Howard Johnson Co. v. Detroit Local Joint Executive Board

1974-06-03

Headline: Court limits unions’ power to force buyers to arbitrate after buying a business, ruling a new owner who hires a new workforce need not honor predecessor arbitration clauses.

Holding: The Court held that Howard Johnson was not required to arbitrate under its predecessors' collective-bargaining agreements because it hired largely a new workforce and did not assume the agreements, so no substantial continuity existed.

Real World Impact:

Makes it harder for unions to force buyers to arbitrate when buyers hire new workforces.
Affirms buyers’ freedom to hire without being forced to rehire predecessor employees.
Leaves unions able to seek remedies against the original seller instead of the buyer.

Topics: arbitration after business sale, union rights, hiring rules after sale, successor employer obligations, collective bargaining agreements

Summary

Background

Howard Johnson, a company that bought the personal property and began operating a restaurant and motor lodge previously run by the Grissom owners, declined to assume the Grissoms’ labor contracts. The Grissoms had collective-bargaining agreements with a union that included arbitration and a clause saying successors would be bound. After the sale Howard Johnson hired largely a new staff (only nine of 53 prior employees were retained), the Union sued to force arbitration and sought an order to require rehiring, and lower courts ordered Howard Johnson to arbitrate.

Reasoning

The Court examined earlier cases and held the key question was whether there was substantial continuity between the old and new businesses. The majority said arbitration can be required in some successorship cases, but only where the enterprise and workforce remain substantially the same. Because Howard Johnson refused to assume the labor agreements and hired mostly a new workforce, the Court found no substantial continuity and thus no duty to arbitrate under the predecessors’ contracts. The opinion also relied on policies protecting a buyer’s freedom to run a business and hire its own staff.

Real world impact

The ruling lets buyers who start operations with largely new employees avoid being forced to arbitrate under a seller’s agreements in similar circumstances. The Union can still pursue remedies against the original owners and individual facts will control future disputes, so the outcome can differ case by case.

Dissents or concurrances

Justice Douglas dissented, arguing the sale, continued business identity, franchise ties, and the contracts’ successor clauses favored arbitration and warned the majority’s worker-count test would let buyers evade obligations by replacing staff.