Are You a Single Employer?
An Examination of Enterprise
Liability and Protection
David J. Laurent, Esq.
david.laurent@bipc.com
Mariah L. Passarelli, Esq.
mariah.passarelli@bipc.com
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.
2
Why is This Important?
 Single employer issues arise under virtually
all employment laws:
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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).
3
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.
4
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.
5
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.
6
A Sliding Scale
Avoiding Risk
Increasing Efficiency
7
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.
8
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:
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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.
9
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.
10
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.
11
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.
12
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.
13
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.” BrowningFerris 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).
14
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).
15
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.
16
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.
17
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.
18
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?
19
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.
20
WARN Act – Regulatory Test
 Regulatory test uses five factors:
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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.
21
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.
22
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.
23
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.
24
FMLA – Regulatory Test
 FMLA regulations uses traditional factors:
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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.”
25
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.
26
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.
27
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.”
28
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.
29
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).
30
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.”
31
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.
32
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.
33
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.
34
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.
35
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.
36
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
37
FLSA – Economic Realities (con’t)
 The Court relied on facts showing the
franchisor:
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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.
38
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.
39
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.
40
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 personnelrelated 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.
41
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.”
42
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.
43
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.
44
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.
45
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.
46
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.
47
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).
48
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.
49
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.
50
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.
51
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.
52
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).
53
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.
54
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?
55
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?
56
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?
57
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.
58
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.
59
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.
60
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.
61
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.
62
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.
63
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.
64
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.
65