David J. Laurent, Esq.david.laurent@bipc.com

Mariah L. Passarelli, Esq.mariah.passarelli@bipc.com

Are You a Single Employer?An Examination of Enterprise Liability and Protection

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Introduction Incorporating to limit liability and keep

companies legally separate is a cornerstone of American business.

Nonetheless, many employee-related laws permit courts and agencies to treat nominally separate, but highly integrated companies as a single employer.

Unfortunately, avoiding single employer status adds costs and reduces efficiency – the goal is to find an appropriate balance.

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Why is This Important?

Single employer issues arise under virtually all employment laws: Traditional Labor Laws; Discrimination Laws (Title VII, ADEA, ADA); WARN Act; FMLA; Fair Labor Standards Act; ERISA; Federal Contractor Laws; and Safety Laws (OSHA and FCMSHA).

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Why Is This Important?

Treating nominally separate companies as one can be used for several purposes: To meet jurisdictional thresholds and reach

higher damage caps that are based on headcount;

To expand the sources of recovery through joint and several liability; and

To enlarge the number of parties who are bound by particular obligations.

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Why is This Important? (cont’d)

Single employer litigation can be very burdensome, especially given the broad range of information that can be requested and the parties who can be required to produce it.

Many lay people and professionals involved in business structuring are not familiar with these principles.

Single employer risks can be reduced with proper planning and implementation.

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Single Employer Tests

There are several single employer tests. Each test typically involves a consideration

of four factors: common ownership, common management, interrelated operations, and centralized control over labor relations.

Each test is very fact intensive – no one factor controls, but centralized control over labor relations generally is the most important factor.

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A Sliding Scale

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What We Will Cover

We will discuss the tests that apply under each of the various laws.

We will discuss a few cases under each law to highlight facts that supported or did not support a single employer finding.

We will offer 20 suggestions for trying to find the right balance between avoiding a single employer finding and maintaining efficiency.

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National Labor Relations Act

The NLRA gives employees certain rights and regulates the employer/union relationship.

The four-factor single employer test was first developed for use under the NLRA.

Single employer ramifications: Subject to NLRA jurisdiction; Jointly liable for violations; Can be picketed as an ally in a dispute; and Jointly bound by a CBA, provided the

employees form a compatible bargaining unit.

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NLRA Test

Common ownership is relatively unimportant and centralized control over labor relations is the most important.

Degree of control exercised at the local level is relevant, but not dispositive. If there is overall control of critical matters at the policy level, that may be sufficient.

Hallmark of single employer status is the absence of an arm’s length relationship.

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NLRA – Single Employer Finding

NLRB v. Rockwood Energy, 942 F.2d 169 (3d Cir. 1991). Parent holding company and two subs were a single employer: Parent’s assistant to the Treasurer also

served as sub’s President; Superintendent of one sub also was

responsible for daily operations at the other sub; and

Parent handled all administration and made personnel decisions for the subs.

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NLRA – Not a Single Employer

The Dow Chemical Company, 326 NLRB 288 (1998). Parent and its subs were not a single employer: Companies did not share any officers: Although parent’s officers served on the sub’s

board, they did not exercise any day-to-day control over the sub; and

Each company separately handled its own labor relations.

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NLRA – Single Employer Finding

Grane Health Care v. NLRB, 712 F.3d 145 (3d Cir. 2013). Parent and sub was a single employer notwithstanding a management agreement. Court viewed broad management agreement

as a way for parent to exert control; and Court discredited sub’s assertion that its

manager controlled the sub’s day-to-day operations, finding that the person at parent to whom he reported made the decisions.

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NLRA – Joint Employer

Even if two companies are not a single employer, they can be treated as one if “they share or co-determine the essential terms and conditions of employment.” Browning-Ferris Industries, 691 F.2d 1117 (3d Cir. 1982).

The NLRB may expand the reach of this test to make it easier to encompass franchisors (pending McDonalds case).

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Federal Discrimination Laws

Federal discrimination laws (Title VII, ADEA, ADA, and Section 1981) each use the traditional four-part test.

Single employer ramifications: Combine groups of workers to meet

jurisdictional minimums; Jointly impose liability; and Increase the possible compensatory and

punitive damages (caps are based on headcount).

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Single Employer Finding Bagwell v. Peachtree Doors, 2011 WL 1497831

(N.D. Ga. 2011). Question of fact as to single employer status based on: Nine members of parent’s executive team

served dual roles with the subs; Parent company employees provided services

to subs, but were paid by the parent; Handbook referred to the subs as a “Shields

Family Company;” and Parent’s HR manager supervised employees at

two of the subs.

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No Single Employer Finding

Lusk v. Foxmeyer Health, 129 F.3d 773 (5th Cir. 1977). Parent and sub were not a single employer. Court emphasized that a parent’s attention to

detail, not general oversight, is the hallmark of interrelated operations.

Common officers can and did act solely in their capacity as officers of the sub when they approved the RIF plan.

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Seventh Circuit’s Unique Approach

Papa v. Katy Industries, 166 F.3d 937 (7th Cir. 1999). The court rejected the traditional test in favor of three different tests: Piercing the corporate veil; Whether the companies split themselves into

small entities to avoid jurisdiction; and Whether the parent directed the

discriminatory acts. Being integrated, alone, is not enough.

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Third Circuit’s Modified Approach Showers v. Endoscopy Center, 2014 WL 5810313

(M.D. Pa. 2014). Summarized Third Circuit’s test as follows: Did business divide itself to avoid coverage? Did parent company direct sub to commit act? Is operational entanglement pronounced?

– Identity of ownership, management, and functions;

– How do they present themselves to third parties;

– Does parent cover salaries, losses, or expenses of subsidiary; and

– Does one entity work only with the other?

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WARN Act – Regulatory Test

The WARN Act requires employers with over 100 employees to give advance notice of plant closing and mass layoffs that affect at least 50 workers.

WARN Act regulations set forth a single employer test to determine if companies can be aggregated to meet these thresholds and impose liability.

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WARN Act – Regulatory Test

Regulatory test uses five factors: Common ownership; Common directors and/or officers; De facto exercise of control; Unity of personnel policies emanating from a

common source; and Dependency of operations.

Common ownership and common officers/directors are of limited significance.

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WARN Act – Single Employer

Blair v. Infineon Technologies, 720 F. Supp.2d 462 (D. Del 2010). Plaintiff sufficiently pled a single employer relationship by alleging: Common officers; Parent made the decision to force the sub to

close; Parent included the sub’s employees in its

annual report; and Parent provided benefit plans, administrative

services, and financing to the sub.

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WARN Act – Single Employer

Guippone v. BH S&B Holdings LLC, 737 F.3d 221 (2d Cir.2013). Summary judgment denied. Parent was sole member and manager of the

sub and operated as the sub’s board of managers;

Parent negotiated financing for the sub; and Parent’s resolution authorizing the sub to

effectuate a reduction in force could be viewed as the parent’s directive to undertake the layoffs.

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FMLA – Regulatory Test

The FMLA gives employees the right to have certain unpaid time off from work.

The FMLA applies to employers with over 50 employees and is available to workers who have worked for at least 12 months.

Single employer test is used to aggregate companies to meet jurisdictional minimums and impose liability.

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FMLA – Regulatory Test

FMLA regulations uses traditional factors: Common management; Interrelation between operations; Centralized control of labor relations; and Common ownership.

No one factor is determinative and the question turns on whether the parent “controls enough facets of the subsidiary’s business and operations that it has not maintained its economic distinctness.”

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FMLA – Single Employer Finding Edwards v. Branson Development, 2010 WL

1878101 (W.D. Mo. 2010). The court denied a motion to dismiss based on the following alleged facts: The companies shared office space and an

accountant and one company administered the payroll for both companies;

The employees were on the same workers’ comp policy; and

The companies had the same president, who managed daily operations of both companies.

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FMLA – No Single Employer

Englehardt v. S.P. Richards Co., Inc., 472 F. 3d 1 (1st Cir. 2006). The companies were not a single employer: No common managers and the subs’

managers did not report to a parent company employee;

Companies maintained separate offices, HR departments, and business records: and

Subs adopted some parent HR forms, but the parent did not mandate it.

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FMLA – No Single Employer Court in Englehardt discounted the

significance of shared services: Courts have “recognized that whether a

subsidiary obtains services at arm’s length from its parent, for which it would otherwise have to go to more expensive outside vendors, is irrelevant to the goal of imposing liability on affiliated corporations; moreover, it is antithetical to the purpose for excepting smaller businesses from liability to impose liability on the parent.”

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FLSA – Multiple Tests

The FLSA requires employers to pay certain minimum wages and overtime pay.

Several aggregation tests have been used: A “single enterprise” test; A “joint employer” test; and An “economic realities” test.

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FLSA – Single Enterprise Test

Under the FLSA, separate employers will be treated as a single enterprise if they: Engage in related activities (the same or

similar); Have unified operations or common control

(controlled by one or more persons acting together); and

Have a common business purposes (usually found if the first two factors are met).

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FLSA – Joint Employer Test Test focuses on whether the companies share

control over the employees. FLSA regulations provide that where an

employee’s work benefits two or more employers, they will be joint employers if: “The employers are not completely disassociated

with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer.”

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FLSA – Tests Satisfied

Chao v. A-1 Medical Services, 346 F.3d 908 (9th Cir. 2003). The court found that the companies were a single enterprise and a joint employer, principally because one person effectively controlled both companies and managed both groups of employees.

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FLSA – Joint Employer Test Factors

In re Enterprise Leasing Company, 683 F.3d 462 (3d Cir. 2012). The joint employer test considers the following factors: Authority to hire and fire employees; Authority to promulgate work rules,

assignments, and set conditions of employment, including compensation;

Day-to-day supervision and discipline; and Control of employee records, including payroll,

insurance, taxes, and the like.

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FLSA – Joint Employer The test was not met in Enterprise:

Parent had no authority to hire or fire, issue work rules or assignments, or set compensation for subs’ employees;

Subs’ adoption of parent’s “suggested” guidelines was entirely discretionary;

Subs paid fees for parent’s administrative services; and

Interlocking directorates and common nature of the business did not outweigh the foregoing facts.

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FLSA – Economic Realities

Orozoco v. Packis, 757 F. 3d 445 (5th Cir. 2014). The Court applied the “economic realities” test to decide if a franchisor could be held liable for a franchisee's pay violations.

This test typically applies to employee/contractor disputes, but the Count nonetheless applied it to a joint employer claim.

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FLSA – Economic Realities (cont’d)

The economic realities test considers whether the alleged employer: Possessed the power to hire and fire; Supervised and controlled work schedules or

conditions of employment; Determined the rate and method of payment;

and Maintained employee records.

The Court found that franchisor’s “advice” and “suggestions” fell short of meeting test.

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FLSA – Economic Realities (con’t)

Olvera v. Bareburger Group, LLC, 2014 WL 3388649 (S.D. NY July 10, 2014).

The Court applied the economic realities test to find that a franchisor and franchisee were joint employer and, thus, subject to FLSA liability

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FLSA – Economic Realities (con’t)

The Court relied on facts showing the franchisor: Guided the franchisee on hiring/firing; Set and enforced operations requirements; Monitored employee performance; Specified methods employees used to prepare

customer orders; Exercised control over employee work; Set recordkeeping requirements and methods;

and Set timekeeping and payroll practices.

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OFCCP – Single Employer Test

Federal contractors are subject to a variety of equal employment opportunity requirements including, in some cases, the adoption of an Affirmative Action Plan.

The Office of Federal Contract Compliance Programs developed its own test.

If companies are a single employer, sites that do not work on the federal contract may have OFCCP obligations.

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OFCCP – Single Employer Test Common ownership; Common directors and/or officers; One entity has de facto day-to-day control

over the other through policies, management or supervision of the entity’s operations;

The personnel policies of the entities emanate from a common or centralized source; and

The operations of the entities are dependent on each other, e.g., both entities share management, offices, or other services.

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OFFCP Website Example Two entities are under common ownership,

with a common board of directors, and have a central corporate office that determines and issues personnel policies for both entities, and generally manages most personnel-related issues for both entities.

At the same time, the operations of the two entities are not particularly dependent on each other.

The Companies likely are a single employer.

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MSHA – Traditional NLRA Approach

The Federal Mine Safety and Health Act of 1977 imposes mandatory safety standards on the operation of coal and other mines.

MSHA applies the Unitary Operator test. This test uses the four NLRA criteria, but

substitutes “centralized control over mine safety and health” for “centralized control over labor relations.”

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MSHA – Unitary Operator Finding Sec. of Labor v. Berwind Resources, 21 FMSHRC

1284 (1999). The Commission found that certain commonly owned subsidiaries should be treated as a unitary operator because: Their officers and directors were identical; Their operations were highly integrated (they used

the same office and shared machinery and employees);

The contractor viewed the companies interchangeably; and

They jointly exercised control over safety.

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OSHA – Four Factor Regulatory Test

The Occupational Health and Safety Act imposes safety standards on private sector employers with 50 or more employees

OSHA uses the NLRA four-factor test.

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OSHA – Single Employer Finding Altor, Inc. v. Secretary of Labor, 498 Fed. Appx.

145 (3d Cir. 2012). The Court upheld OSHA’s single employer finding and found two affiliated companies jointly liable for the violations: One company only worked for the other

company and they shared an office; One person served as the director and

manager of both companies; and They had common labor relations because

they shared supervisors.

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ERISA

ERISA regulates the provision of employee benefits.

Aggregating companies serves several purposes under ERISA: Status as a large employer under the Affordable

Care Act; Plan participation rules (controlled group

members can participate in the same plans); and

Joint and several liability for pension obligations.

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ERISA – Three Tests

ERISA, which regulates the treatment and administration of employee benefits, uses three separate tests to combine companies: Controlled Group; Single Employer/Single Bargaining Unit; and Alter Ego.

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ERISA Controlled Group Test

Controlled group test is based solely on ownership percentages.

Generally, companies must share at least 80% common ownership; however: Rules permit some ownership interests to be

imputed (e.g., spouse to spouse, minor child to parent); and

Rules treat some ownership interests as not outstanding (e.g., employee stock subject to restrictions on sale).

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ERISA Controlled Group Test Two types of controlled groups:

Parent - Subsidiary: parent owns, directly or indirectly, a “controlling interest” - at least 80%) - in each company.

Brother - Sister: (a) same five or fewer persons own a “controlling interest” - at least 80% of each company, and (b) taking into account only the ownership of each person to the extent it is identical in each company, they have “effective control” - own more than 50% of each company.

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Other Tests

If companies are not in a controlled group, court may proceed to consider the other tests. Single Employer/Single Bargaining Unit test

typically applies where the entities operate concurrently.

Alter Ego test typically applies where one entity effectively replaced the other entity.

Nonetheless, the tests are somewhat interchangeable.

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Single Employer/Single Unit

Trustees of the Health and Welfare Fund v. N. Kofsky & Son, Inc., 2015 WL 59173 (S.D.N.Y. 2015).

The Court used the NLRA single employer/single bargaining unit tests to conclude that a CBA the union company had signed did not also cover its non-union affiliate.

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Alter Ego

New York State Teamsters Conference Pension Fund v. Express Services, 426 F.3d 640 (2d Cir. 2005).

The Court described the alter ego test as considering the commonality of (a) management, (b) business purpose, (c) operations, (d) equipment, (e) customers, and (f) supervision and ownership.

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NLRA Information Requests

Under the NLRA, a unionized employer has a duty to bargain that includes a duty to provide information “relevant” to the union’s representation of its members.

Information regarding the company’s unionized employees is presumptively relevant; however, a union must demonstrate the relevance of information regarding other companies or employees. Cannelton Industries, Inc., 339 NLRB 996 (2003).

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NLRA Information Requests

Nonetheless, the union’s burden is relatively light: The union need only have an objectively

reasonable belief that the companies are a single employer, and need not disclose the basis for the belief to the employer (only to the NLRB). Belief can be based on hearsay.

The NLRB can order companies within the single employer to provide relevant, requested information.

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OFCCP Information Requests

OFCCP website includes 27-Point Questionnaire. Here are some highlights: What are the names of the officers of both the

parent and the subsidiary corporation? Does the parent corporation negotiate and/or

provide health insurance, pension or any other employment-related benefits of the subsidiary corporation?

In advertising, is the subsidiary referred to as part of the parent corporation?

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OFCCP Requests (cont’d) In financial statements of either corporation, is

the subsidiary described as a department or division of the parent corporation?

Does the same in-house legal staff serve both companies?

Are any services provided by the parent corporation for the subsidiary corporation or vice versa? If yes, what services?

Does either the parent or the subsidiary provide any marketing service for the other?

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OFCCP Requests (cont’d) Does the parent negotiate and/or take part in

the subsidiary’s collective bargaining? Does the parent hire the subsidiary’s top

management officials or vice versa? Does the parent corporation establish any

compensation ranges or criteria for the subsidiary?

Does either company use any of the property of the other?

Do employees interchange and, if so, do they keep their initial service date?

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Key Points Despite the existence of several different single

employer tests, each one generally considers the same four factors: common ownership, common management, interrelated operations, and centralized labor relations.

Each test involves a very fact intensive analysis.

The decision generally turns on how the court or agency weighs the evidence.

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Key Points (cont’d)

The most effective way to avoid single employer status is to keep each company truly separate and deal with each other on an arm’s length basis.

However, this approach adds costs and can be less efficient.

Therefore, the goal is to find a balance between protection and efficiency.

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Practical Suggestions

Centralize employees who provide specialized services, such as purchasing, engineering, and environmental, into a service company.

Set a FMV fee for services provided to an affiliate that generates a profit for the provider.

Account for the controlled group rules – dilute ownership where appropriate.

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Practical Suggestions (cont’d) Limit the commonality of officers and directors. Avoid having employees of one affiliate report

to an employee of another affiliate unless the person to whom they report works for a parent and would naturally receive such reports.

Confine the parent’s role to broad issues – e.g., budget approval – and avoid day-to-day review or control.

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Practical Suggestions (cont’d)

Transfer equipment among affiliates only at FMV (not book value) and pursuant to written agreements with actual payments.

Limit the movement of employees among affiliates and identify them as “terminations” and “hires,” not “transfers.”

Loan money only pursuant to written agreements that provide for interest and collect the interest.

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Practical Suggestions (cont’d)

Use separate bank accounts, with actual payments to and from each affiliate.

Use separate payroll accounts. Have all HR matters decided by each affiliate,

without the parent’s “approval” or “review.” Consider how the companies are held out to

the public in websites, advertising literature, public disclosures, and business cards; be sure to describe them as separate companies.

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Practical Suggestions (cont’d)

Avoid using overly broad terms in separation and other employee agreements, e.g., define the “Company” as the actual employer and use other provision to extend protections to affiliates.

If affiliates share a location, try to have separate office addresses and phone numbers for each company.

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Practical Suggestions (cont’d)

Have each affiliate sign its own vendor agreements that “mirror” master terms.

Have each affiliate pay its own bills. Have each affiliate formally “adopt” parent

benefit plans. Use appropriate letterhead and business

cards for each company. Avoid the use of common HR materials -

handbooks, applications, policies, etc.