Bar None: D.C. Circuit Rejects NLRB's 'Successor Bar' Doctrine

Key Takeaways

• The Hospital Menonita decision allows employers who acquire unionized businesses (or otherwise step into the role of a successor employer) to recognize the reality of union support and to withdraw recognition when no such support exists, permitting employees to freely exercise their rights under Section 7 of the National Labor Relations Act to engage in protected activity or refrain from doing so.
• The court's application of the U.S. Supreme Court's Loper Bright decision, which requires courts to engage in a more rigorous review of agency actions in light of the applicable statute, represents a significant departure from courts' traditional deference to the National Labor Relations Board.
• The D.C. Circuit's decision may facilitate employer challenges to various presumptions, bars, and doctrines advanced by the NLRB that are not found in the NLRA itself or appear to run contrary to the provisions of the Act.

Many times, companies acquire businesses whose employees have been represented by unions. In connection with these situations, the National Labor Relations Board (NLRB or the Board) promulgated the "successor bar" doctrine, which required acquiring businesses to recognize and bargain with incumbent unions for up to one year. But what happens if an employer has evidence that the incumbent union no longer enjoys the support of a majority of the employees it claims to represent? That is the question the U.S. Court of Appeals for the District of Columbia Circuit addressed in Hospital Menonita de Guayama, Inc. v. NLRB, when it found the NLRB's irrebuttable presumption of a union's majority status in the face of evidence to the contrary was inconsistent with the National Labor Relations Act (NLRA or the Act).

As explained in the D.C. Circuit's opinion, Hospital Menonita de Guayama became a successor employer in 2017. The incumbent union claimed to represent the Hospital's employees in all five collective bargaining units at the acquired facility. The union had never negotiated a collective bargaining agreement for two of the units, and the agreements it negotiated for the other three had expired more than four years before the change in ownership. The Hospital initially recognized the union but later received evidence showing that in each of the five bargaining units a majority of (and in one unit all) the employees rejected the union as their representative. The Hospital consequently refused to bargain with the union and ultimately withdrew recognition of the union for all units.

The Board charged the Hospital with unlawfully withdrawing recognition from and refusing to recognize the union in violation of the Act. The administrative law judge (ALJ) who heard the case applied the successor bar, refused to consider the Hospital's evidence that the union no longer represented a majority of the employees, and ruled against the Hospital. In June 2022, the Board adopted the ALJ's findings and conclusions and rejected the Hospital's challenge to the successor bar.

The Hospital (represented by BakerHostetler and Sánchez-Betances, Sifre & Muñoz-Noya) filed a petition for review with the D.C. Circuit, in which it challenged the validity of the successor bar. In 2024, the D.C. Circuit rejected the Hospital's challenge, finding the Board was entitled to "deference," seemingly in accordance with the U.S. Supreme Court's Chevron doctrine, and that the successor bar was "within the scope of reasoned interpretation of the NLRA."

Shortly after the original D.C. Circuit decision in Hospital Menonita, the Supreme Court issued a decision in Loper Bright Enterprises v. Raimondo, overruling Chevron's requirement that courts give deference to agency interpretation of ambiguous laws. Instead, Loper Bright required courts to independently assess whether an agency's action comported with the statute under which the action was promulgated. In the wake of this change in the law, the Hospital petitioned the Supreme Court for certiorari, asserting that the D.C. Circuit's original decision conflicted with Loper Bright. The Supreme Court granted the Hospital's petition, vacated the D.C. Circuit's original decision and remanded the case for "further consideration in light of Loper Bright."

On remand, a three-member panel (consisting of U.S. Circuit Judges Neomi Rao, Justin Walker and A. Raymond Randolph) ruled 2-1 in favor of the Hospital, finding that the successor bar was inconsistent with the NLRA. Specifically, Rao wrote in her opinion for the majority (joined by Walker), "Because the bar effectively suspends the Act's core guarantees of employee freedom and majority rule in collective bargaining, the Board lacks authority to impose this rule." The majority also agreed with the Hospital that the D.C. Circuit's original panel used Chevron's deferential analysis when considering the successor bar, which conflicts with Loper Bright's mandate that courts must determine whether agencies acted within the authority delegated by Congress. The court granted the Hospital's petition for review and remanded the case to the Board for further proceedings consistent with its decision (e.g., to consider the Hospital's evidence demonstrating the union's loss of majority support in each of the applicable bargaining units).

Randolph authored a dissenting opinion in which, among other things, he claimed that the Board's interpretation of the NLRA was entitled to deference based on post-Chevron cases that deferred to the Board based on "the NLRA-specific understanding that Congress gave the Board primary responsibility for making the policy judgments necessary to administer the Act." As a result, Randolph argued that the court's original decision should not have been disturbed.

The Hospital Menonita decision allows employers who find themselves in a new labor-management environment to recognize the reality of union support (or lack thereof) and to withdraw recognition when no such support exists, permitting employees to freely exercise their rights under Section 7 of the NLRA to engage in protected activity or refrain from doing so. It also may serve to make it easier for employers to challenge various presumptions, bars and doctrines advanced by the Board that are not found in the NLRA itself or appear to run contrary to the provisions of the Act itself.

BakerHostetler's Labor and Employment Practice Group is available to assist employers in navigating union-related issues in merger and acquisition situations, as well as to provide general advice and representation as to NLRA compliance, bargaining strategy issues, information request disputes and the Board's evolving labor law landscape.