Court ruling may change M&A disclosure between health systems, unions
Crozer Health must disclose part of its sale agreement with Prospect Medical Holdings to its nurses union, a federal appeals court ruled, invalidating the National Labor Relations Board’s mandate to disclose the entire agreement.
When the Pennsylvania Association of Staff Nurses and Allied Professionals learned that Los Angeles-based Prospect planned to acquire the four-hospital system in Pennsylvania, the union petitioned for a full copy of the definitive agreement to learn how it would impact the employees it represents. The 3rd U.S. Circuit Court of Appeals, via a 2-1 vote, granted partial access to the agreement after finding that Crozer violated federal law by not disclosing parts of it, but also that the request for the entire document was overreaching.
The decision set the precedent that employers aren’t obligated to send unions information that hasn’t been proven relevant. The National Labor Relations Board’s demand to disclose the entire agreement, including attachments and schedules Crozer deemed confidential, “was not tailored to the unfair labor practice it was intended to redress,” the court ruled.
The case will be sent to the NLRB to determine which documents are permissible for the collective bargaining process, which Crozer said it is pleased with.
“We are confident that the remaining documents that are at issue are not relevant to PASNAP’s role as collective bargaining representative of Crozer employees. We look forward to moving forward before the NLRB on this issue,” the company said in a statement.
The Pennsylvania Association of Staff Nurses and Allied Professionals said it was pleased to see the reaffirmation of the decision of the federal administrative law judge, the full labor board and the federal district court.
“It’s a major win for transparency and for ensuring that workers are protected when hospitals are sold. We believe it’s in everyone’s best interest to produce the asset purchase agreement in full now, without delay,” the union said in a statement.
When a definitive agreement to sell Crozer to Prospect was reached in early 2016, Crozer shared with the union a letter sent to all Crozer employees. Several things would not change under new ownership, with Prospect committing to hire unionized employees in good standing “subject to initial terms set by Prospect,” executives explained in the letter.
One of the changes included Prospect assuming Crozer’s outstanding pension liability, “funding $100 million of the obligation at closing and providing distributions to pay all benefits owed to pension participants and beneficiaries within five years of the closing date.” The letter also stated that all of Crozer’s hospitals will remain open, critical service lines will stay in place or be expanded, Crozer’s charity care policies will be maintained and wellness, health education and other community programs would remain “at similar levels.”
The union responded with a request for the full agreement, which Crozer rebuffed because it is “confidential and proprietary” and that “the entire (asset purchase agreement) is not relevant for effects bargaining over the terms and conditions of employment of bargaining unit members.” Still, Crozer acknowledged that some of the agreement was pertinent and was “open to considering any alternative requests.”
In December 2016, an administrative law judge concluded that Crozer violated federal law by not disclosing the entire agreement, noting that “the record contains no explanation why either Crozer or Prospect actually believed that certain portions of the APA were confidential or proprietary,” and that Crozer had thus “failed to meet its burden of proving a valid confidentiality interest in the APA.”
The information regarding “employees’ terms and conditions of employment, the name of the hospitals, the continuation or expansion of certain service lines, capital investments, standards of care, equipment and property” was relevant, the judge said, explaining it could shed light on “availability and location of unit work, the potential for layoffs and hiring, whether the pension plan would be fully funded, and whether non-unit employees were receiving pay or benefits the union might want to negotiate (for parity) on behalf of unit employees.”
On appeal, the Third Circuit held that “substantial evidence did support the (NLRB’s) finding that the union sufficiently established the relevance of at least part of the APA and that Crozer did not establish any confidentiality interest in it. But we also hold that the board, in ordering Crozer to disclose the entire APA, which included information never established as relevant, abused its broad remedial discretion.” The discovery threshold for this type of information is “liberal and broad,” the court noted.
U.S. Circuit Judge Stephanos Bibas, who had the lone dissenting vote, said that Crozer kept offering to turn over the relevant parts of the agreement, but the union wanted it all and “should reap no reward for its stubbornness.” He refused to support the notion that “employers facing overbroad requests must ferret through their haystacks and turn over any needles that they find.”
He worried that employers will now be discouraged from giving employees extra information at the outset of a deal.
“The takeaway for future employers is as clear as it is troubling: choose silence over transparency,” Bibas said.