part-time employees' hired by Systems were told that Systems had recognized Local 327 as their union and that they were obligated for dues and "checkoff."


Local 29, after initially attempting to negotiate with Systems, filed an unfair labor practice complaint with the NLRB seeking reinstatement of Local 29 as the recognized union for Systems' employees and for other remedies. After a hearing, the Administrative Law Judge found that, with respect to the building at 300 Sixth Avenue, Systems had violated the National Labor Relations Act (the "Act") by refusing to negotiate with Local 29, by refusing to hire the Pritchard employees who were members of Local 29, and by improperly recognizing Local 327 as the representative of Systems new employees.*fn3

More specifically, the ALJ ordered that Systems should cease from: (a) refusing to hire employees because of their affiliation with Local 29; (b) failing to recognize Local 29 as the exclusive representative of the employees; (c) recognizing Local 327 and giving effect to the collective-bargaining agreement signed with Local 327.

The ALJ additionally required that Systems: (a) offer to reinstate all of the Local 29 members with full compensation for their discharge; (b) bargain in good faith with Local 29 as the exclusive representative of the employees: (c) make whole all employees injured by the conduct of Systems. (ALJ op. p56-58.) Hand-in-hand with this remedy the ALJ required that back-pay, at the full-time rate required by the Local 29 contract, be given as compensatory back-pay to the Local 29 employees who were not hired by Systems. Additionally, the ALJ required that back-pay at the Local 29 full-time rate be awarded to all Local 327 employees despite their employment on a part-time basis. He did so on the theory that Local 327's recognition as the union for Systems employees was improper. Thus, since the labor contract that actually governed these employees was the Local 29 contract which required full-time employment at almost double the Local 327 contract rate, the Local 327 employees were entitled to that rate as well. The NLRB affirmed this order and sought enforcement. Both Systems and Local 327 appealed to this court asking that we reverse the Board's order, or alternatively deny enforcement of so much of the order as requires back pay.


We turn first to the question: was Systems a "successor employer" as that term is defined in the case law? If we determine that Systems became a successor to Pritchard, then Systems, as a successor, was obligated to recognize Local 29 as the representative of its employees and to negotiate with that union rather than with Local 327. In addition, Systems would become liable for the remedies prescribed by the Board.

It is difficult to define the term "successor employer" -- a status which requires an enterprise to adhere to the union recognition of its predecessor. However, the authorities that have considered this issue have been virtually uniform in looking first to whether continuity of the work force has been maintained (work force continuity), and second whether the enterprise continued without substantial change (enterprise continuity).*fn4


Considering as a threshold criterion the question of work force continuity, it appears that "successor employer" status attaches only when the majority of the employees of the former enterprise were hired by the new employer; Howard Johnson Co. v. Detroit Local Joint Board, Hotel & Restaurant Employees, 417 U.S. 249, 263, 41 L. Ed. 2d 46, 94 S. Ct. 2236 (1974). A slightly different formulation was advanced by the Supreme Court in NLRB v. Burns International Security Services, 406 U.S. 272, 281, 32 L. Ed. 2d 61, 92 S. Ct. 1571 (1972), when the court stated the test as whether "a majority of the employees hired by the new employer " were employees of the predecessor enterprise.*fn5

Because no Pritchard employees were engaged by Systems, the difference between the two standards as to what constitutes a majority is not relevant in this case. As discussed supra, Systems does not dispute that it made no efforts to hire Pritchard's employees.

Thus, for example, where one business takes over another business, but the old employees represent less than 50 percent of the new businesses' workers (and less than half of the old workers are employed in the new business), successor employer status does not attach. As one treatise has put it:

Continuity of the work force (and thus "majority") remains a requirement for determining successorship. In no decision since Burns has the [National Labor Relations] Board found successorship absent a finding of majority.*fn6

In this case none of the Local 29 employees of Pritchard were in fact hired by Systems. However, it is now established that the discriminatory refusal to hire predecessor employees eliminates the obligation for a majority of the employees to be present in order for the new enterprise to be deemed a "successor."*fn7 Thus, where the Board proves discriminatory hiring in violation of Section 8(a)(3) and 8(a)(5) as it did here, the normal requirement that a majority of the former employees be employed in the successor enterprise does not attach.

The new employer cannot argue that a majority of the employees of his predecessor have not been employed in the new work force when the failure to employ them is a result of discriminatory, and hence illegal, hiring practices. Here, the Board found that Systems had violated the Act by recognizing and entering into a collective bargaining agreement with Local 327. This finding has not been contested by Systems.*fn8 Thus, absent any other factors in Systems favor, Systems cannot now claim that because a majority of Pritchard's full-time employees did not accept employment with ...

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