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Despite common ownership, funding, companies not “integrated” employer

By Marjorie Johnson, J.D.

A group of employees were unable to advance Title VII and state law HWE and retaliation claims since their employer had less than 15 workers and was not an “integrated enterprise,” ruled the Eighth Circuit. Although another entity was owned and funded by their employer’s CEO and arguably performed some of its HR functions, there was little interrelation of operations between the two companies and slight shared control of labor relations. Accordingly, the district court’s grant of summary judgment and dismissal was affirmed. Chief Justice Riley partially dissented, suggesting that there were triable issues as to the existence of an integrated enterprise (Davis v Ricketts, August 27, 2014, Shepherd, B).

Suit filed against two businesses. Two female employees and one of their sons worked for Opportunity Education Foundation (OEF), which provided educational support and materials to schools in developing countries. The CEO of OEF also owned, funded and was managing member of Hugo Enterprises, LLC (Hugo). Hugo provided some administrative infrastructure for the CEO’s various for-profit and nonprofit enterprises, including OEF.

In 2009, the two female employees were fired after complaining that they were being sexually harassed by OEF’s chief operating officer. About a year later, the son was also terminated. They filed the instant action against both OEF and Hugo, asserting Title VII and state law claims of HWE, quid pro quo sexual harassment, and retaliation. They also claimed that the CEO tortiously interfered with their expectation of continued employment. The district court granted summary judgment in favor of Hugo and OEF, holding that the numerosity requirements were not met since OEF undisputedly had fewer than 15 employees and the two entities were not an integrated employer. It also dismissed their tortious interference claim against the CEO.

Integrated enterprise. Summary judgment in favor of the two corporate defendants was warranted since it was undisputed that OEF did not employ 15 or more employees and the employees failed to establish that the two entities were an integrated enterprise. Although there was ample evidence establishing common control and financial backing, this was insufficient to overcome the strong presumption of organizational separateness which was necessary to find that they were so integrated that they were, in effect, one entity.  The fact that the CEO controlled two distinct corporations did not make them integrated for the purposes of Title VII.

Interrelation of operations. Significantly, there was little interrelation of operations between the two companies. Rather, it appeared that OEF employees reported to and were supervised by OEF management employees. Moreover, each entity was responsible for making day-to-day business decisions for their own enterprises, including creating their own budgets and purchasing supplies. They were also not run as a single unit as they each had a separate function and purpose. OEF was a charitable organization that provided educational support and materials to schools in developing countries. On the other hand, Hugo was a limited liability corporation that provided administrative services to various nonprofit entities and operated as a holding company for the CEO’s for-profit entities. OEF and Hugo occupied different office space in two different states and were incorporated under different states’ statutes.

Hugo provided administrative services to OEF because it did not have an administrative infrastructure. For example, Hugo provides accounts payable, accounts receivable, payroll administration, benefits coordination, and some legal and human resources services to OEF. On this record, these two corporations, not in a parent-subsidiary relationship, did not have sufficiently interrelated operations to be considered a single entity.

Shared common management. The Eight Circuit also found that there was little, if any, shared control of labor relations. While the CEO of OEF was also the sole owner of Hugo, Hugo did not direct or oversee OEF’s corporate decisionmaking or facilities, and the entities’ labor relations were largely separate. OEF set its own employment policies, work schedules, and salaries and was responsible for hiring and firing its own employees. Hugo was likewise responsible for hiring, firing, and disciplining its employees and controlled the job functions and responsibilities of its employees. In sum, the employees failed to demonstrate that the CEO was acting in a Hugo capacity when making any employment decisions involving them.

Tortious interference. The employees also failed to state a plausible tortious interference claim against the CEO. Under Nebraska law, for a CEO to be held liable for tortious interference with business relations, the employee must allege that the action was taken for “his or her own personal benefit,” or for the benefit of an “entity other than the employer.” Here, the employees failed to allege facts from which a reasonable inference could be drawn that the CEO’s actions were not taken on behalf of OEF. Even if his actions were taken out of ill-will, he was still acting in his capacity as CEO, and there was no claim for tortious interference.

Partial dissent. Dissenting in part, Chief Judge William Jay Riley suggested that summary judgment was not warranted as to the employees’ retaliation claims since genuine factual disputes existed as to whether OEF and Hugo were integrated employers. Specifically, he found that there was sufficient evidence suggesting that Hugo employees performed most of OEF’s routine HR functions, had sole authority to write OEF’s checks, directed OEF’s hiring and firing of employees, controlled OEF’s payroll, kept a single integrated employee database for both OEF and Hugo, managed integrated insurance for Hugo and OEF employees, provided OEF legal advice, and prepared OEF’s tax filings. Moreover, OEF’s sole voting director was Hugo’s sole voting member, and at least one Hugo employee exercised broad authority over OEF —including firing one of the employees. Finally, OEF received all of its funding from Hugo and could not logistically function without the day-to-day involvement of Hugo employees. If a jury found these facts to be true, “the legal conclusion that OEF and Hugo are integrated employers would be inescapable.”