_ OGLETREE, DEAKINS, NASH, SMOAK & STEWART, P.C. Attorneys at Law Two First National Plaza – 25th Floor Chicago, IL 60603 Telephone: 312.558.

DOUBLE-BREASTING:  DOUBLE THE TROUBLE?

By Richard L. Samson and Matthew S. Levine¹ 

I. INTRODUCTION

       A Double-breasted operation often seems like the employer’s coup – a quiet, quick, and seemingly harmless maneuver around restrictive and expensive collective bargaining obligations.  But a coup, like a double-breasted operation or a dual shop arrangement, frequently suffers from lack of foresight.  The actual implementation gets meticulously planned, but latent defects work their way through the cracks until the house of cards is exposed.  That’s when the National Labor Relations Board (the “Board”) steps in, often to the disgruntlement of the dual shop employer.

       Double-breasted operations, or dual shops, can improve businesses’ economies of scale, production, and overall profit when effectively utilized.  But they can also cripple a company when the necessary precautions are forsaken, when the hidden land mines are underestimated.  This paper charts the land mines the courts and the Board have planted recently.

       Beginning by breaking down the single employer and alter ego doctrines, the first sections focus on the well-established totality of circumstances approach.  Next, the analysis takes on the land mines, the hidden obligations arising (or exploding) upon a finding of single employer or alter ego status.  These include unions’ information requests, work preservation clauses (anti-dual shop provisions), the Employee Retirement Income Security Act (“ERISA”), and other federal employment laws.  The conclusion then provides a blueprint to successfully operate double-breasted operations and dual shops in the cross-hairs of the unions, the courts, and the Board.

II. BASIC DISTINCTION BETWEEN SINGLE EMPLOYER AND ALTER EGO DOCTRINES 


      Before taking a closer look at the two doctrines separately, it is helpful to understand the often subtle differences between the single employer and alter ego analysis in the context of dual shop or double-breasted operations.  The court in Fuchs v. Cristal Concrete Corp., 180 LRRM 2426 (E.D.N.Y. 2006), considering whether two related signatory and non-signatory concrete contractors were liable for benefit contributions under the controlling labor agreement, painted a nice comparison and contrast.  We quote here at length to provide a broad, basic understanding prior to a more nuanced treatment of the pertinent issues.

The single employer doctrine applies “when separate corporations are not what they appear to be, that in truth they are but divisions or departments of a single enterprise.  In other words, two companies are a single employer “if there is an ‘absence of an arm’s length relationship found among integrated companies.’”  The Supreme Court has set forth a four-factor test to determine whether two companies are a single employer.  Radio & Television Broadcast Technicians Local Union 1264 v. Broadcast Service of Mobile, Inc., 380 U.S. 255 (1965).  The test specifically looks at the companies’ interrelation of operations, common management, centralized control of labor relations, and common ownership.  In addition to these four factors, the presence of common office facilities and equipment, as well as the existence of family connections among the businesses, may also be considered when determining single employer status.  To make a finding of single employer status, it is not necessary for all of the factors to be present . . . .  What is key to determining single employer status is finding that the companies do not conduct business dealings at arm’s length, as they would if they were not closely related to each other. . . .

      Critically however, “the determination that separate companies are a ‘single employer’ is not enough to bind all the separate companies to the collective bargaining agreements of any one of the companies.  As the Supreme Court held in South Prairie Construction Co. v. Local No. 627, 425 U.S. 800 (1976), when two entities are found to be a single employer, for one company to be bound by a collective bargaining agreement made by another company it must be shown in addition that the companies represent an appropriate employee bargaining unit. . . .

      The alter ego doctrine “is designed to defeat attempts to avoid a company’s union obligations.”  Although the factors used to determine alter ego liability are similar to those relevant to the determination of single employer status, the main difference between the two doctrines is that the alter ego doctrine focuses on “the existence of a disguised continuance or an attempt to avoid the obligations of a collective bargaining agreement through a sham transaction or technical change in operations.”  In addition, the alter ego doctrine usually applies when a new legal entity has replaced a unionized predecessor, whereas the single employer doctrine generally applies where the entities concurrently perform the same function and only one entity is a union employer.  “An employer found to be the alter ego of another is automatically responsible for the other’s legal and contractual obligations under the labor laws.”  When determining if companies are alter egos of one another, key factors to consider are “substantially identical management, business purpose, supervision, customers, and ownership. . . .”

      A double-breasted operation is one in which “one subcontractor operates a union company that bids on union contracts and a nonunion company that bids on nonunion contracts.”  The formation of a double-breasted operation is not a per se violation of ERISA or the LMRA, but may serve as the basis for an allegation that the operation is in fact a single employer or alter ego employer. 


Fuchs, 180 LRRM at 2431-34 (most citations omitted) (emphasis in original) (concluding that the single employer doctrine applied, rather than alter ego, because the concrete contractors did not share the same ownership and customers, and because they operated concurrently); see also San Luis Trucking, Inc., 352 NLRB 211, 228 (2008) (“The alter ego doctrine is considered, in general, when one employer succeeds another.  The single-employer doctrine is examined in the case of two ongoing businesses.”); Wheeling Brake Block Manufacturing Company, 352 NLRB 489, 506-07 n. 15 (2008) (“[T]he alter ego theory is more readily applicable where a new enterprise is the disguised continuance of part or all of a prior enterprise that has ostensibly ceased operations. . . .  ‘The elements necessary to prove alter ego and/or single employer status are much the same. . . .’  It is also significant in determining alter ego status whether the purpose in creating the new entity was to evade collective bargaining obligations, however, such a finding is not required.”  (citations omitted)); Labarbera v. Cretty Enterprises, Inc., 2007 WL 4232765, *5-*7, 183 LRRM 2189 (E.D.N.Y. 2007) (“The alter ego doctrine, while having the same binding effect on a non-signatory as the single employer / single unit doctrine, is conceptually different.”).

      The single employer and alter ego doctrines, distinct concepts applicable to different circumstances, have a great deal in common.  Paramount among these commonalities is a focus on the totality of circumstances using specific considerations as guiding posts, paralleling the Board’s shift away from using rigid formulas to analyze complex labor disputes.²  Despite the similarities, single employer and alter ego analyses take on unique characteristics and issues when addressing dual shop and double-breasted operations.

III. SINGLE EMPLOYER

      The Board in Bolivar-Trees, Inc., 349 NLRB 720 (2007), succinctly summarizes the contours of the single employer analysis:

The hallmark of a single employer is the absence of an arm’s-length relationship among seemingly independent companies.  The Board looks at four factors in making a finding on this issue: (1) interrelation of operations; (2) common management; (3) centralized control of labor relations; and (4) common ownership or financial control.  While the Board considers common control of labor relations a significant indication of single-employer status, no single aspect is controlling, and all four factors need not be present to find single-employer status.  Instead, the ultimate determination turns on the totality of the evidence in a given case. 


Bolivar-Trees, 349 NLRB at 720 (finding that the entities were single employers due to their common ownership, interrelation of operations, and common management); see also Cimato Brothers, Inc., 352 NLRB 797, 798 (2008) (“[S]ingle employer status ultimately depends on all the circumstances.”); Wiers International Trucks, Inc., 353 NLRB No. 48, *12 (2008) (“‘Single employer status ultimately depends on all the circumstances of the case . . . .’”  (quoting NLRB v. Browning-Ferris Industries, 691 F.2d 1117, 1122 (3d Cir 1982))).  Despite the Board’s emphasis on the totality of circumstances, it has indicated that centralized control of labor relations is particularly indicative of a single employer because it establishes “operational integration.”  See San Luis Trucking, 352 NLRB at 226.

      A. Totality of Circumstances

      The Board’s fact-intensive inquiry complicates the effort to highlight key indicators for an employer to consider when trying to avoid single employer status.³  For example, the Board in Bolivar-Trees found two American companies and two Mexican companies were all a single employer due to “the substantial interrelationship and repeated lack of arm’s-length dealings among the companies,” and the Board did not rely on centralized control of labor relations.  See Bolivar-Trees, 349 NLRB at 720-22 (adding that “[t]his case illustrates the soundness of the principle that single-employer status ultimately depends on all the circumstances of the particular case.”).  Similarly, acknowledging that the companies’ interrelation of operations suggested that the two companies operated independently, the Board in San Luis Trucking still found a single employer status because the three other factors were highly indicative of an integrated operation.  See San Luis Trucking, 352 NLRB at 226-228 (“[A] finding of single-employer status does not depend on a finding of interrelation of operations.”)  The Board also makes clear that the absence of an arm’s-length relationship is not synonymous with single employer status nor an independent factor in the analysis; rather, “evidence probative of an absence of [an] arm’s-length relationship bears on the factor of interrelation of operations.”  Lebanite Corp., 346 NLRB 748, 748 n. 5 (2006) (affirming the administrative law judge’s (“ALJ”) finding of single employer status based on the four traditional factors). 

      When on all four factors are present, the Board consistently finds two otherwise separate entities are single employers for purposes of collective bargaining obligations.  See Essex Valley Visiting Nurses Association, 352 NLRB 427, 440-43 (2008) (“[B]ased upon the factors of common ownership, common management, functional interrelation of operations, and common control over labor relations, I conclude that, at all relevant times, [the three employers] have been a single employer . . . .  [T]hey are jointly and severally liable for the backpay due in this case.”  (quoting the ALJ’s decision adopted by the Board));⁴ Wheeling Brake Block, 352 NLRB at 505-07 (finding single employer status because all four factors were present, the Board added “the fundamental inquiry is whether there exists overall control of critical matters at the policy level.”).  On the other hand, though absence of any one factor does not preclude a finding of single employer status, the Board will not find that two employers are a single employer if there is only evidence of common ownership.  See Cimato Brothers, 352 NLRB at 798-800 (“Although there is some degree of common ownership, the General Counsel did not adduce sufficient evidence of the other three factors of the single-employer test.”).  Similarly, the Board has held that one employer should not be responsible for the unfair labor practices of another employer simply because the former made an unsuccessful attempt to purchase the latter.  See Wiers International Trucks, 353 NLRB at 12-13 (providing a good example of how the Board weighs all relevant factors and makes a single employer determination based on the balance of the evidence).

      B. Unit Membership versus Union Membership

      A recent Board decision in the context of a double-breasted operation provides a potentially helpful distinction for construction employers.  In Matros Automated Electrical Construction Corp., 353 NLRB No. 61 (2008), two electrical contractors stipulated that they were single employers.  For seven years only employees of one electrical contractor received wages and benefits pursuant to the controlling collective bargaining agreement, and the union alleged that this constituted a violation of Sections 8(a)(1) and 8(a)(3) of the National Labor Relations Act (the “Act”).  The Board, adopting the ALJ’s decision, disagreed because the parties established a bargaining history that treated employees differently based on their unit affiliations, rather than their union affiliations.

      For whatever reasons, [the union] allowed [the owner] to operate a “double breasted” shop where the employees of one [entity] were covered by its labor contract and the employees of the other were allowed to perform electrical work as a nonunion shop. . . .   The bargaining history had, de facto, created two separate units within a single employer.

      [T]here is a distinction between whether a collective-bargaining agreement may discriminate because it is applied only to members of a union and the situation where the collective-bargaining agreement is not applied to employees who are not members of the bargaining unit.  The distinction is between whether a contract is not applied to employees because of their union membership or whether a contract is not applied to employees because of their unit membership. . . .  [I]f certain employees are not being paid the contract rates, not because of their lack of union membership, but because the contracting parties have agreed or treated them as not being part of the collective-bargaining unit, then there is no 8(a)(3) violation.

      In the present case, it is clear to me that . . . for at least seven years, [the union has] treated [one set of employees] as a separate unit of employees who were not included in the bargaining unit.  This may have been an oversight or it may have been intentional.  But it nevertheless was the case.  Therefore, those employees, to the extent that they did not receive contractual wages and benefits, did not have the contractual benefits withheld because of their lack of union membership, but because of their lack of unit inclusion.   


Matros Automated, 353 NLRB at *18-*19 (emphasis in original) (quoting the ALJ’s decision, which the Board affirmed).

      C. Appropriate Bargaining Unit

      The Board in Matros Automated touches upon one of the main distinctions between the single employer and alter ego analyses – to impose the contract, the former requires an examination of the appropriateness of the bargaining unit, while the latter automatically imposes bargaining obligations on all employers found to be alter egos.  This issue recently arose where an employer argued its recognition of a union did not violate Sections 8(a)(1) and 8(a)(2) of the Act because it and another employer constituted a single employer, permitting an accretion to the existing bargaining unit.  See Dedicated Services, Inc., 352 NLRB 753, 762 (2008).  The Board concluded that the two employers were single employers but warned that this did not end the analysis: “The issue still is whether the unit of employees performing [the at-issue] work is an accretion to the unit of employees . . . at a different location.”  Id. at 763.  An accretion is only appropriate when the new employees and the existing bargaining unit have the same identity and share “‘an overwhelming community of interest.’”  Id. (quoting Frontier Telephone of Rochester, 344 NLRB 1270 (2005)) (indicating that an overwhelming community of interest is evidenced by, among other things, “integration of operations, centralized control of management and labor relations, geographic proximity, similarity of terms and conditions of employment, similarity of skills and functions . . .”).  Analyzing these factors and acknowledging that employee interchange and common day-to-day supervision are “critical” to an accretion finding, the Board concluded that there was no accretion because the two units could be separate and did not exude an overwhelming community of interest.  Id. at 764.

      The Board in Wheeling Brake Block confirmed the requirement of finding an appropriate bargaining unit after establishing single employer status in order for contractual obligations to attach:  “[I]t is well settled that ‘[w]hen two entities are found to be a single employer, one entity’s collective-bargaining agreement covers the other entity as well, provided that the two entities’ employees constitute a single appropriate bargaining unit.’”  352 NLRB at 506 (quoting Stardyne, Inc. v. NLRB, 41 F.3d 141 (3d Cir. 1994)).  The two units of employees in Wheeling Brake Block performed identical work, so they constituted a single appropriate bargaining unit.  See id.  In Fuchs (see block quote above at p. 2-3) the Eastern District of New York further highlighted the additional requirement of finding an appropriate bargaining unit.  “The purpose of this requirement is to protect the rights of the non-union employees to representatives of their choice, or not to have union representation at all, since binding the employer necessarily affects its employees’ rights.”  Fuchs, 180 LRRM at 2433. 

      Although the Board must find an appropriate bargaining unit before concluding that a collective bargaining agreement binds single employers, the Board in the remedial context (via the remedial powers granted by Section 10(a) of the Act) will hold two single employers jointly and severally liable without any inquiry into the appropriateness of the bargaining unit.  For example, in Essex Valley the Board originally entered an order against the employer at the unfair labor practice proceeding and awarded reinstatement and backpay for four employees.  See 352 NLRB at 427-28. At the compliance proceeding two years later, the Board allowed the employees to bring in two other alleged single employers who were not involved in the unfair labor practice proceedings.  Without considering the issue of appropriate bargaining unit, the Board found that the two new employers were in fact single employers with the original employer (based on the totality of circumstances).  “‘[I]t is well established that derivative liability for backpay may be imposed upon a party to a supplemental compliance proceeding even though it was not a party to the underlying unfair labor practice proceeding, if it was sufficiently closely related to the party that was found in the underlying proceeding to have committed the unfair labor practice.’”  Id. at 439 (quoting Aiken Underground Utility Services, 336 NLRB 1033 (2001)).  The Board’s exercise of this remedial power is not limited to compliance proceedings and backpay awards.  See generally, e.g., Emsing’s Supermarket, Inc., 284 NLRB 302 (1987) (upon finding that the signatory employer violated the Act by unilaterally discontinuing benefit payments, the Board, without any discussion of the appropriate bargaining unit, concluded at the unfair labor practice proceeding, “Because we have found [the two employers] to be a single employer for remedial purposes, both these entities are jointly and severally liable for remedying the violations found.”).

      Similar to the remedial context, the appropriate bargaining unit analysis is not part of the alter ego doctrine.⁵  Because alter egos are essentially the same employer and always perform identical work, any two group of employees will necessarily constitute an appropriate single bargaining unit.  There are other differences between the single employer and alter ego analyses (i.e., the intent to evade bargaining obligations in the alter ego context, discussed further infra), but one over-arching theme remains paramount: the focus on the totality of circumstances.

IV. ALTER EGO

      The basic analysis for alter ego closely resembles the single employer framework. “‘The Board generally will find alter ego status where two entities have substantially identical management, business purposes, operations, equipment, customers, supervision, and ownership.  Not all of these indicia need be present, and no one of them is a prerequisite to an alter ego finding.’”  Engineered Steel Concepts, Inc., 352 NLRB 589, 603 (2008) (quoting Diverse Steel Inc., 349 NLRB 946 (2007)); see also Unitec Elevator Company, Inc., 352 NLRB 1047, 1049 (2008) (“The Board will find alter-ego status when two employers have ‘substantially identical’ ownership, management, business purpose, nature of operations, equipment, customers, and supervision.”); US Reinforcing, Inc., 350 NLRB 404, 404 (2007) (“No single one among these factors is determinative, and not all of the indicia need be present for the Board to make a finding of alter-ego status.”). 

      A. Intent to Evade

      The structure outlined above mirrors the single employer analysis, but the Board considers an additional factor in the alter ego context: the alleged alter ego’s intent to avoid its obligations under the Act.  See Diverse Steel, 349 NLRB at 946 (“[T]he Board also considers whether the purpose behind the creation of the alleged alter ego was to evade responsibilities under the Act.”); US Reinforcing, 350 NLRB at 404 (“‘The Board also looks to ‘whether the purpose behind the creation of the alleged alter ego was legitimate or whether, instead, its purpose was to evade responsibilities under the Act.’”  (quoting Liberty Source W, 344 NLRB 1127 (2005))).  In other words, the Board looks to whether the alleged alter ego was formed to evade the employer’s bargaining responsibilities pursuant to a controlling collective bargaining agreement.  See Engineered Steel, 352 NLRB at 603 (“‘Where there is evidence that the second company was formed to take over the business of the first in order to reduce its labor costs by repudiating the union’s collective bargaining agreement[,] the Board has found that the second company was formed with the unlawful motive of avoiding the first company’s responsibilities under the Act.’”  (quoting Diverse Steel)).  This additional inquiry makes sense because an alter ego situation typically arises when a unionized entity forms another, materially identical entity to perform similar functions in a non-unionized environment.

            1. ‘Intent to Evade’ is Not a Required Element Under Board Law

      Beginning with the Board’s decision in APF Carting, Inc., 336 NLRB 73 (2001), the Board now clearly holds ‘intent to evade’ is an additional factor, but not a necessary component, in the alter ego analysis.  See APF Carting, Inc., 336 NLRB at 73 n. 1 (“Although motive is a relevant consideration, the Board does not require an illegal motive to be established to find alter ego status.”); Diverse Steel, 349 NLRB at 946 (“Although unlawful motivation is not a necessary element of an alter ego finding,”  it is considered along with the other factors of identical management, business purposes, operations, equipment, customers, supervision and ownership.).  The Second, Third, and Sixth Circuits agree with the Board and hold that ‘intent to evade’ is only a factor in the overall analysis, rather than a necessary element.  See Finkel v. S.I. Associates, Inc., 2008 WL 2630297, *12 (E.D.N.Y. 2008) (“Anti-union animus is ‘germane’ to a finding of alter ego status, but is not necessary to such a finding.”  (quoting Goodman Piping Products v. NLRB, 741 F.2d 10 (2d Cir. 1984))); Trafford Distribution Center v. NLRB, 478 F.3d 172, 179-82 (3d Cir. 2007) (considering ‘intent to evade’ as just another factor in the analysis); NLRB v. Crossroads Electrical, Inc., 2006 WL 1210734, * 5, 179 LRRM 2835 (6th Cir. 2006) (“Although this circuit does not require the Board to show that an employer intended to circumvent its labor obligations in order to establish that one company is the alter ego of another, such a showing lends considerable support to an alter ego finding.”  (citations omitted)).⁶

            2. ‘Intent to Evade’ is a Prerequisite in the Seventh Circuit

      The Seventh Circuit disagrees with the Board and requires a showing of ‘intent to evade’ to find alter ego status.  “[O]ne corporation is the alter ego of another where the factors necessary to support a ‘single employer’ finding are met and, in addition, the Board finds that the second corporation was a ‘disguised continuance’ of the employing enterprise, resulting in evasion of the employer’s obligations under the labor laws.”  Esmark, Inc. v. NLRB, 887 F.2d 739, 755 (7th Cir. 1989) (acknowledging in the corresponding footnote that “[t]here is some dispute whether ‘an intent to evade’ statutory obligations through corporate restructuring is a necessary element of an alter ego finding.”); see also Chicago District Council of Carpenters Pension Fund v. Vacala Masonry, Inc., 967 F.Supp. 309, 317 (N.D. Ill. 1997) (“[I]t is only after the Court concludes that the signatory [employer] attempted to evade its CBA and thus finds [the non-signatory employer] the alter ego of [the signatory employer], that the Court could conclude that [the signatory employer] violated the provisions at issue.”); but see Electrical Workers Local Union 159 v. Circuit Electric, LLC, 2006 WL 623792, *5 (W.D. Wisc. 2006) (stating that ‘intent to evade’ is an “important factor in the analysis,” but not necessarily a requirement).⁷

      B. Totality of Circumstances

      Requiring a finding of an ‘intent to evade’ creates a more favorable standard for employers, as it increases a plaintiff’s initial burden to establish the alter ego doctrine.  But above and beyond the ‘intent to evade’ issue, a totality of circumstances approach remains paramount (the very reason why rigidly requiring an ‘intent to evade’ has fallen out of favor before the Board and most courts).  The Third Circuit’s discussion in Trafford Distribution Center highlights this trend:

      Our canvass of NLRB decisions involving partially reconstituted businesses has uncovered cases where alter ego was found to be present despite a significant change in scope of the business.   We do acknowledge that we have found no case with facts as stark as these.  Nevertheless, we agree with the Board and the ALJ that there is substantial evidence for the alter ego finding in light of [the] analysis as to the other factors: the similarity in customers, managers, equipment, and warehouse location; the brevity of the transition period; and the anti-union inferences.  While on a different set of facts an entity with such a minimal overlap in business purposes might appropriately be deemed outside the definition of alter ego, on these facts, where all the remaining alter ego factors point in a single direction, we have no difficulty affirming the Board’s decision.

      The Board has never used a bright-line test to quantify and assess the amount of business or overlap.  Instead it has looked to the facts on a case-by-case basis and balanced business purposes together with evidence of other similarities between the companies. 


Trafford Distribution Center, 478 F.3d at 182 (citations omitted); see also Crossroads Electrical, 2006 WL 1210734, *5 (“The alter ego is ‘flexible,’ and generally requires the ‘examination of all the circumstances of each case, and a weighing of all the relevant factors.’  This court has repeatedly noted that ‘it is the Board’s function to strike a balance among each of the criteria . . . .’”  (citations omitted)). 

      Similarly, the Board makes clear that common ownership is not necessary to find alter ego status.  See Unitec Elevator, 352 NLRB at 1049 (“Common ownership alone is insufficient to establish alter-ego status.”); US Reinforcing, 350 NLRB at 404 (“While substantially identical ownership is not a sine qua non of alter-ego status, it is an important factor.”).  Additionally, the Board, in line with its totality of circumstances approach, holds that a general denial of alter ego status suffices to warrant a hearing.  See Positive Electrical Enterprises, Inc., 353 NLRB No. 27, *2 (2008) (concluding that the employer’s claims of a lack of affiliation and common ownership, on their own, “constitute general denials” of the union’s claim that the employers were alter egos). 

      C. Reverse Alter Ego Theory

      Weighing the balance of all relevant evidence, the Board usually addresses a unionized employer’s creation of a non-unionized entity when confronted with an alter ego allegation.  The Ninth Circuit recently considered a union’s novel effort to apply a reverse alter ego theory, i.e., arguing that a non-union company began a union company to avoid future bargaining obligations.  See Southern California Painters & Allied Trades v. Rodin & Co., 2009 WL 595566, *4, 185 LRRM 3281 (9th Cir. 2009).  In Rodin, the owner (“Owner1”) of a residential painting business consulted with a friend (“Owner2”), who owned a successful non-union commercial painting business, about starting his own commercial painting enterprise.  Owner2 recommended that Owner1 start a union commercial painting business because Owner2’s business (which had a large market share of the non-union jobs) could not perform union work.  Owner1 (with the help of Owner2, who had no interest in the new entity and received no benefits therefrom) formed a new entity constituting a union commercial painting contractor and signed the painters union Master Labor Agreement.  See id. at 3282.

      The union in Rodin alleged that Owner2’s non-unionized entity and Owner1’s new unionized entity were alter egos on grounds that Owner2 helped Owner1 form his new commercial painting business to help Owner2 avoid any potential future obligations under the Master Labor Agreement.  The court refused to adopt the union’s theory: “We decline to recognize a ‘reverse’ alter ego doctrine.  The alter ego doctrine was never intended to coerce a non-union company into becoming a union company by requiring its compliance with a collective bargaining agreement it never signed, with a union its employees never authorized to represent them.”  Id. (acknowledging that the one other court to consider a reverse alter ego argument, the Northern District of Illinois in Vacala Masonry, 946 F.Supp. at 618, also rejected it).

      D. An Arbitrator’s Jurisdiction Over a Non-Signatory

      Another issue the courts recently addressed is the extent of an arbitrator’s jurisdiction over a non-signatory employer.  In R.G. Zachrich Construction, Inc. v. Ohio and Vicinity Regional Council of Carpenters Local 1581, 2008 WL 4159848, 184 LRRM 3356 (N.D. Ohio 2008), the court agreed that the alter ego issue was properly before the arbitration board.  See R.G. Zachrich, 2008 WL 4159848, *3 (“The Sixth Circuit has found that a broad arbitration clause, such as the clause in the Agreement in this case, requiring arbitration of all disputes, but not specifically addressing alter-ego allegations, evidences the parties’ intent to submit alter-ego disputes to arbitration.”).  The court continued by upholding the arbitration board’s decision to the extent it applied to the signatory employer, but the court held the arbitration board could not bind the non-signatory employer.  See R.G. Zachrich, 2008 WL 4159848, *4 (“A non-signatory, however, is not party to an agreement.  Thus, it has not manifested an intent to submit its disputes to or be bound by arbitration.  When a non-signatory challenges an arbitration panel’s jurisdiction, a court, rather than arbitration panel, must independently determine whether the organizations are alter-egos.”).

      In a closely related decision the Sixth Circuit held that an arbitration board could enforce the collective bargaining agreement’s prohibition against double-breasted operations, even though the arbitration board would affect the rights of a non-signatory employer.

      We conclude the district court correctly determined that the [arbitration board] did not exceed its power by substantially affecting the rights of an independent party.  While the [arbitration board’s] decision may affect the [non-signatory’s] ability to subcontract with [the signatory], Article 30(E) of the [collective bargaining agreement] prohibits [the signatory] from double-breasting.  If [the signatory’s] argument were accepted, then Article 30(E) would have little meaning.  Enforcement of a contractual restriction on the actions of one party is not invalid because the restrictions affect the party’s participation in the marketplace.  [The signatory’s] agreement to the [collective bargaining agreement] here did not affect any rights of [the non-signatory]; it merely prevented [the signatory] from agreeing to certain dealings with [the non-signatory].  The [arbitration board’s] decision simply enforced the way in which [the signatory] itself had limited the freedom of its partial alter ego. 


Dobson Industrial, Inc. v. Iron Workers Local 25, 2007 WL 1646060, *7, 181 LRRM 3295 (6th Cir. 2007).  R.G. Zachrich and Dobson do not directly conflict with each other, even though the courts’ language appears contradictory.  The court in R.G. Zachrich held that the arbitration board could not enforce a penalty against the non-signatory, while the court in Dobson concluded that the signatory could not form a double-breasted operation with the non-signatory because the signatory’s contractual language prohibited this arrangement.  Employers should be aware of this subtle difference when confronting an alter ego issue at the arbitration stage.

V. REQUEST FOR INFORMATION

      Employers should also take heed when facing a union’s request for information regarding a potential alter ego or another employer who could potentially be a ‘single employer’ under the Act.  The Board’s analysis does not differ between alter ego and single employer in the context of an information request.  Highlighting the union-friendly standard for information requests pertaining to potential alter egos / single employers, the Board’s recital of the standard in Racetrack Food Services, Inc., 353 NLRB No. 76 (2008), is particularly illustrative:

      When information concerns a purported single-employer relationship between the Respondent and a nominally separate employer, the union bears the burden of establishing the relevance of the requested information.  The Board need only decide whether the information has some bearing on these issues, or would be of use to the union. 

      The union must have a reasonable objective basis for believing that an alter ego or single employer relationship exists.  The union need not inform the employer of the factual basis for its request, but need only indicate the reason for its request.  However, when the circumstances surrounding the request are reasonably calculated to put the employer on notice of the relevant purpose, which the union has not specifically spelled out, the employer is obligated to divulge the requested information. 

      A union has satisfied its burden when it demonstrates that it had, at the relevant time, a reasonable belief supported by objective evidence, for requesting the information.  A union may rely on hearsay or other type[s] of evidence which may not be reliable or accurate to demonstrate that its belief of single employer or alter ego status is reasonable.

      To demonstrate the relevance of the information request, the General Counsel must show either (1) that the union demonstrated relevance of the nonunit information or (2) that the relevance of the information should have been apparent to the Respondent under the circumstances. 


Racetrack Food Services, 353 NLRB at *12 (citations omitted) (emphasis added).  The Board in Racetrack Food Services held that the employer must provide the requested information even though the General Counsel’s advice division rejected the union’s claim that there was an appropriate single bargaining unit.  See id. at *14 (“[W]hen the Union made its request for information, it had a good faith belief that there was a single unit of employees.  It[s] information request was relevant to that belief and to the possible filing of a grievance claiming potential contractual violations.”). 

      All of the recent Board decisions considering a union’s request for information pertaining to potential alter egos / single employers side with the union.  See Local One-L, 352 NLRB 906, 914-15 (2008); National Broadcasting Company, Inc., 352 NLRB 90, 97-98 (2008); H & R Industrial Services, Inc., 351 NLRB 1222, 1223-24 (2008); Contract Flooring Systems, Inc., 344 NLRB 925, 928-29 (2005); Pulaski Construction Company, 345 NLRB 931, 931-32 (2005).  However, Chairman Battista and Member Schaumber indicated in H & R Industrial their preference for the Third Circuit’s heightened standard, “which requires a union to ‘do more than state the reason’ for its information request.  The Third Circuit’s standard requires a union [to] tell an employer ‘of facts tending to support’ its request for nonunit information.”  H & R Industrial, 351 NLRB at 1224 (emphasis in original) (quoting Hertz Corp. v. NLRB, 105 F.3d 868 (3d Cir. 1997)) (noting at the corresponding footnote, “Chairman Battista and Member Schaumber agree with the more demanding standard described.”).⁸  Nonetheless, the Board will likely not adopt this stricter standard given (1) Chairman Battista’s departure from the Board, (2) the likelihood of a labor-friendly Board once the Obama administration’s appointees take hold, and (3) the Board’s most recent decision in Racetrack Food Services clearly affirms the less-demanding standard.  See PDK Investments, LLC, Case No. 16-CA-26292 (NLRB Div. of Judges 2008) (“Recently, based on some disagreement with the Circuit Courts, two Board members indicated that they think that the union does have to disclose the reasons.  One of those Board members is no longer on the Board, so I don’t know if the Board will ever adopt that position.”).

VI. WORK PRESERVATION CLAUSES

      Just as employers should closely scrutinize any information request pertaining to potential alter egos / single employers, they should closely track the legality of work preservation clauses under Board law.  Work preservation clauses are also known as anti-dual shop clauses - issues arise concerning the legality of these clauses to the extent they prevent a signatory to rightfully conduct business with alleged alter egos or single employers.  The Board’s most recent recital of its applicable standard, in Heartland Industrial Partners, LLC, 348 NLRB 1081 (2006), is comprehensive and includes an analysis of the Board’s seminal decision in Alessio Construction, 310 NLRB 1023 (1993).  For context, we quote verbatim the anti-dual shop clauses at issue in Alessio Construction and Heartland Industrial, respectively:

      In the event that the partners, stock holders or beneficial owners of the company form or participate in the formation of another company which engages or will engage in the same or similar type of business enterprise in the jurisdiction of this Union and employs or will employ the same or similar classifications of employees covered by this Collective Bargaining Agreement, then that business enterprise shall be manned in accordance with the referral provisions herein and covered by all the terms of this contract. 


Alessio Construction, 310 NLRB at 1023.

      The Side Letter [of the contract] specifies the circumstances and conditions for applying [the contract] to future acquisitions of [the Employer] known as “covered business entities” (CBEs).  Specifically, section 3 of the Side Letter defines a CBE as one in which Heartland

directly or indirectly:

(i) owns more than 50 percent of the common stock; (ii) controls more than 50 percent of the voting power; or (iii) has the power, based on contracts, constituent documents or other means, to direct the management and policies of the enterprise….

Section 2 of the Side Letter provides that no less than 6 months after [the Employer] has invested in a CBE, the Union may notify [the Employer] of its intent to organize that CBE.  [The Employer] will then cause the CBE to execute a Side Letter and [contract] with the Union that is, in form and substance, identical to the [the Employer’s] Agreement. 


Heartland, 348 NLRB at 1081.

      The Board in Heartland, using Alessio Construction as the guiding principle, explained the current standard for evaluating work preservation clauses under the Act:

      Section 8(e) of the Act generally forbids parties from entering into an agreement in which an employer “agrees to refrain from dealing in the product of another employer or to cease doing business with any other person.”  The General Counsel can establish the cease doing business element of Section 8(e) by “proof of prohibitions against forming business relationships in the first place as well as requirements that one cease business relationships already in existence.”  Section 8(e)’s reach, however, is not limited to agreements that on their face require a total cessation of business relationships.  Thus, to establish a violation of the cease doing business element, “it need not be shown that a cessation of business has occurred or is inevitable, it is enough to show that the agreement offers the alternatives of a cessation of business or of adopting other injurious courses of action.  An agreement which presents neutral employers with such options give them no ‘real choice. . . .’”

      The Board has found that clauses that prohibit a signatory employer from being affiliated with a nonunion contractor violate Section 8(e).  See, e.g. Alessio Construction.  Contrary to the argument advanced by the General Counsel, [Alessio Construction is] distinguishable and do[es] not support finding a cease doing business object here.

      The anti-dual shop clause in Alessio Construction prohibited the owners of a signatory employer from forming or participating in the formation of a nonunion company in the same general business. . . .

      In [Alessio Construction] the challenged clause effectively gave the signatory employer two alternatives: (1) induce another company to become unionized; or (2) sever its relationship with that company . . . .  In Alessio Construction, the clause imposed this requirement by requiring any “dual shop” to be covered by all the terms of Alessio’s collective-bargaining agreement with the union. . . .

      The challenged clauses in this case are different.  On their face, they do not require [the signatory] to choose between inducing a [non-signatory] to become unionized or severing its relationship with [the non-signatory].  Crucially, the challenged clauses do not – on their face – require [the signatory] to sever its relationship with a [non-signatory] that does not become bound by [the collective bargaining agreement]. 


Heartland Industrial, NLRB at 1082-84 (most citations omitted).

      An ALJ recently cited Alessio Construction and Heartland Industrial in concluding that the anti-dual shop clause did not violate Section 8(e).  See Cosco Fire Protection, Inc., 2008 WL 4820268 (NLRB Div. of Judges 2008) (“The contested provision here applies only to entities that ‘perform work of the type covered by this agreement.’  Again, this means it applies only to unit work.  The aim of the clause is primary in purpose; it does not seek to acquire work of a type not covered by the contract . . . .  [T]his language clearly may be read to require the employer to have the right to control the flow of unit work.”); but see RWKS Comstock, 344 NLRB 751, 754 (2005) (ruling that the dual shop clause violated Section 8(e), the ALJ (whose ruling was adopted by the Board) stated “there is no evidence here that the joint venture is not a separate person from the party having the labor agreement, as that term is used in the context of secondary boycotts . . . .  I think that the General Counsel correctly argues that the clause is unlawful on its face because it does not limit the provision to those situations where there is both common ownership and control or where there is a diversion of struck work.”  (emphasis in original)).

      The Board’s analysis of anti-dual shop clauses attempts to protect construction employers’ right to conduct their own businesses, to a certain extent.  As employers conduct their own businesses and create relationships with other entities operating in similar capacities, employers must consider the potentially grave consequences of being found co-liable for alter egos’ / single employers’ obligations under the ERISA, as well as other federal employment laws such as Title VII of the Civil Rights of 1964 (“Title VII”), the Age Discrimination in Employment Act (“ADEA”), the Americans with Disabilities Act (“ADA”), the Fair Labor Standards Act (“FLSA”), and the Family Medical Leave Act (“FMLA”).

VII. ERISA

      Employers beware: ERISA obligations lurk closely behind any decision to join forces with another employer, and the applicable precedent paints a gloomy outlook for employers.  Some positive signs persist, but they are trumped by the mounting negative authority. 

      A. The Bad News

      A recent case out of the Southern District of New York demonstrates the danger of a double-breasted operation in the context of ERISA obligations.  In New York District Council of Carpenters Pension Fund v. Perimeter Interiors, Inc., 2009 WL 362640 (S.D.N.Y. 2009), an auditor concluded that the Employer maintained a secret bank account where it made payments to a non-union company that had the same business address as the Employer, a president who was the Employer’s owner’s wife, and several employees in common.  “According to the auditor, such a relationship is known in the trades as ‘double-breasting’ – in which one union company conceals financial activity through a nominee non-union company.”  Perimeter Interiors, 2009 WL 362640, *2.  The court not only held the Employer liable for the $1.6 million owed, it also held the Employer’s owner individually liable.  See id at *4 (“[T]o the extent that a controlling corporate official defrauds or conspires to defraud a benefit fund of required contributions, the official is individually liable under Section 502 of ERISA . . . .”); see also Powers v. Corn Products International, Inc., 557 F.Supp.2d 928, 937 (N.D. Ill. 2008) (concluding that there was no personal liability, the court stated, “Officers of a corporation will not be held personally liable under ERISA ‘unless the corporation is acting [as] an alter ego of the individual or there exists facts that warrant the piercing of the corporate veil.’  The only other possibility for personal liability under ERISA is if the collective bargaining agreement expressly provides for such liability.”).

      Similar to Perimeter Interiors, several courts have recently found alter egos / single employers liable for ERISA contributions.  For example, applying the basic alter ego analysis in a double-breasted context, the Eastern District of Michigan concluded that an alleged alter ego was liable for up to $200,000 in ERISA contributions.  See Laborers Pension Trust Fund v. Interior Exterior Specialists Company, 2008 WL 4443066, *6 (E.D. Mich. 2008) (“[The non-signatory] would become liable to pay fringe benefit contributions for certain workers of [the signatory] if [the non-signatory] was an affiliated company and its business structure was used to allow [the signatory] to avoid its legal obligations.  This has come to be known as a ‘double-breasted operation.’”); see also Burke v. Hamilton Equipment Installers, Inc., 528 F.3d 108, 110 (2d Cir. 2008) (affirming the district court’s decision to hold the alleged principal alter ego liable for ERISA withdrawal liability); Central Illinois Carpenters Health & Welfare Fund v. J.L.H. Interior Construction, Inc., 2007 WL 3231416, *4 (C.D. Ill. 2007) (denying defendant employer’s motion to dismiss because the two employers were single employers “for purpose[s] of obligations under a collective bargaining agreement, including payment of contributions to ERISA qualified plans”).

            1. Appropriateness of Bargaining Unit in ERISA Context

      Federal courts are split as to whether determining the appropriate bargaining unit under the single employer doctrine (see Section II(C) supra) is necessary in the ERISA context.  One camp concludes that the appropriate bargaining unit analysis required in the labor arena is also necessary in the ERISA context.  See La Barbera v. Les Sub-Surface Plumbing, Inc., 2008 WL 906695, *4 (E.D.N.Y. 2008) (in an ERISA action the court noted, “‘it must be shown not only that [the employers] are ‘single employers,’ but, additionally, that together they represent an appropriate bargaining unit.’”  (quoting Lihli Fashions Corp., Inc. v. NLRB, 80 F.3d 743 (2d Cir 1996))); Moreno v. S.J. Weaver Contracting, Inc., 2006 WL 2329463, *3 (N.D. Cal. 2006) (citing Local 343 v. Nor-Cal Plumbing, 48 F.3d 1465 (9th Cir. 1995)) (contrasting, in dicta, the alter ego and single employer doctrines in an ERISA context to the extent a single employer determination requires finding an appropriate bargaining unit); Flynn v. Ohio Building Restoration, Inc., 317 F.Supp.2d 22, 27 (D.D.C. 2004) (in a case enforcing ERISA, the court acknowledged in dicta, “even if this Court were to find that [the employers] did in fact constitute a “single employer . . .,” the Court would still need to decide whether or not [the non-signatory’s] employees are a part of the appropriate bargaining unit for the purpose of applying the [collective bargaining agreement].”).

      Conversely, the District Court of Maryland, in Laborers’ District Council Health and Welfare Fund v. Comet Contracting, LLC, 2006 WL 2085847 (D. Md. 2006), provided further unfortunate precedent for construction employers in the ERISA context when it held that a court need not consider the appropriateness of the bargaining unit in ERISA cases.  The court first acknowledged that considering an appropriate bargaining unit, after finding single employer status, “generally involved a suit by a labor union, under the [LMRA] to . . . either force an employer to deal with the union or to refrain from using a second corporation to hire non-union labor.”  Comet Contracting, 2006 WL 2085847, *7 (adding that “[t]he purpose of inquiring into the appropriate bargaining unit . . . is to protect the [employees’] rights under Section 7 of the NLRA . . . to bargain collectively with representatives of their choosing.”).  Conversely, an ERISA action does not implicate any representational issues.  “The question of what constitutes an appropriate bargaining unit is supplanted by the question of which employees and jobs are covered by the contract that gives rise to [the alleged single employers’] pension obligations . . . .”  Id. (concluding, nonetheless, that the two employers were a single employer for purposes of ERISA contributions); see also Moriarty v. Svec, 164 F.3d 323, 324 (7th Cir. 1998) (“[Courts] need not decide representational issues to impose liability for contributions to a multi-employer plan.”); Central Illinois Carpenters Health & Welfare Fund v. Olsen, 2006 WL 1520273, *5 (C.D. Ill. 2006) (holding ‘single employers’ liable for ERISA contributions, the court explained that “[under] ERISA, businesses that are ‘under common control’ are treated as a single employer.  When two businesses are actually a single employer, then both businesses will be equally liable under a collective bargaining agreement entered on behalf of one of them.”).  Eliminating the appropriateness of the bargaining unit from the equation takes another arrow out of the employer’s quiver when attacking a finding of single employer status.

            2. The More Relaxed Alter Ego Doctrine

      More bad news: as evidenced by the courts’ discussions in the cases cited above, the “more relaxed, less exacting” federal labor law alter ego doctrine typically applies to ERISA actions.⁹  The alter ego doctrine in the federal labor context prohibits unionized entities from forming materially identical non-unionized entities in hopes of avoiding bargaining obligations under the Act, and the Board uses flexible measures to achieve this end (see Section IV supra).  On the other hand, the corporate alter ego doctrine protects plaintiffs claiming that opposing parties (normally an individual or a subsidiary, along with the larger entity) used the corporate form in derogation of the plaintiffs’ rights, and federal courts rely on applicable state law standards focusing on the corporate structure.  See, e.g., Hamilton v. Water Whole Int’l Corp., 302 Fed.Appx. 789, 793 (10th Cir. 2008) (applying Oklahoma law and listing factors such as stock ownership, common directors and officers, financing between alleged alter egos, and undercapitalization of the subsidiary); In re Fisher, 296 Fed.Appx. 494, 506 (6th Cir. 2008) (applying Ohio law and listing factors such as failure to observe corporate formalities, shareholders implying personal liability for corporate obligations, and absence of corporate records); Freeland v. Enodis Corp., 540 F.3d 721, 738 (7th Cir. 2008) (applying Indiana law and listing factors such as use of corporation to promote fraud, payment by corporation of individual obligations, and any shareholder action manipulating the corporate form).

      The court in Yolton v. El Paso Tennessee Pipeline Company, 435 F.3d 571 (6th Cir. 2006), directly addressed the difference between alter ego in the labor law and corporate contexts:

      [In NLRB v. Fullerton Transfer & Storage Limited, Inc., 910 F.2d 331 (6th Cir. 1990), the court] asked “[w]hich doctrine referred to as an ‘alter ego doctrine’ applies to this case.”  “The alter ego doctrine was developed to prevent employers from evading obligations under the Act merely by changing or altering their corporate form.”  Quite correctly, [the Sixth Circuit] recognized that the term alter ego “has accumulated a great deal of baggage in the context of labor disputes.”  The doctrine is most commonly used in “labor cases to bind a new employer that continues the operations of an old employer in those cases where the new employer is ‘merely a disguised continuance of the old employer.’”  To determine alter ego status in this situation, courts ask “whether the two enterprises have substantially identical management, business, purpose, operation, equipment, customers, supervision and ownership.”  The [Sixth Circuit] described this as a “more relaxed, less exacting” application of the alter ego doctrine “[i]n order to effectuate federal labor policies. . . .”  The analysis is “flexible” and “no one element should become prerequisite to imposition of alter ego status . . . .”

      In Fullerton Transfer, however, the [Sixth Circuit] declined to apply the more relaxed alter ego doctrine because it found that the facts before it did not present a case where the alleged alter egos are “engaged in the same business as the original company . . . .  Rather, they are, respectively, a corporation engaged in a different business and stockholders and officers of another corporation.”  Consequently, the [Sixth Circuit] determined that the rationales justifying application of the relaxed doctrine were absent.

      The facts here, however, indicate that the more relaxed standard is appropriate. . . .  All that Fullerton Transfer stands for is the conclusion that the relaxed standard was not appropriate for the particular facts of that case. 


Yolton, 435 F.3d at 586-87 (citations omitted) (concluding that the employers were alter egos).  Consequently, when disputes involve a dual shop or double-breasted operation (i.e., a labor law context), most courts still apply the relaxed, easier-to-establish alter ego doctrine in ERISA cases.

      B. The Decent News

      The Eighth Circuit, meanwhile, strictly applies “corporate law principles to determine employer liability under ERISA . . . .”  Trustees of the Graphic Communications International Union v. Bjorkedal, 516 F.3d 719, 727 (8th Cir. 2008).  The Eighth Circuit reaffirmed its stance in Bjorkedal: “We reject [the plaintiff’s] reliance on cases applying the labor law standard of the alter ego doctrine, which ‘involves a more lenient standard for disregarding the corporate form than that employed in corporate law.’”  Id. at 729 n. 2 (quoting Greater Kansas City Laborers Pension Fund v. Superior General Contractors, Inc., 104 F.3d 1050 (8th Cir. 1997)) (concluding that the employers were not alter egos under the heightened corporate law standard).

      A decision from the D.C. District Court provides arguably the most favorable precedent in the ERISA context from an employer’s perspective:

      Even if [the signatory employer] actually “shut down,” the court would still conclude application of the alter ego doctrine is inappropriate given that ‘the union membership with rights under a collective bargaining agreement’ was not ‘worse off’ than it was before the asserted closing. . . .  [B]ecause the union membership and the Fund are not ‘worse off’ than before, the purposes of the alter ego doctrine would not be served by its application in this case. . . .

      “[T]here is no evidence that [the signatory] deceived the [Fund] about its structure, ownership, relationship with [the non-signatory], or the fact that [the non-signatory] regularly subcontracts with non-unionized [installers].”  Therefore, there is no equitable basis for holding [the non-signatory] liable to make contributions to the Fund. 


Flynn v. Interior Finishes, Inc., 425 F.Supp.2d 38, 55-56 (D.D.C. 2006) (citations omitted); see also Jacobs v. Xerox Corporation Long Term Disability Income Plan, 520 F.Supp. 2d 1022, 1035 (N.D. Ill. 2007) (“‘[T]he purpose underlying the alter ego doctrine in the ERISA context is to prevent a corporate business from limiting its responsibilities by fractionalizing its business operations.’  In this case, however, there is no evidence that Xerox has ‘fractionalized its business operations’ to frustrate [the plaintiff] – either as to health benefits or to impede his ability to request documents of the plan administrator.”). 

      C. A Mixed Bag – Enforcing ERISA Judgments

      Courts are mostly favorable (from the employer’s perspective) on the issue of whether a federal court has jurisdiction to enforce a previously obtained ERISA judgment in the alter ego context.  In Peacock v. Thomas, 516 U.S. 349 (1996), an employee sought to enforce an earlier ERISA judgment entered against the employer for breach of its fiduciary duty.  In the enforcement action the employee, using a piercing-of-the-corporate-veil theory, sought to hold a shareholder liable for the employer’s ERISA-related debt.  See Peacock, 516 U.S. at 351-52.  The Supreme Court held, on two separate grounds, that the employee could not establish federal jurisdiction. 

      [First, the employee] could invoke the jurisdiction of the federal courts only by independently alleging a violation of an ERISA provision or term of the plan.  Piercing the corporate veil is not itself an independent ERISA cause of action, “but rather is a means of imposing liability on an underlying cause of action. . . .”

      [Second,] [i]n a subsequent lawsuit involving claims with no independent basis for jurisdiction, a federal court lacks the threshold jurisdictional power that exists when ancillary claims are asserted in the same proceeding as the claims conferring federal jurisdiction.  Consequently, claims alleged to be factually interdependent with and, hence, ancillary to claims brought in an earlier federal lawsuit will not support federal jurisdiction over a subsequent lawsuit. . . .  [O]nce judgment was entered in the original ERISA suit, the ability to resolve simultaneously factually intertwined issues vanished. 


Id. at 354-55 (citations omitted).

      The Northern District of Illinois recently affirmed the Seventh Circuit’s controversial exception to Peacock: “After Peacock, the Seventh Circuit has recognized an exception to [Peacock’s denial of federal jurisdiction] when, in the second suit, the plaintiff alleges that an alter ego of [the] original defendant is directly liable for the ERISA violation in question.”  Divane v. Atash Industries, Inc., 2008 WL 4534090, *2 (N.D. Ill. 2008) (citing Board of Trustees, Sheet Metal Workers National Pension Fund v. Elite Erectors, Inc., 212 F.3d 1031 (7th Cir. 2000)).  The Tenth Circuit took issue with Elite Erectors to the extent that it seemed “to conflict with Peacock itself, insofar as the Supreme Court indicated that its holding, though specifically addressed to a veil-piercing claim, was broad enough to address the conflicting practices of several circuit courts . . . that had involved alter-ego claims.”  Ellis v. All Steel Construction, Inc. 389 F.3d 1031, 1035 (10th Cir. 2004) (emphasis in original).  The court in Ellis held that a mere claim of alter ego liability did not amount to ancillary federal jurisdiction as an exception to Peacock.  See id. (“[T]he determinative factor is whether the ERISA liability is asserted against the second company directly based on the actions of the second company or whether liability is asserted only derivatively or vicariously against the second entity based solely upon the relationship between the second entity and the initial ERISA employer.”); see also generally Futura Development of Puerto Rico, Inc. v. Estado Libre Asociado de Puerto Rico, 144 F.3d 7 (1st Cir. 1998) (agreeing with the Tenth Circuit); Epperson v. Entertainment Express, Inc., 242 F.3d 100 (2d Cir. 2001) (same); C.F. Trust, Inc. v. First Flight Ltd. Partnership, 306 F.3d 126 (4th Cir. 2002) (same). 

      More recently, the Eastern District of Pennsylvania rejected the Seventh Circuit’s standard and affirmed the Tenth Circuit’s reasoning from Ellis.  See International Association of Heat and Frost Insulators and Asbestos Workers v. A Gallo Contractors, Inc., 2008 WL 942595, *4 (E.D. Pa. 2008) (“It is not enough for plaintiffs to claim that the outside entity is an alter ego in order to establish direct liability: plaintiffs must show that the entity played a direct role in the underlying ERISA violation.”).  This apparent trend (and that the Seventh Circuit’s standard is an aberration) bodes well for construction employers seeking to avoid federal jurisdiction in actions to enforce an earlier ERISA judgment against an alter ego.  However, this represents only a fraction of the applicable precedent in the ERISA context.  And as Section VII(A) above makes clear, construction employers need to be acutely aware of ERISA obligations and risks they expose themselves to when entering into a dual shop or double-breasted operation.

VIII. OTHER EMPLOYMENT LAWS

      In addition to ERISA, other risks include liability under the federal employment laws.  For example, the single employer doctrine applies identically to Title VII, the ADEA and the ADA because these statutes similarly define ‘employer.’  See Rubino v. Acme Building Maintenance, 2008 WL 5245219, *3 n. 4 (N.D. Cal. 2008) (“[The] single employer doctrine[] appl[ies] in the same manner across Title VII, ADEA, and ADA.”); Dearth v. Collins, 441 F.3d 931, 934 n. 2 (11th Cir. 2006) (acknowledging the similarity between Title VII, the ADEA, and the ADA in determining who/what constitutes an ‘employer’).  In Dearth the Eleventh Circuit confirmed the Seventh Circuit’s holding that the alter ego doctrine does not create an exception to Title VII’s prohibition against holding individuals liable under the statute.  See Dearth, 441 F.3d at 933-34 (citing EEOC v. AIC Security Investigations, Ltd., 55 F.3d 1276 (7th Cir. 1995)). 

      A. Single Employer Analysis in the Federal Employment Law Context

      The single employer and alter ego analyses in the context of federal employment laws are identical and similar, respectively, to their counterparts in the labor law context.  The single employer analysis, also called the ‘integrated-enterprise test’ in the federal employment law context, includes the four elements seen in the labor context (common management, interrelation between operations, centralized control of labor relations, and common ownership) and stresses, “‘All four factors, however, are not necessary for single-employer status.  Rather, the test should be applied flexibly, placing special emphasis on the control of employment decisions.”  Torres-Negron v. Merck & Company, Inc., 488 F.3d 34, 42-43 (1st Cir 2007) (applying the single employer analysis in the ADA and Title VII context and overruling the lower court’s dismissal because the two employers may constitute single employers); see also Wong v. HSBC Mortgage Corporation, 2008 WL 753889, (N.D. Cal. 2008) (applying the same single employer analysis in an FLSA context); Hegre v. Alberto-Culver USA, Inc., 508 F.Supp.2d 1320, (S.D. Ga. 2007) (concluding that some evidence of common management and common ownership was insufficient to establish single employer status).

      B. Codification of the Single Employer Analysis

      The ADEA and the FMLA go a step further and actually codify the single employer analysis.  In the context of determining the ADEA’s application to foreign corporations, the ADEA instructs, “the determination of whether [a domestic] employer controls a [foreign] corporation shall be based upon” the four factors established by the Board when determining single employer status.  29 U.S.C. § 623(h)(3) (2009).  See also Levine v. Reader’s Digest Association, Inc., 2007 WL 4241925, *6 (S.D.N.Y. 2007) (“The elements of . . . the single employer doctrine have been codified in the ADEA . . . .”).  The FMLA regulations recite the Board’s standard even more closely: “A determination of whether or not separate entities are an integrated employer is not determined by the application of a single criterion, but rather the entire relationship is to be reviewed in its totality.”  29 CFR § 825.104(c)(2) (2009) (continuing by listing the Board’s four factors).  See also Richardson v. Patkar Hospitality, LLC, 2008 WL 1777446, *2 (E.D. Mo. 2008) (analyzing an FMLA claim and citing Section 825.104(c), “Where [the single or integrated employer test] is met, the employees of all entities making up the integrated employer will be counted in determining employee coverage and employee eligibility.”).

      C. Alter Ego Analysis in the Federal Employment Law Context

      Unlike the single employer doctrine under the federal employment laws, the alter ego doctrine in this context does not exactly mirror its counterpart in a labor law forum.  Dearth, supra, is representative of how alter ego typically arises in the federal employment context.  See also Jacobs v. R & B Sunrise, Say You Say Me, Inc. 2008 WL 4630836, * (D. Idaho 2008) (“This court concludes that the Ninth Circuit would not recognize the alter ego theory of Title VII liability [for individuals].  [An individual] can therefore be individually liable under Title VII only if [the plaintiff] proved that [an individual], and not [the employer] was [the plaintiff’s] employer.”).  In Hernandez v. Caviness Packing Company, Inc., 2008 WL 2404963 (N.D. Texas 2008), the court gets closer to labor law’s alter ego theory in the context of the FLSA.  “In determining if a company is the alter ego of another, Courts consider a ‘laundry list of factors . . . .’  These factors include whether or not the two companies have common stock ownership . . . common business departments . . . are jointly financed . . . if one operates with ‘grossly inadequate capital . . .’ [and] if the daily operations aren’t kept separately.”  Caviness Packing, 2008 WL 2404963, *4 (citations omitted).

      The key difference between the alter ego analysis in the federal employment law context versus the labor law arena is that ‘intent to evade’ does not influence the analysis in the federal employment law context.  This intuitively makes sense, as this element addresses a party’s intention to evade the responsibilities of the NLRA by avoiding any controlling collective bargaining agreement.  The ‘intent to evade’ circumstance typically does not arise outside the labor law arena.

IX. CONCLUSION

      Whether it is the federal employment laws, ERISA, work preservation clauses, or unions’ requests for information, the alter ego / single employer analysis has recurring repercussions for a dual shop or double-breasted operation.  Like most determinations under Board law, the applicable analyses are guided by enunciated factors and burdens of proof.  But these factors and burdens only guide, they do not provide reliable demarcations as a sturdy backdrop to the ever-complicated domain of labor relations in the construction industry.  Especially given the anticipated trajectory of the Board under the Obama administration, construction employers need to carefully craft new relationships when forming affiliations with entities that potentially constitute a dual shop or double-breasted operation.  Without attention to details, an employer can find itself on the hook for millions of dollars in contractual obligations without ever executing a contract.

      To minimize such risks, the following guidelines will help companies maintain their separate statuses and avoid unwanted obligations while still being able to explore potential business opportunities with like entities.  

• Both companies must be separately incorporated.
• Avoid temporary transfer of employees from one company to the other. Although permanent transfers of either supervisors or employees should also be avoided, a one-time permanent transfer of an employee or supervisor from one company to the other should not destroy otherwise valid double-breasted operations. 
  
• Some common high level management is acceptable, although this should ideally be avoided.  However, there must be different manager(s) and supervisor(s) in control of actual day-to-day operations and labor relations matters.  
  
• Although an effort should be made to structure a different ownership arrangement, overlapping or common ownership alone will not result in a single employer determination. 
  
• Have separate administrative staffs and separate office spaces and expenses.  If this is unavoidable, the companies should allocate pro rata shares for such expenses at current market value.  This should be traceable on the books and records.  If possible, an agreement or lease should exist to prove separateness. 
  
• Do not interchange tools and equipment between companies.  If this is unavoidable with more expensive tools or equipment, the appropriate charges should be made from one company to the other at the current market rates.  Rental agreements are necessary.  Tools or equipment cannot be ‘borrowed.’ 
  
• The hiring process must be separate.   
  
• Terms and conditions of employment should be kept separately for both companies (i.e., work rules, wage rates, health and benefits compensation, and fringe benefits), and the decision-makers who set them should be different. 
  
• Each company should have a separate employee handbook or personnel manual. 
  
• Each company must have its own ‘identity’  (physical address, telephone/fax number, post office box, email addresses, etc.). 
  
• Maintain separate books and records, including separate bank accounts, payroll accounts, and tax returns.  Also, do not co-mingle funds between the companies.  
  
• Have separate directors and hold separate directors’ meetings. 
  
• All transactions between the two companies must be at arm’s-length.  The services provided between the two companies must be charged at reasonable market rates and should be evidenced by written contracts. 
  
• Decisions for each company must be made without regard for any potential impact on the other.  For instance, avoid as much as possible one company helping the other bid on projects, particularly when a union company assists a non-union company on a project that is otherwise within the union company’s “domain.” 
  
• Delegate the full responsibility and authority for running the day-to-day operations of the company to the president or chief operating officer of each company. 
  
• Delegate the full responsibility and authority to different individuals for establishing and modifying personnel policies and for hiring, firing, promoting, disciplining, and adjusting grievances. 
  
• To the extent possible, have separate employee benefit plans and no common group insurance, profit sharing, or pension plans. 
  
• Present the two companies to the public as separate and independent enterprises.  Items such as advertising and participation in trade associations should be handled separately.  One company should not appear in the title, promotional literature, or website of the other company.  Websites should be carefully reviewed also for this purpose.  If “name branding” is essential for marketing purposes, ensure that (i) “name branding” is the only reason for using similar names for job bids and (ii) the bidding is handled by separate entities. 
  
• The companies should be bonded and insured separately.  
  
• The new company should be adequately capitalized to stand on its own. 
  
• The new company’s operating agreement (an LLC, for instance) should be self-serving and identify management and non-management members.  Do not overlap the management members between the companies.  
  
 


      Following these guidelines will not necessarily insulate an employer from outside attacks, but they will certainly help navigate the treacherous labor law landscape highlighted in the preceding pages.  
 
 
 


5154819.1 (PERSONAL)




¹ Mr. Samson is a shareholder in the Chicago office of Ogletree, Deakins, Nash, Smoak & Stewart.  Mr. Levine is an associate in the Chicago office of Ogletree, Deakins, Nash, Smoak & Stewart.  Both concentrate their practices in traditional labor and employment law.

² As an example from the construction labor law arena, the Board, in Moore Dry Dock, 92 NLRB 547 (1950), established four guidelines to determine if picketing at a common job situs is lawful primary picketing or unlawful secondary activity. See, e.g., Andy J. Egan Co., Inc., 345 NLRB 1322, 1323-24 (2005).  The Board now uses these four guidelines as barometers in weighing the balance of all relevant considerations.  See Interox America, 306 NLRB 54, 58 (1992) (“The territorial limits of permissible picketing at or reasonably close to a reserved primary gate must be ultimately decided on a case-by-case basis, taking into account all the relevant circumstances.”).

³ See Section IX infra for a further discussion on best practices to avoid single employer and alter ego status.

⁴ For a further discussion of Essex Valley and the Board’s remedial power in the single employer context, see Section III(C) infra at pages 9-10.

⁵ One district court, however, has indicated that analyzing the appropriateness of the bargaining unit is necessary even when two employers are found to be alter egos.  See Sheet Metal Workers International Association Local No. 67 v. Todd-Ford Management Co., 2006 WL 1044240, *3 (W.D. Tex. 2006) (“If a district court finds that the two entities are alter egos, there must be a favorable decision as to the appropriateness of the bargaining unit consisting of the employees in both companies before the non-signatory entity would be bound by the CBSA.”).  The Board and other federal courts do not adopt this standard.

⁶ An earlier Sixth Circuit case suggests that ‘intent to evade’ is a prerequisite for finding alter ego status.  “In the absence of some ‘indication that the relationship between [the companies] has changed over the years or has caused the [union] to receive less than that for which it bargained,’ there is no equity that would justify a court’s imposition of liability.”  Trustees of the Resilient Floor Decorations Insurance Fund v. A & M Installations, Inc., 395 F.3d 244, 248 (6th Cir. 2004) (quoting Mass. Carpenters Central Collection Agency v. AA Building Erectors, Inc., 343 F.3d 18 (1st Cir. 2003))); see also Cement Masons’ Pension Trust-Fund v. Kensington Construction Company, 2006 WL 770444, *5 (E.D. Mich. 2006) (same).  However, a court within the Sixth Circuit more recently affirmed the Sixth Circuit’s holding in Crossroads Electrical: “[O]ur Circuit ‘has made clear that ‘common ownership or an intent to evade labor law obligations are not prerequisites to a finding of alter ego status.’”  Michigan Electrical Employees Pension Fund v. Encompass Electric & Data, 556 F.Supp.2d 746, 770 (W.D. Mich. 2008) (quoting Yolton v. El Paso Tennessee Pipeline Co., 435 F.3d 571 (6th Cir. 2006)).

⁷ There is a similar dispute regarding the ‘intent to evade’ element in the context of ERISA actions.  Compare, e.g., Laborers’ Pension Trust Fund v. Interior Exterior Specialists Company, 2008 WL 4443066, *6 (E.D. Mich. 2008) (“[The non-signatory] was not a signatory to any labor agreement, but it would become liable to pay fringe benefit contributions for certain workers of [the signatory] if [the non-signatory] was an affiliated company and its business structure was used to allow [the signatory] to avoid its legal obligations.”  (emphasis added)), and Greater St. Louis Construction Laborers Welfare Fund v. Mertens Plumbing and Mechanical, Inc., 552 F.Supp.2d 952, 955 (E.D. Mo. 2007) (“Under ERISA, one business entity is likewise an alter ego of another if the two exist independently in form only, and those separate forms are used as a subterfuge to defraud, to justify a wrong or to mislead or discourage pursuit of legal action.”  (emphasis added)), with Fuchs, 180 LRRM at 2434 (suggesting that ‘intent to evade’ is not a prerequisite in the ERISA context: “When determining if companies are alter egos of one another, key factors to consider are ‘substantially identical management, business purpose, supervision, customers, and ownership.”).  For a further discussion of the alter ego / single employer doctrines in the ERISA context, see Section VII infra.

⁸ The Board in Pulaski Construction acknowledged the divergent opinions of Member Liebman versus those of Chairman Battista and Member Schaumber:

      Under the Board precedent . . . requiring that the union need only inform the employer of the reasons for its request, Member Liebman would find that the Respondent violated Section 8(a)(5) and (1) when it failed to provide the information on and after receiving the Union’s initial information request. . . .  Chairman Battista and Member Schaumber would find the violation on a later date.  They would find the violation occurred when the Respondent still refused to provide the requested information after the Union apprised the Respondent at the hearing of the facts underlying its belief that the two companies were related.

Pulaski Construction, 345 NLRB at 923.

⁹ Some courts do not apply the federal labor law alter ego doctrine in ERISA cases.  See Section VII(B) infra.