The terms “double breasted” or “dual shop” contractor refers two construction firms often sharing common ownership one of which is a signatory to a collective bargain agreement (the union firm) and the other that is not (the open shop firm). Here are some frequently asked questions I have received in counseling clients who either already operate or are contemplating establishing a double breasted operation.
1. Are Double Breasted Operations Legal?
Yes. The National Labor Relations Act (“NLRA”) does not prohibit double breasted operations outright. However, the NLRA does prohibit an employer from interfering with employees’ collective bargaining rights and refusing to collectively bargain with the union representing the employees. Therefore, if the double breasted operation is not properly established, the National Labor Relations Board (“NLRB”) will treat the two entities as the same and, accordingly, the NLRB will impose liability on the union entity for violating the NLRA’s prohibitions on interfering with collective bargaining rights.
2. Can Both the Union and Non-Union Entity Share Common Ownership?
Yes. A common misconception is that common ownership invalidates a double breasted operation. Accordingly, contractors will go to great length to conceal the common ownership of the union and non-union entities. But, they do not have to. While common ownership is certainly a factor in determining whether the union and non-union firm should be treated as one in the same under the NLRA (or a collective bargaining agreement), it is not conclusive. In other words, courts do not simply look to common ownership in determining whether a legitimate operation exists. In fact, both the NLRB and the courts have repeatedly held that common ownership alone is not dispositive of whether a single employer exists.
Under the single employer test, NLRB uses four criteria in determining whether the entities are legitimately separate or whether they are actually a “single employer:” (a) interrelation of operations; (b) centralized control of labor relations; (c) common management; and (d) common ownership of financial control. No one of these factors has been held to be controlling. In fact, the Board has stressed the first three factors, which go to show ‘operational integration,’ particularly centralized control of labor relations, are the most important. Therefore, even if both entities of the double breasted operation are commonly owned, an operation may not violate the single employer test if operations, labor relations, and management are kept separate.
3. My Collective Bargaining Agreement Prohibits Me from Going Double Breasted. Can I still establish a non-union construction firm?
Yes, but it will depend on the language in your CBA. So called, anti-dual shop clauses appear in many collective bargaining agreements and aim to prevent a contractor from “double breasting” even when it would be permitted under case law. Anti dual shop clauses are valid if they are lawful “work preservation” clauses. The lawfulness of a work preservation clause hinges on the amount of control the union contractor has over the non-union contractor’s employees.
Courts apply a two pronged test to determine whether an anti-dual shop clause is valid. First, the agreement must seek to preserve work traditionally performed by employees represented by the union. Second, the contracting employer must have the power to give the employees the work in question, which is known as the “right of control” test. As with the single employer test, control of labor is a key. If the union entity has no control over the labor of the non-union entity, the anti dual shop clause is invalid on its face against the non-union entity. Furthermore, because the contracting employer must be able to control the employees in question for an anti-dual shop clause to apply, any operation that passes muster under the single employer test would in theory not be subject to the anti-dual shop clause.
4. Is there a downside to establishing a double breasted operation?
Yes. Contractors that do not properly establish and maintain a double breasted operation face significant liability most notably in terms of ERISA contributions. If the non-union entity is not properly separated, the firm could own union health and welfare funds benefits for employees whether those employees are union members or not. This is due to the union security clause in the CBA that the union firm signed and because the CBA also will contain a provision that all employees become members of the union after a certain period of time. This potential liability should not be taken lightly because the potential ERISA liability could easily reach in the several hundreds of thousands of dollars or more.
The takeaway – there is a tremendous opportunity for construction firms wishing to open a firm that is not bound by the labor rates contained in a collective bargaining agreement. But that opportunity does not come without risks if the proper steps are not taken.