Howard Johnson Co. v. Detroit Local Joint Executive Board
94 S. Ct. 2236, 1974 U.S. LEXIS 64, 417 U.S. 249 (1974)
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Rule of Law:
A bona fide successor employer is not required to arbitrate under its predecessor's collective-bargaining agreement unless there is substantial continuity in the identity of the workforce hired by the successor and an express or implied assumption of the agreement.
Facts:
- The Grissoms operated a Howard Johnson's Motor Lodge and Restaurant in Belleville, Michigan, under franchise agreements with Howard Johnson Co.
- Employees at both the restaurant and motor lodge were represented by the Hotel & Restaurant Employees & Bartenders International Union (Union).
- The Grissoms had entered into separate collective-bargaining agreements with the Union, which included dispute settlement procedures leading to arbitration and clauses stating they would be binding upon the employer’s “successors, assigns, purchasers, lessees or transferees.”
- On June 16, 1972, the Grissoms agreed to sell all the personal property used in connection with the restaurant and motor lodge to Howard Johnson Co., while retaining ownership of the real property and leasing both premises to Howard Johnson.
- On June 28, Howard Johnson Co. explicitly clarified to the Grissoms that it would not recognize or assume any labor agreements between the Grissoms and any labor organizations.
- On July 9, 1972, the Grissoms notified all 53 of their employees that their employment would terminate; two days later, Howard Johnson Co. advised the Union that it would not recognize the Union or assume any obligations under the existing collective-bargaining agreements.
- Howard Johnson Co. began hiring its own workforce for the operation, ultimately commencing operations with 45 employees, only nine of whom (all restaurant employees) had previously been employed by the Grissoms, and none of the Grissoms' supervisory personnel were hired.
Procedural Posture:
- The Union filed an action in state court on July 21, 1972, characterizing Howard Johnson’s failure to hire all Grissom employees as a “lockout” and seeking a temporary restraining order and an order compelling Howard Johnson and the Grissoms to arbitrate their obligations.
- The state court granted an ex parte temporary restraining order, but Howard Johnson refused to honor it, and the order was dissolved after a hearing on July 24.
- Defendants removed the action to federal court, alleging it was brought under § 301 of the Labor Management Relations Act.
- At a hearing before the District Court on August 7, the Grissoms admitted they were required to arbitrate.
- On August 22, 1972, the District Court held that Howard Johnson was also required to arbitrate the extent of its obligations, but denied the Union’s motion for a preliminary injunction requiring the Company to hire all former Grissom employees and granted a stay of its arbitration order pending appeal.
- Howard Johnson appealed the order compelling arbitration to the Court of Appeals for the Sixth Circuit.
- The Court of Appeals affirmed the District Court’s order.
- The Supreme Court granted certiorari.
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Issue:
Does a successor employer, who purchases the assets of a business and hires only a small fraction of the predecessor's employees without assuming the prior labor agreements, have a duty to arbitrate with the union under the predecessor's collective-bargaining agreements?
Opinions:
Majority - Mr. Justice Marshall
No, Howard Johnson Co. is not required to arbitrate under the arbitration provisions of the collective-bargaining agreements signed by its predecessors. The Court distinguishes this case from John Wiley & Sons v. Livingston (1964) based on significant factual differences. In Wiley, there was a corporate merger where the initial employing entity completely disappeared, and the surviving corporation hired all of the merged corporation's employees, maintaining a "substantial continuity of identity in the business enterprise" which included the workforce. In contrast, here the Grissoms remained viable corporate entities with assets, and Howard Johnson hired only a small fraction of the predecessors' employees, thus lacking the requisite "continuity of identity in the work force." The Court emphasizes that the underlying policies of NLRB v. Burns International Security Services (1972), which stressed freedom of collective bargaining and a new employer's right to make substantial operational changes and select its own workforce, must be considered. The Union's primary goal was to compel Howard Johnson to hire all former Grissom employees, an obligation not imposed on new employers under Burns (absent discriminatory hiring). Therefore, without a substantial continuity of the workforce and an express or implied assumption of the agreement, no duty to arbitrate exists.
Dissenting - Mr. Justice Douglas
Yes, Howard Johnson should be compelled to arbitrate with the Union under the collective-bargaining agreements. Justice Douglas argues that the principles of successorship from John Wiley & Sons v. Livingston (1964) compel this conclusion, especially since the Grissoms' contract explicitly provided that successors would be bound. He asserts there was a "substantial continuity — indeed identity — of the business operation" under Howard Johnson, with the business continuing uninterrupted at the same location, offering the same products and services under the same name. He criticizes the majority for allowing Howard Johnson to avoid successorship obligations by making the number of prior employees retained the sole determinative factor, which he calls a "bootstrap" argument. He distinguishes NLRB v. Burns International Security Services (1972) by noting that Burns was not a § 301 suit to compel arbitration, and in Burns there was no sale of assets or dealings between the old and new employers, unlike here where Howard Johnson purchased assets from its franchisee.
Analysis:
This case is a crucial refinement of the labor law successorship doctrine, particularly limiting the circumstances under which a successor employer inherits its predecessor's collective bargaining agreement obligations, especially the duty to arbitrate. It reconciles the seemingly conflicting precedents of Wiley and Burns by emphasizing the "substantial continuity in the identity of the work force" as a critical factor. The decision reinforces an employer's right to independently determine its labor force composition and avoid automatically assuming obligations it did not agree to, thereby fostering capital transfer. This ruling makes it more challenging for unions to compel successor employers to honor existing contracts if the new employer does not hire a majority of the prior employees and explicitly disavows the existing agreements, shifting the focus from business enterprise continuity alone to also include workforce continuity.
