Is an Employee Contract Binding If the Company is Sold?

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An employee contract may or may not remain in place if the company owner sells the business. The language of the labor contract itself can determine the validity of the agreement with a new owner, as can the relationship of the new business owner with the previous owner. Labor union members have the right to present the existing employment contract and circumstances of sale to the National Labor Relations Board for further investigation.

Labor Contract Investigation

A labor union representing employees of a recently purchased company may request the National Labor Relations Board to conduct an investigation into the purchase to determine if an existing collective bargaining agreement or work contract may remain valid. The NLRB's investigation must make two determinations: whether substantial continuity exists between the seller of the business and the purchaser, and if the seller is hiring a majority of the previous owner's workforce to staff the company. If either of these are true, the NLRB may rule that the existing labor contract may continue and the new owner of the business must abide by its terms.

Existing Labor Terms

The language of an existing employment contract or collective bargaining agreement may have a successor clause built into the agreement. This clause allows a labor agreement to survive the sale of a business and binds the new owner of the company to abide by its terms. A purchaser of a business must carefully review the terms of any employment contracts in place with the old owner of the company to ensure the sale does not also require him to take on a potentially cumbersome labor contract.

Successor Employer Status

A purchaser of a business who is a successor employer to the company usually has no obligation to honor an existing employment contract or collective bargaining agreement if no successor clause exists in the agreement. A successor employer is a purchaser entirely separate from the previous owner. A labor union or group of contracted employees encountering a successor employer who displays financial or business connections to the previous business owner may compel the new owner to abide by the terms of an existing contract under the substantial continuity rules of the NLRB.

National Labor Contracts

A new business owner usually must comply with an existing labor contract if the contract is part of a nationally negotiated labor agreement. No matter who the new employer hires, the national labor contract will apply to all employee wages, hours and benefits. Attempting to modify the agreement is usually illegal and requires a renegotiation at the national level. Owners of other companies are usually reluctant to head back to the bargaining table only to modify the terms of a national agreement for one new owner.

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