Can a Non-Union Company Be Compelled to Arbitrate?

Some of the most viewed topics on this blog are those concerning double breasted company.  That is a two separate firms, commonly owned, one that is a signatory to a union and the other that is merit shop.

An issue frequently encountered with double breasted construction companies is an union arbitrator’s jurisdiction over the non-signatory firm.  The issue usually goes something like this.  A signatory employer’s collective bargaining agreement contains language prohibiting double breasting (which could be invalid).  The collective bargaining agreement also contains an arbitration provision requiring all disputes concerning a breach of the agreement (a grievance) be decided by an arbitrator in private arbitration.  The union files a demand for arbitration claiming that the union signatory has breached the collective bargaining agreement’s anti-dual shop provision.  The union names the non-union firm as a party to the arbitration based on its status as an alleged “single employer.”

What should the non-union firm do?  It should ignore the arbitration demand or file an action in federal court to obtain a court order prohibiting the arbitrator from taking any action against it.  The law in most – if not all – jurisdictions is that an arbitrator has no jurisdiction over a non-signatory firm.  If the union obtains an arbitration award against the non-union firm, the District Court will vacate that award if the non-union firm requests relief.  The general rule is that only a court can determine whether a non-signatory is bound by a collective bargaining agreement.  Moreover, some courts have held that a court must determine that the union and non-union entities are a single employer before that will happen.  Because a single employer finding is fact sensitive, that cannot be done without discovery.

The take away.  If you own a dual shop firm and receive a demand from the union to arbitrate, you need to review your collective bargaining agreement, be prepared to fight the union, and win.

Double Breasted Firms Sometimes Pay a Huge Price

An article on the website Real Estate Weekly entitled “Construction unions going after alter-ego contractors as profits shrink” recently grabbed my attention.  The article recounts the  familiar tale of a union shop contractor that was forced to pay $6 million for violating its collective bargaining agreement with a Carpenters Local.

The Carpenters accused a New York firm, River Avenue Contracting of creating alter ego companies and using them to hire non-union workers.  River Avenue created RNC Industries and Extreme Concrete Corp., but allegedly kept the same employees and address.  

Therein lies the problem.

As we have written about before, double breasted operations, even if they share a common owner, are completely legal.  The issue that contractors, like River Avenue Contracting, run into in establishing a non-union entity is not common ownership, its common everything else.  Common ownership is but one factor in a series of factors the Court will use to determine whether the non-union entity is an “alter ego” of the union firm.  But, it is hardly dispositive.  More important factors are common employees, common management, common office space, and common equipment.

Unfortunately, for River Avenue Contracting, and many firms like it, they fail to keep the two enterprises truly separate, which is frankly not that difficult.  If River Avenue Contracting’s owners, established a new non-union firm, that had a different management team, different non-union member employees, a different location, and bid different types of work (say residential instead of commercial), then the union would have had an uphill battle with its case and it is unlikely River Avenue would have agreed to pay the $6 million amount.