A recent National Labor Relations Board order with respect to Yuba Nursing Home reminds nursing home purchasers and operators of the importance of carefully handling employee and labor decisions during the purchase and sale of a facility. The Board recently upheld an administrative law judge decision to order the buyer of a California nursing home to recognize the seller’s employee union, rehire 50 employees and pay nearly $1.25MM in lost wages and benefits, all stemming from the wrongful failure to hire employees and unilateral changes to employment terms of those retained employees.

The new operator of the nursing facility must be mindful of the National Labor Relations Act requirements when confronted with an existing union workforce. The Act requires the successor employer to bargain with the union under certain circumstances. The obligation is triggered when there is continuity of the business enterprise and the workforce, both of which are common in the transfer of the operations of the nursing home facility. However, a new operator cannot avoid this obligation by simply refusing to rehire the previous operator’s employees or by using different hiring criteria for new outside employees and former union employees. If hiring decisions are challenged, the Board will consider the rationale for the refusal to hire employees and inconsistencies between the hiring standards and practices for both existing union employees and new outside employees. Where an employer has wrongfully refused to recognize and bargain with a union, it can be precluded from setting the initial terms and conditions for employment.

The recent decision evaluated the purchaser’s hiring practices, concluding that the purchaser had improperly refused to hire employees in order to avoid union bargaining obligations and terms of employment. The administrative law judge noted that the buyer used different procedures for evaluating existing employees and outside employees and the qualifications of ultimately hired outside employees were often significantly less than those not retained. The purchaser attempted to explain its decisions by arguing that it intended to develop the facility by reforming and improving upon its current practices and therefore a certain amount of turnover was necessary to achieve this goal. Scrutinizing this rationale, the decision noted that the buyer’s alleged motive was undermined by the fact that it kept the same management teams in place, including RNs and administrators. Because the purchaser could not justify hiring decisions, the judge concluded that the purchaser improperly discriminated against the union by refusing to hire the employees. Properly handled, the facility was under an obligation to bargain with the union and the decision of the Board upheld the administrative law judge’s requirements to rehire the terminated employees and reimburse lost wages and benefits.

The decision highlights the risks of improperly navigating union concerns when purchasing a nursing home facility. A purchaser or new operator should take care to thoroughly document its hiring decisions, use identical hiring criteria for new and old union employees and determine whether it will be purchasing subject to union bargaining requirements and existing employment and benefits plans. The astute purchaser will handle this during the due diligence phase, enabling it to incorporate any potential added costs of compliance and employee wages or benefits into its assessment of the deal’s cost or, more preferably, allowing the purchaser to shift some of these costs to the seller during negotiations.