CSLB Contractor's Law & Business Practice Exam

If a contractor acquires a company with an existing collective bargaining agreement, are they bound by it?

1. No, a new owner is not bound

2. Yes, if there is a successor clause

3. Only if they agree to honor it

4. Yes, but only for one year

The correct answer is: Yes, if there is a successor clause

In situations where a contractor acquires a company that has an existing collective bargaining agreement, the contractor is indeed bound by that agreement if it contains a successor clause. A successor clause is a provision that stipulates that the terms of the collective bargaining agreement remain in effect and are binding on any future ownership of the company. This clause is designed to protect the rights of employees and ensure continuity of the labor agreements that have been established. The existence of a successor clause means that the new owner inherits the obligations set forth in the agreement, which may include wage scales, benefits, and working conditions negotiated by the previous management with the labor union. This is an important aspect of labor relations, ensuring that the rights of the workforce are preserved even in the event of a change in ownership. If the collective bargaining agreement does not have a successor clause, the new owner may not be bound by the agreement, allowing for different potential outcomes depending on the structure of the agreement itself. However, in cases where the clause is present, it effectively transfers the obligations and commitments to the new contractor, maintaining stability and predictability for the employees involved.