Double Breasting Calls for Double Caution, Cases Show
Union contractors facing increasing cost competition from open-shop contractors are often tempted to set up a separate nonunion firm and operate on a double-breasted, or dual shop, basis. While establishment of such operations can be accomplished lawfully and effectively, the road has many pitfalls. Two recent cases coming out of different federal appeals courts illustrate how uneven the terrain can be.
In Lippert Tile Co., Inc. v. Int’l Union of Bricklayers, the U.S. Court of Appeals for the Seventh Circuit (IL, IN, WI) held that a union and an open-shop tile installation company were “single employers” rendering the open-shop company subject to terms of the union company’s collective bargaining agreement (CBA). Four years into operating Lippert Tile as a union contractor, the two brothers who owned the company decided to establish a separate open-shop firm called DeanAlan to capture the market it was missing by being 25-45 percent more expensive than its open-shop competition. The brothers also established a third company, the Lippert Group, to provide management services to both tile installation firms. The union with which Lippert Tile had a bargaining relationship filed a grievance with the Joint Arbitration Committee under the CBA seeking union benefits for DeanAlan’s nonunion tile installers. The Committee issued an award in favor of the union. The companies petitioned a federal district court to vacate the award on the basis that the grievance was not arbitrable – i.e., that the Committee did not have authority over DeanAlan and the Lippert Group because they were not parties to the CBA. The union argued that the three companies constitute a single employer, making all three subject to the CBA’s arbitration provisions. The district court agreed, and the appeals court affirmed the decision.
Under the single-employer doctrine, two companies will be treated as a single entity when they are sufficiently integrated. The Supreme Court has held that a court should examine four factors in determining whether the entities are so integrated: (1) interrelation of operations, (2) common management, (3) centralized control of labor relations, and (4) common ownership. Courts look at the totality of circumstances; no single factor controls the decision.
Assessing the first factor in the Lippert case, the court found that the companies shared many daily operations. For example, the Lippert Group maintained business records, processed payroll, handled billing, and managed bank accounts for both Lippert Tile and DeanAlan. More importantly, Lippert Group personnel made critical decisions as to whether Lippert Tile or DeanAlan would bid on a particular project and, if so, what to bid. Also, while the companies did not share office space, they leased office and warehouse space in the same buildings as one another. They also served the same geographic and trade markets. Thus, the court found that this factor weighed in favor of single employer status. The court came to the same conclusion on the second and fourth factors, noting that the companies failed to point to any actual managerial functions that are performed separately and to dispute common ownership. Regarding the third factor, the court noted that it was “not entirely clear who was responsible for day-to-day labor relations decisions” in the companies. However, the brothers’ decision to create a new firm for the purpose of serving the non-union market was sufficient cause for the court to find centralized control of labor relations. Accordingly, the court concluded that “for all practical purposes, the Companies function as a single entity” and that the Committee had the power to decide whether the double-breasting practice was a violation of the CBA.
In Roofers Local No. 210 v. A.W. Farrell & Son, Inc., the U.S. Court of Appeals for the Second Circuit applied the same analysis to a different set of facts and came to a different conclusion. The case involved a union and a nonunion roofing contractor owned by family members. The union company, A.W. Farrell & Son, was owned by the father of two siblings who own the open-shop company, Roof Craft Systems. The union with which A.W. Farrell & Son had a CBA and trustees to the union’s benefit funds sued the companies after the union signatory failed to make certain benefit fund contributions. The plaintiffs sought to make Roof Craft Systems liable for the unpaid contributions on the basis that the two companies should be deemed “single employers” or “alter egos.”
The district court assessed the four single-employer factors listed above along with two additional factors used by this court in past cases: (5) “the use of common office facilities and equipment,” and (6) “family connections between or among the various enterprises.” The court found evidence going in both directions. Some factors pointed to single employer status, such as common administrative offices and personnel, common employment policies, the father providing financing for his kids to acquire Roof Craft Systems, and shared equipment during Roof Craft System’s start-up phase. But other factors pointed to finding no single employer status, such as exclusive control over Roof Craft System’s day-to-day roofing operations and employment decisions by one of the siblings, the absence of common roofing employees, and the companies’ targeting of different parts of the local market. Given past case law in the circuit holding that “the law only treats the employees of a corporate entity as the employees of a related entity under extraordinary circumstances,” the court concluded that the plaintiffs did not meet their burden of proof to establish single employer status. The appeals court found no cause to overturn the trial court’s conclusion.
The district court also ruled for the companies on the alter ego claim. As the court explained, an alter ego analysis, like a single employer analysis, considers whether “two enterprises have substantially identical management, business purpose, operation, equipment, customers, supervision, and ownership.” They differ in that an alter ego analysis 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.” Based on the analysis of the six “single employer” factors above, along with the lack of evidence compelling a finding that A.W. Farrell established Roof Craft to avoid CBA obligations, the appeals court likewise found no cause to overturn the trial court’s conclusion that the plaintiffs failed to establish their alter ego argument for holding Roof Craft Systems liable for A.W. Farrell’s unpaid contributions.
As these (and many other cases) demonstrate, the assessment of whether a dual shop operation is lawful is highly fact specific and can be unreliable. Union contractors considering establishment of such an operation, as well as those considering helping a family member start a nonunion firm in the same business, should proceed with caution and seek the advice of qualified legal counsel early on.
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