Are Nonunion, Union Companies "Single Employer?"

Facts: The employer, formed in 1989, is in the business of asbestos and toxic waste removal and also transports and disposes waste to out-of-state facilities. Throughout its existence, the employer has operated as a nonunion company.

A second company was formed in 1993 by the owner of the first company. In the late 1990s, the second company became party to several collective bargaining agreements, requiring it to make contributions to the union's employee benefit funds.

The owner created the second company as a union company that acted in tandem with his nonunion company. The two companies would divide work depending on whether their customers wanted work performed by union or nonunion workers.

The trustees of the local union determined after conducting an audit that the second company had not made all its required contributions to the funds and that the nonunion company also owed contributions to the funds. The trustees sued both companies under the Employee Retirement Income Security Act alleging they were a single employer and/or alter egos and, as such, were jointly liable for the unpaid contributions.

Award: The union and nonunion employers that share the same owners and facilities constitute a single employer and are jointly liable for the unpaid contributions owed to the group of collectively bargained employee benefit funds, the U.S. District Court for the Eastern District of New York ruled (LaBarbera v. Cretty Enters. Inc., E.D.N.Y., No. 03-6112, 11/28/07).

Discussion: Ruling in favor of the union trustees, the court found that the two companies constituted a “single employer” because they had the same owner, were located at the same address, shared equipment, and shared employees.

The court said it was of no significance that the first company was formed and in operation four years prior to the second company becoming a signatory to the collective bargaining agreement.

In addition, the court found that the two companies were alter egos. “Here, the employer admits that it wanted to avoid the monetary obligations of a collective bargaining agreement but still be able to supply its customers with a union driver when requested,” the court said. “That motive, as well as the common ownership, management, business purpose, operation, equipment and customers, all require that the two companies be treated as alter egos as a matter of law,” the court concluded.

Pointers: Alter ego questions often arise in situations involving the formation of a new, nonunion company. The National Labor Relations Board can determine that a new company is, in reality, a disguised continuance of a preexisting or co-existing company and was created to avoid the obligations of an existing labor contract.

Successor employers are obligated to recognize and bargain with unions that represented the employees of predecessor employers. Successor employers are defined as companies that:

• Acquire substantial assets of predecessor employers,
• continue predecessors' businesses without interruption or substantial change,
• keep most of the employees who worked for predecessors, and
• receive continuing demands by predecessors' unions to bargain.

The NLRB looks at numerous factors in determining whether a business constitutes an alter ego, including whether there is substantially identical management, business purpose, operation, equipment, customers, supervision, and ownership. No one of these factors is determinative.

Courts have also considered the “single employer” or “integrated enterprise” test, under which “two ostensibly separate entities are highly integrated with respect to ownership and operations and, therefore, may be counted as one entity.”

This test has four factors: interrelation of operations, centralized control of labor relations, common management, and common ownership or financial control, according to the U.S. District Court for the Middle District of Florida in Kolczynski v. United Space Alliance (M.D. Fla., No. 6:04-cv-716-18KRS, 9/20/05).