A double-breasted operation is when a contractor operates one company that is party to a labor agreement and a second company that is non-union. The contractor can then compete for both union and non-union work. The non-union company can bid competitively on jobs that do not require union contractors, while the union company continues to bid on jobs requiring union contractors. This type of operation is not inherently illegal but irks most unions as beneficiaries of their pension and retirement trusts and may end up in costly litigation.
Union Objections of Double Breasted operations
Unions have resisted the use of double-breasted operations in the construction industry. They would prefer to have the industry completely unionized. One response by unions has been to bring unfair labor practice charges that seek to extend the labor agreement to the employer’s non-union operations. Thus, a union will allege that the employer’s refusal to apply the agreement to the non-union company violates sections 8(a)(1) and 8(a)(5) of the National Labor Relations Act. In evaluating unfair labor practice charges against double-breasted operations, the NLRB has employed the “single employer” and the “alter ego” doctrines.
Single Employer Doctrine
Under the single employer doctrine, two companies may be bound by a union contract signed by one of them if they are a “single employer.” The Supreme Court has set forth controlling criteria to determine whether several nominally separate business entities are to be deemed a single employer. These four criteria are 1) interrelation of operations, 2) common management, 3) centralized control of labor relations, and 4) common ownership. No one factor is controlling nor need all criteria be present. The most important factor is centralized control of labor relations, which can be demonstrated either by showing common control of day-to-day labor matters, or by showing that the person in charge of the union company’s labor relations made the decision that the second company would be non-union.
Single Bargaining Unit
Under the single employer theory, a collective bargaining agreement can extend to a non-union company only if the NLRB finds that the employees of both the union and non-union companies constitute a single bargaining unit. That the companies in question may constitute a single employer does not necessarily make them a single bargaining unit. The bargaining unit question is a representational question that must be decided by the NLRB in the first instance. Without an NLRB determination that the employees of the union and non-union entities constitute a single bargaining unit, the doctrine of primary jurisdiction bars the district court from extending a collective bargaining agreement to a non-union entity.
Alter Ego Doctrine
The alter ego doctrine is designed to prevent employers from escaping their collective bargaining obligations by shifting work to non-union firms they also own. Employers may not create non-union alter egos for the fraudulent purpose of shifting union work to a non-union company and thereby engaging in a sham to avoid their collective bargaining obligations.
Reverse Alter Ego
A “reverse” alter ego claim has previously been raised that consists of a non-union employer allegedly opening a union company to avoid future collective bargaining obligations. Because the alter ego doctrine prevents union employers from avoiding collective bargaining obligations, it does not apply in the reverse where a non-union employer creates a union company because the non-union employer has no collective bargaining obligations to avoid. Thus, courts have not recognized a reverse alter ego claim. 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.
The alter ego considerations commonly arise in successorship situations, when ownership of a signatory changes hands. If the transfer is bona fide, the successor is not bound by a prior collective bargaining agreement. If the transfer is designed to evade the NLRA by setting up what appears to be a new company, but it is in reality a disguised continuance of the old one, the Board will find that the successor company is an alter ego of the old company, and therefore bound by its predecessor’s collective bargaining agreement. The focus of the alter ego doctrine, unlike that of the single employer doctrine, is on the existence of a disguised continuance or an attempt to avoid the obligations of a collective bargaining agreement through a sham transaction or change in operations.
Although the alter ego theory is commonly applied in successorship situations, it is not limited to this context. Indeed, some period of simultaneous operations is not uncommon even when the non-union firm is alleged to be the successor of the union firm. In deciding whether to pierce the corporate veil, the court considers three factors: 1) the amount of respect given to the separate identity of the corporation by its shareholders, 2) the degree of injustice visited on the litigants by recognition of the corporate entity, and 3) the fraudulent intent of the incorporators.
A successful application of the doctrine in the Nor-Cal model binds the non-union employer to the signatory employer’s continuing collective bargaining agreement. The Nor-Cal model requires proof 1) that the two firms have common ownership, management, operations, and labor relations, and 2) that the non-union firm is used in a sham effort to avoid collective bargaining obligations. It has mainly been applied in labor cases where union employers try to evade their on-going collective bargaining obligations by shifting business to a nonunion employer.
John Henry Wright, Esq., has more than 25 years of experience in construction law and litigation and has successfully defended and negotiated Alter Ego claims made by unions. We are well equipped to assist you in handling your construction contract matters. Please call us at 702-405-0001 to schedule a consultation. You can also EMAIL US with any questions.