OGLETREE, DEAKINS, NASH,
SMOAK & STEWART, P.C.
Attorneys at Law
Two First National Plaza – 25th Floor
Chicago, IL 60603
Richard L. Samson
Matthew S. Levine
DOUBLE-BREASTING: DOUBLE THE TROUBLE?
By Richard L. Samson and Matthew S. Levine1
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