In a rare blow to Big Labor, on August 17, 2015, the NLRB affirmed an ALJ’s denial of a claim that a non-union electrical contractor was the alter ego of a closed union firm.
In Deer Creek Electric, Inc. and Black Hills Electric, Inc., an IBEW local brought a claim against a non-union firm claiming that the firm was an “alter ego” of a defunct signatory electrical firm. The ALJ’s decision in that case provides excellent guidance on how to properly establish a double breasted or dual shop firm and, alternatively, how to defeat a union’s claim that a non-union firm is the alter ego of signatory firm.
From 2004 to 2012, Deer Creek was a signatory to the IBEW’s collective bargaining agreement. Deer Creek was owned by Richard and Sandra Moloney. In 2012, Deer Creek was forced to close because of lack of business. After the Deer Creek closed, Richard Moloney began discussions with his sister – in – law about assisting her in opening up an electrical contracting business. Those discussion lead to the establishment of Black Hills Electric, which was 100% owned by Cheri Jackson, Moloney’s sister-in-law, and which was not a signatory to IBEW’s CBA. Deer Creek then employed Moloney, who surprised its projects, purchased certain equipment from Deer Creek, and completed a handful of projects that Deer Creek was unable to complete.
The Judge reviewed the well established test for determining alter ego (and its cousin single employer) status: common ownership, management, business purpose, customers, employees, and equipment. As the Judge explained, no single factor is conclusive. (Many incorrectly believe that common ownership is the conclusive factor.) While lack of common ownership is usually fatal to a claim of alter ego, it nonetheless can still be found if both companies are owned by close family members or where the old company retains substantial financial control over the new entity. Another important overarching factor is whether the non-union company was established to circumvent the union firm’s collective bargaining obligations.
The Judge analysed Black Hills’ relationship with Deer Creek using these factors. First, the Judge found that Moloney familial relationship with Jackson did not warrant a common ownership inference because Moloney exercised no financial control over Black Hills. Second, the Judge ruled that Black Hills was not established to circumvent Deer Creek’s collective bargaining obligations.
The Judge then addressed whether the firms had common management, supervision, and business purposes. Importantly, the Judge found that they did share those common elements. Finally, the Judge determined that the two firms did not share common equipment and customers, even though there was some overlap.
Balancing all of the factors the Judge found that “too many of the critical factors” needed to support an alter ego finding were not found.
The Take Away
1. When establishing a non-union affiliate you need to be cognizant to the factors the Court and the NLRB will employ to determine if you non-union affiliate can operate without violating the NLRA. The non-union affiliate should be established with the factors in mind with an eye on how you can present evidence favorable to your position in an adversary proceeding challenging the non-union entity.
2. If you are a non-union company purchase equipment and hiring former employees of a union firm, you should also be aware of the ramifications of that decision and make sure that the purchase of equipment and employment of former employees and principals is structured with the alter ego test in mind.
3. Union bully tactics can be defeated with facts and evidence. A union / non-union firm relationship does not have to defeat all of the factors of the alter ego test to be viable if sufficient evidence can be produced to show most of the factors can not present.
Wally Zimolong
Wally represents contractors (and subcontractors) and developers. His clients build and develop residential, commercial, and industrial properties nationwide. Wally enjoys working with the owners of the businesses he represents because they tend to be entrepreneurs and all around interesting people.
