Separate Companies May Constitute a Single Employer for Liability Purposes

Is your company a single employer?

Earlier this year, a Massachusetts Superior Court for the first time applied the “single integrated employer” theory of liability to a case involving a restaurant chain, ruling that employees from separately incorporated but related entities could bring a class action against each of the entities under the state Wage Act. (See our March blog post “New Case Establishes Liability for Boston Restaurant Owners with Multiple Locations.”) This decision made it more economically viable for employees to collectively assert Wage Act claims for violations of their rights, exposing the assets of all entities.

Rudolph Friedmann attorneys Jon Friedmann and Adam Shafran are involved in a matter with facts similar to Fitzgerald, et. al. v. The Chateau Restaurant Corporation, et. al. referenced in our March blog post. They highlight critical steps corporations can take to limit liability under the “single integrated employer” theory – a status that is determined by examining four factors:

• Interrelation of operations
• Common management
• Centralized control of labor relations
• Common ownership

Each element of the test is fact intensive and no one factor determines the level of interconnectedness amongst related businesses.

Organizations can reduce their risk and limit liability with proper planning and implementation. Some of the steps that can be taken include:

• Limiting the commonality of officers, directors and owners
• Confining the parent corporation’s role to broad issues and avoiding day-to-day review or control of the individual entities
• Limiting the movement of employees among the various entities and identifying actions as “terminations” and “hires” not “transfers”
• Setting up separate payroll accounts for each business and having each company pay its own bills
• Creating HR materials, such as employee handbooks, applications and policies, for each entity and avoiding the use of common materials
• Identifying the entities as separate companies on web sites and other marketing collateral and using distinct letterhead and business cards for each company

There are numerous additional actions companies can take to separate their operations. If you own multiple related businesses, contact Jon Friedmann or Adam Shafran to discuss the details of your operating structure and ensure that you have taken the necessary steps to limit the liability of your organization.