Thanks GSquared, appreciate the confirmation; it explains the behavior I experienced.

The reason...a particular target table has a unique constraint on three columns (not the surrogate primary key), say SomeNumber, SomeName, SomeState. The source was updated as follows: User updated a record (AA) SomeName column to a new value. User added a new record (BB) using the same original SomeNumber, SomeName, SomeState values as record AA.

When the MERGE runs (joined on the surrogate primary key), the desired effect on the target is for it to update the original AA record with the new SomeName value, and insert the new BB record. However, if it tries to insert BB before it updates AA the unique constraint will reject it. If it updates then inserts, all is well.

It looks like my work around will be to break the merge apart, as you mentioned. Thanks again.