Maryland Union Alter-Ego Claim Defense Attorney
Ken C. GauveyPersonal Injury Attorney
Small businesses in the trades industry are perpetually in danger of union interference. While businesses in the construction industry such as electricians, plumbers, heating and air conditioning, sheet metal, pipe-fitters and the like face efforts to force unionization, even businesses without this push can still be subject to union claims. Indeed, it is becoming commonplace for funds to pursue any company remotely associated with a unionized contractor under a claim of alter-ego.
An alter-ego claim seeks to hold one company accountable for the liabilities of a second company. When a union obtains a judgment against a contractor, the unions often seek to hold other companies liable for that judgment. Often the contractor will end up going out of business, resulting in its employees finding other work, or even starting their own business. The unions have repeatedly taken the position that when an employee finds work with another similar company, or starts a similar business, that those new companies are the same as the indebted company because of commonality of employees, types of work performed, and vendors used. However, these factors are not sufficient to sustain such claims.
Alter-Ego Claims and Settlements
In making determinations regarding alter-ego, ie. whether two companies are really the same company, the Court looks to the realities. First, the court must determine whether substantially the same entity controls both the old and new employer. In making this inquiry, courts have looked at a variety of factors, including: continuity of ownership, similarity of the two companies in relation to management, business purpose, operation, equipment, customers, supervision, and anti-union animus. If the two entities are substantially the same, the court must then determine whether changing the corporate form would provide an expected or reasonably foreseeable benefit to the old employer related to the elimination of its labor obligations. The ultimate question in determining alter ego status is whether a successor corporation is really the predecessor corporation by another name. In general, an alter-ego relationship can exist between two entities in the absence of common ownership only where both companies are wholly owned by members of the same family, where the two companies are nearly totally owned by the same individual, or where the older company continues to maintain substantial control over the business claimed to have been sold to the new company.
Under these legal standards it is easy to see how the unions overreach in making these claims. Unions pursue these claims under the much more limited, self-created, standard of working in the same industry and employing some of the same employees. However, under the actual standard, this is not remotely sufficient to sustain a claim that one company is the alter-ego of another.
While unions overreach in making these claims, contractors still have to defend against these allegations. While the burden to succeed in these claims is fairly high, the burden in bringing litigation is relatively low. To initiate litigation, a union simply has to allege commonality of control, employees, type of business, and vendors in the complaint. This is often sufficient to survive a motion to dismiss and proceed through discovery and to summary judgment. It is only at this stage that the case starts to fall apart for the unions. In the meantime, they have forced the contractor to spend time and effort defending an often-pointless case.
These costs often result in contractors failing to properly defend against alter-ego claims. Contractors often fear attorneys-fees and trial so much that they rush to settle alter-ego claims. Almost universally, any settlement under the union’s terms results in the contractor unionizing as part of the settlement in addition to long-term payments to the union to pay back the original company’s debt. In addition, the contractor then becomes subject to the hourly wage set by the union agreement, plus additional costs in the form of payments to the dozens of different funds which bill the contractor per hour per employee.
Contractors should know that this type of litigation does not have to be prohibitively expensive. Indeed, the initial costs of answering the complaint and going through discovery can be modest if handled properly. While the ultimate costs of summary judgment or trial will likely cost more, even modestly successful contractors can afford the costs, especially when faced with the long-term costs of unionizing, paying the funds per hour, and paying back the debt of an unrelated company. However, to manage these costs, contractors need to be able to work with their attorney. In addition, contractors who hire larger firms, at larger firm rates, can rarely manage the costs those firms charge.
Contact Baltimore Business Attorney Ken C. Gauvey
At the Law Practice of Ken C Gauvey we treat our clients as partners in defending against alter-ego claims brought by unions. Our goal is not to increase billable hours, but rather to utilize successful strategies to defend against alter-ego claims as efficiently as possible. Rather than wasting time creating unnecessary disputes resulting in expensive motions being filed to no benefit to our clients, we focus on defending against the claims brought as aggressively as possible. Call us for a free consultation in defending against union claims.