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National Arbitration Center

Title: Pacific Coast Services and the International Brotherhood of Teamsters, Warehouse Local 860
Date: December 23, 1988 
Arbitrator: Luella E. Nelson 
Citation: 1988 NAC 101


In the matter of arbitration between:

International Brotherhood of Teamsters, Warehouse Local 860


Pacific Coast Services 



Vacation Pay

LUELLA E. NELSON, Arbitrator




           This Arbitration arises pursuant to Agreement between TEAMSTERS, WAREHOUSE AND MISCELLANEOUS UNION, LOCAL 860, a/w INTERNATIONAL BROTHERHOOD OF TEAMSTERS, CHAUFFEURS, WAREHOUSEMEN AND HELPERS OF AMERICA ("Union"), and PACIFIC COAST SERVICES, ("Em­ployer"), under which LUELLA E. NELSON was selected to serve as Arbitrator and under which her Award shall be final and binding upon the parties.
            Hearing was held on August 12 and September 9 and 26, 1988, in San Francisco, California. The parties were afforded full opportunity for the examination and cross-examination of witnesses, the introduction of relevant exhibits, and for argument.  Both parties filed post-hearing briefs on or about November 21, 1988.


            On behalf of the Union:

                        Marie M. Rongone, Esquire (Andrew H. Baker, Esquire, on brief), BEESON, TAYER, SILBERT & BODINE, 
100 Bush Street, Suite 1500, 
San Francisco, CA  94104-3982

            On behalf of the Employer:

                        Douglas P. Haffer, Esquire, 
Two Embarcadero Center, Seventh Floor, 
San Francisco, CA   94111


              Whether or not Pacific Coast Services, Inc., or Pacific Coast Distributing Company, is liable for vacation pay to the following employees:  Bruno Pacini, Edward Garcia, John McInerney, and Robert Robbins?[1]


              SECTION 14.  VACATIONS

              14.1Vacation Benefits.  ...  Regular employees who work continuously for the same Employer for five (5) full years shall thereafter be entitled to an annual vacation of three (3) weeks with pay after each full year period of continuous service.  Regular employees who have worked continuously for the same Employer for fifteen (15) full years or more shall thereafter be entitled to an annual vacation of four (4) weeks with pay after each full year period of continuous service. ...

              14.2Vacation Pay.  ...  All vacation payments shall be computed on the basis of time worked from each individual employee's anniversary date of employment and not from the contract vacation period or from the date of the employee's last vacation.


              14.5Prorated Vacation.  Earned vacation pay shall be granted on a prorated basis to employees whose services terminate for any cause after six (6) months of consecutive employment.  ....


              This case involves vacation pay accrued during 1983 which, under the Agreement, was payable in 1984.  The Employer does not object to the amount of vacation pay calculated for each employee, but does contest whether it remains obligated to pay the sums in question in light of its sale of the business.
              The Employer purchased the business involved in this proceeding in May 1983 as an ongoing concern.  The prior owner was signatory to the Agreement, and the Employer continued to operate under its terms.  On January 17, 1984, the Employer sold its assets to T.F.W. Inc. (herein called TFW).
              During 1984, the Union began corresponding with the Employer's owner, William Meyer, and its former general manager, Harry Kraatz, concerning vacation pay accrued but not paid during 1983.  The Employer consis­tently took the position that the vacation pay was owed to employees by TFW as part of its purchase of the business, while the Union asserted that the Employer remained liable for the sums in question.  The Agreement does not contain a successor clause.
Pre-Sale Negotiations Between The Employer and TFW
              Ronald McCormack, who was the Employer's Sales Manager and later the General Manager for TFW, conducted the face-to-face negotiations with the Employer on TFW's behalf.  Sophia Lovre, TFW's general partner and chief operating officer, had the final authority to agree to the purchase terms for TFW.
              The issue of assuming the Agreement was never discussed explicitly during negotiations, but Meyer, Kraatz, and McCormack believed that TFW would assume the Agreement.  Lovre was aware of the Agreement but was never asked to assume it, and never mentioned her intention to re-negotiate the Agreement to the Employer.  Neither side informed the Union of the pending sale of the business.
The Asset Purchase Agreement

              The Bill of Sale and Assignment between the Employer and TFW provided, in relevant part, for the transfer to TFW of assets including "contracts."  The Asset Purchase Agreement provided, in relevant part, for TFW's purchase of assets including "contracts" and assumption of liabilities including "trade liabilities ... and payables incurred in the ordinary and usual course of business by Seller between January 1, 1984 and the date of Closing."  The Asset Purchase Agreement further provided for TFW's assumption of payroll tax liability for wages paid to employees between January 1, 1984, and the date of closing, and averred that the Employer was not in default on any of the contracts to be assumed.
              Meyer testified that the Asset Purchase Agreement specifically referred to payroll tax liabilities because the payroll taxes on wages paid after January 1 had not yet been remitted to the taxing authorities as of the date of closing, and the accountants wanted this item separated out.  In his view, TFW's agreement to assume all liabilities, payables, and contracts makes it liable to pay the vacation pay.  McCormack testified that TFW's agreement to assume all "contracts" included the Agreement and that the Agreement was also an asset because it was a stable ongoing situation.
TFW's Operation of the Business

              Although the formal transfer of ownership did not occur until January 17, the new owners were on the premises earlier, and retained all of the employees.  On February 3, TFW sent a telegram to the Union informing it that TFW had purchased the Employer's assets, disavowing any collective bargaining agreement, and inviting the Union to engage in negotiations with TFW for a new Agreement.  The Union and TFW signed a new agreement in May.
              A dispute exists concerning the conditions under which employees worked pending re-negotiation of the Agreement.  According to Lovre, during negotiations for a new Agreement, employees continued to receive their former rate of pay and TFW made pension and health and welfare contribu­tions, but employees lost some contractual holidays, their seniority, and their vacation pay.  McCormack recalled that the new terms and conditions of employment were implemented at some time after TFW purchased the company.
              Kraatz and Meyer recall that McCormack met with employees before the sale became final and assured them of their job security and, to some degree, of the continuation of the Agreement.  Lovre testified that McCormack told employees at the time TFW took over operations that TFW was starting as a fresh company and would negotiate a new Agreement with the Union, but that for the time being things would remain as they were.  Lovre was not at the meeting or meetings where McCormack conveyed this information.  McCormack did not testify concerning what, if any, information he gave employees concerning their pay or work status.
              Two former employees testified that they were first informed of the sale of the business on the day the Union met with the Company to negotiate a new Agreement.  On the same day, employees learned the terms of the new Agreement, including a reduction in pay and the loss of some contractual benefits, their seniority, and their vacation benefits; and their pay immediately dropped.


              The Employer is liable for the vacation pay that accrued during 1983.  The Asset Purchase Agreement with TFW did not shift this liability.  Assuming arguendo that TFW agreed to accept liability for the vacation payments, the Employer could not shift its liability without the Union's consent, which was not given.  Thus, if the asserted assumption of liability by TFW is viewed as a novation, it was invalid because not all parties agreed to it--in particular, the Union did not agree to release the Employer from its obligation.
              Further, the Employer has not attempted to show that the employees were not eligible for vacation pay in 1983 or that the vacation pay obligation in question accrued after the Employer sold its business to TFW.  Instead, it has merely sought to show that it transferred the obligation by the sale of its business to TFW.  The Employer bears the burden of proving circumstances which warrant its release from its obligations under the Agreement.
              This case is analogous to one where an employer goes out of business during the term of an agreement.  In such cases, an employer may successfully resist demands for payment of vacation benefits that accrued before the closure only by establishing either (1) that the collective bargaining agreement provides that the employer is not liable for accrued vacation pay after closure, or (2) that the employer and the union agreed to modify the agreement so as to relieve the employer of its obligation.  The Employer here has not sought to establish either circumstance, and neither exists.  The Agreement unambiguously provides that employees accrue annual vacation pay based on years of service, and nothing in the Agreement affects this right in the event of a sale of the business.  It is also undisputed that the Union did not agree to relieve the Employer from its obligation to pay the benefits in question.
              It is unnecessary for the Arbitrator to determine whether TFW actually agreed to assume liability for the 1983 vacation benefits.  In any event, the Employer did not establish that any such agreement occurred.  The Asset Purchase Agreement describes the assets sold and liabilities assumed.  The liabilities listed in the Asset Purchase Agreement are unrelated to 1983 vacation payments.  Indeed, the only language relating to payment of employment obligations is language covering payroll taxes and business expenses incurred in the normal course of business between January 1, 1984, and the closing date.  This language plainly does not shift liability for vacation benefits accrued in 1983.
              The obligation to make payments for accrued vacation was a liability, not an asset.  Although the Asset Purchase Agreement lists "contracts" among the assets transferred, a collective bargaining agreement is not a "contract" in the ordinary sense of the term.  By introducing testimony concerning the parties' intent, the Employer has conceded that the Asset Purchase Agreement is ambiguous, at best, concerning the inclusion of the Agreement among the "assets" purchased by TFW.  The only evidence on this score concerns TFW's alleged assumption of the terms of the Agreement as of the date of the sale, not any agreement to assume respon­sibility for vacation payments accrued before the sale.  On the contrary, the Employer warranted in the Asset Purchase Agreement that it was not in default on any contracts at the time of sale.  Further, none of the Employer's witnesses could point to any statement by TFW indicating that it was assuming the Agreement, or by the Employer's principals indicating their intent to transfer liability to TFW, and McCormack testified to the contrary.  No evidence exists that Lovre ever agreed to assume the Employer's liabilities under the Agreement, and Lovre testified to the contrary.


              TFW functioned under the Agreement for nearly five months after purchasing the company until the new collective bargaining agreement was executed.  It did not notify the Union of its intention to abrogate the Agreement and re-negotiate its terms until several weeks after the purchase of the company.  Therefore, TFW assumed the Agreement until such time as a new agreement could be negotiated and executed.
              The terms of the Asset Purchase Agreement obligate TFW to pay any accrued vacation pay to the employees.  The Agreement plainly is a "contract" which was assumed with all other "contracts," and just as plainly is a "trade liability."  McCormack confirmed that all parties understood that the Agreement was among the contracts and liabilities to be assumed.
              Moreover, it was TFW's firing of the employees and re-negotiation of the Agreement which resulted in the obligation to pay vacation pay.  In so doing, TFW acted contrary to the Union's interests, in contrast to the Employer's good treatment of employees.  Lovre's testimonial attempt to pervert the clear language of the Asset Purchase Agreement is consistent with this pattern.  McCormack had no personal or business reason to falsify his testimony or to side with the Employer in this dispute, yet his testimony confirmed TFW's liability for the vacation pay and substantiated the lack of any liability by the Employer.
              The Union has proceeded against the wrong party in this case.  Although the employees are entitled to vacation pay for 1983, they are not entitled to receive it from the Employer, but rather must receive it, if at all, from TFW.  Accordingly, the Arbitrator must deny the grievance.


              As the parties recognize, the Arbitrator's jurisdiction is limited to determin­ing whether the Employer is obligated to pay vacation pay under the Agreement, and does not extend to issuance of an order directing TFW to perform any act.  Similarly, although considerable time was spent litigating the circum­stances in which TFW took over the business, the Arbitrator has no authority to determine whether TFW was obligated to adhere to the terms of the Agreement--either as a successor under the Burns[2] doctrine developed under the National Labor Relations Act, or as a contrac­tual duty owed to the Employer by virtue of its agreement to buy the business.  Any determination of TFW's successorship status and obligations in these contexts must come from the forums empowered to enforce the NLRA or the contract between the Employer and TFW.  The inquiry here is merely into the Employer's obligation, if any, under the Agreement.
It is well settled that, unless otherwise provided in the contract, vacation benefits constitute a form of deferred compensation which, like wages, survives the closing or sale of the business.  Western Ports Crating Co., 82 LA 874 (Gentile, 1984).  Where, as here, the contract explicitly provides for pro rata payment of vacation upon termination "for any cause," the parties have expressed a clear intent to treat vacation benefits as deferred compensation.[3]
              In general, mutual consent or operation of law is required in order for one party to a collective bargaining agreement to be relieved of its obligations thereunder.  Thus, an employer seeking to shift such obligations to a third party bears the burden of proving either that the third party has actually per­formed in its stead or that the union has agreed to accept performance from the third party and release the employer from its obligation.  The possibility that a third party may have defaulted on an obligation owed solely to the employer has no bearing on the employer's continued obligation to perform.

              The Employer does not dispute that it was bound to the Agreement, that vacation pay liability accrued during 1983 and was payable in 1984, or that the calculations of the amount due are correct.  To a large extent, therefore, the elements of the Union's case are undisputed.  The major dispute here amounts to an affirmative defense that, although the Employer otherwise would have been obligated under the Agreement to pay the accrued vacation pay for 1983, it was relieved of this liability by virtue of the Asset Purchase Agreement with TFW.
              The language of the Asset Purchase Agreement is susceptible to conflicting interpretations regarding assumption of the Agreement, and evidence concerning negotiations between the company principals and communica­tions with employees is in dispute.  However, even a clear and explicit agreement that TFW would undertake the Employer's obligations under the Agreement would not end the inquiry, because an essential party to the Agreement has not been brought into the process.  The Agreement contains no successorship clause, and it is undisputed that the Union did not receive or agree to accept TFW's performance of the Employer's obligations under the Agreement.  Therefore, the Employer simply has not been excused from performance, and its obliga­tions under the Agreement remain unsatisfied.
              The employees' entitlement to vacation pay arose out of their performance of work under the Agreement, not by TFW's later negotiation of a new collective bargaining agreement.  Under the provisions of Section 14.5, they were entitled to a pro rata share of their vacation benefits at the time of their termination as employees of the Employer, when the business was sold.  Therefore, under the Agreement, the Employer is liable for vacation pay to the employees.  No finding is made concerning whether TFW bears any obligation to indemnify the Employer for its liability in this matter.


            Pacific Coast Services, Inc., and Pacific Coast Distributing Company are liable for vacation pay to the following employees:  Bruno Pacini, Edward Garcia, John McInerney, and Robert Robbins.


              DATED:  12/23/88                                                                                   

                                                          LUELLA E. NELSON - Arbitrator

        [1]       Both company names were used interchangeably during these proceedings to refer to the Employer involved in this proceeding.  As appears hereafter, the Employer's assets were purchased by another corporation in January 1984.  The parties stipulated that the Arbitrator has no authority to determine whether the purchaser bears any obligation for the sums in controversy.

        [2]       NLRB v. Burns Int'l Detective Agency, Inc., 406 U.S. 272, 92 S. Ct. 1571, 80 LRRM 2225 (1972).

        [3]       A contrary result occurs where the contract provides for a forfeiture by employees terminated before the date when vacation pay would be payable, Rexnord, Inc., Heavy Machinery Sector, 80 LA 703 (Flaten, 1983), Marshalltown Instruments, Inc., 85 LA 123 (Thornell, 1985); or where the parties have agreed to a severance package which waives vacation pay, Firestone Tire & Rubber Co., 83 LA 12 (Lipson, 1984).

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