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Single Employer Test

On Behalf of | Apr 4, 2012 | Employment Law

If an employee is discriminated against, paid less than what she is due in compensation, or has other adverse employment actions taken against her, the remedy does not always have to be sought solely against the entity that is the payor on her pay check. Both the legislative and judicial branches of the federal and state government have recognized that under certain circumstances there is more than one employer. Therefore, the legislature by statute and the courts by legal precedent have established that at times there may be more than one employer to right the wrong of the harmed employee.

This issue is discussed in the decision of last Wednesday, March 28 of Katherine Ann Masso v. City of Manchester, Manchester Public Television Service, Jason Cote, and Manchester School District. In that case, New Hampshire federal court dismissed the claim against the Manchester School District but left the claim standing against the City of Manchester. Katherine Masso initiated an employment discrimination action suing her former employer, the Manchester School District; her current employer, Manchester Public Television Service; City of Manchester, which formed the Manchester Public Television Service; and her supervisor, Jason Cote. The suit alleges that her current employer, acting at the City’s direction, hired Cote rather than her as its executive director based solely upon their respective genders and while her job was similar to Cote’s he is paid more than her and she did not receive the overtime pay despite her entitlement to it. Masso also states that the School District could have prevented these unlawful employment practices but failed to do so. Masso’s claimed breach of Title VII of the Civil Rights Act and its state counterpart RSA 354-A; violation of federal Equal Pay Act, its state counterpart RSA 275:37; and violation of the federal Fair Labor Standards Act (overtime).

The City and the School District moved for judgment on the pleadings stating that based upon what was alleged in the suit, Masso did not have a right to claim that they were also employers along with the Manchester Public Television Service. The court found Masso’s allegation that the School District knew or should have known that Masso’s employment terms were being violated, did not make the School District an employer, and therefore it is not liable. Therefore the Court dismissed the School District from the suit. However, as to the City of Manchester, the Court stated that there was enough alleged in the suit for the City of Manchester to be argued to be a single employer with Manchester Public Television Service. In particular, the law considers three methods for determining whether a single employer between two or more entities exists: the integrated – enterprise test, the corporate law “sham” test, and the agency test.

The factors considered in determining whether or not two or more entities are a single employer under the integrated enterprise test are: common management; interrelationship between operations; centralized control over labor relations; and common ownership. All four factors are not necessary for single employer status and the test should be applied flexibly placing special emphasis on control of the employment decisions. The corporate “sham” test basically analyzes whether or not the entity is merely a shell created purely to protect the shareholders. Undercapitalized entities from which the revenues are used by the owners for their personal benefit rather than paying employees their due compensation would be an example of such a corporate sham. The agency test is one that focuses in on whether or not the employer on the pay check is really hired by another entity to act as its agent as the employer, such as with employee leasing companies. In that situation, the company making the employer decisions, being the principal, is directing its agent, the company on the employees’ pay check, to take the actions that are discriminatory in nature, is not funding the payment of the employees, or taking other adverse employment actions, and, therefore, that principal entity should be liable.

Under the Masso case, the court considered the integrated – enterprise test and found that there was enough alleged in the suit that City employees are responsible for Manchester Public Television Service’s management and that the City’s Finance Department and Board of Mayor and Alderman managed its daily financial operations. In addition, the plaintiff alleged that the City, itself, established the Manchester Public Television Service’s Board of Directors. The Court noted the degree to which the City controls Manchester Public Television Service’s funding, management, operating expenses, and nature of influence over its employment decision will ultimately determine whether or not the City and it are constituted a single employer and that is for a later date to be determined, yet there was enough alleged in the suit to allow the City of Manchester to stay in as a defendant in this action.

For employees employed by a public or private entity which has violated employment laws, in certain cases, particularly in the private sector, the entity on the pay check may not have the ability to pay the money owed to the employees so if there is another entity that is also an employer, it may be the employee’s only possibility for a monetary recovery. Also under the New Hampshire Wage and Hour Law, officers and directors can, at times, be found to be an employer and therefore personally liable for unpaid compensation due an employee when they are in control of the process. A president of a company, that tells its employees that even though they cannot be timely paid now they should still work in the hopes the company’s finances will get better, may be personally liable for the employee’s unpaid wages.

J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at [email protected].