What Is A Double-Breasted Operation?
A double-breasted operation is when a firm has two entities, and one entity performs work under collective bargaining agreements and the other does not. While this type of operation is not outright prohibited, it is often subject to a variety of challenges and scrutiny. To legally run a double-breasted operation, the two companies must remain separate and distinct. If the companies are not sufficiently separate and distinct from one another, the National Labor Relations Board (“NLRB”) or a court may find that the two companies are operating as a single entity or that the non-union company, or also known as the open shop, is merely an alter ego of the union company and, therefore, bound by the terms of the collective bargaining agreement.
In order to determine whether the companies are sufficiently separate and distinct, the two entities must pass either the single employer test or the alter ego test depending on the nature of the double-breasted operation. Typically, the single employer test is used when the two entities run parallel operations, and the alter ego test is used when the open shop replaces the union company. Under the single employer test, the NLRB or courts will generally consider four factors: (1) the interrelation of operations; (2) common management; (3) common control of labor relations; and (4) common ownership. The alter ego test does not require a finding that the companies are a single bargaining unit, but analyzes to what extent the two entities have substantially identical management, business operation and purpose, business equipment, customers, and ownership. While common ownership is a factor considered under both the single employer and alter ego tests, common ownership alone is not dispositive of whether the companies are sufficiently separate and distinct. In other words, the NLRB and courts do not simply look for common ownership to determine whether the double-breasted operation is lawful. It is merely one of many factors to consider.
The Double-Breasted Operation Must Establish And Maintain Separateness
An obvious challenge with a double-breasted operation is establishing and maintaining separateness. When a firm wants to open another entity, the firm may retreat to using its management, employees, equipment, finances, etc. This will result in an investigation from the NLRB. Therefore, it is advisable that in order to achieve and maintain the required separateness, the firm consider the following:
- Establishing Separate Management: Establish two separate companies with different individuals serving as the officers, board of directors and other upper management for each company.
- Establish Separate Labor Relations: There should be two different individuals in charge of labor relations within each company. The companies should establish separate compensation and benefits packages, hiring and firing procedures, employee handbooks, safety rules and regulations, training criteria, etc. The companies should have separate and distinct workforce and the employees should not interchange from company to company, nor should the companies share resources.
- Separate Operations: The companies should: have their own equipment; obtain their own licenses and required certifications; have their own bylaws and other governing documentation; identify separate registered agents (especially if the ownership is listed as the agent); maintain separate administrative staff, office space, marketing/advertising materials and payroll accounts; and should not file joint taxes.
- Establish Separate Finances: The two companies should avoid any financial dependency and should establish separate bank accounts, lines of credit, personal guarantors, financial records, and use separate certified public accountants and other financial professionals. A useful tip in ensuring that financials are never comingled is to use a different bank altogether. The companies should have separate insurance policies and bonding, as well as professionals related to the same.
- Miscellaneous: Little details are often forgotten in maintaining separateness. The two entities should have different phone numbers and addresses. The stationary used should be different for both entities. The two companies should have different email addresses so there is never an accidental sharing of private communications. Any association memberships should be under the entities’ name that plans on participating and paying the dues.
While satisfying these considerations does not provide a guarantee for the successful establishment of a double-breasted operation, it would significantly increase the firm’s chances of surviving a challenge to its operations.
Consider The Benefits And Disadvantages To Double-Breasted Operations.
The primary reason to have a union and non-union entity is so the firm can profit from both union and nonunion work in the same region. A double-breasted operation can provide the firm with the option to enter an area of work that may have originally been considered financially too risky to enter, and provide the firm with options to succeed in a market that constantly fluctuates.
The most notable disadvantage for a double-breasted operation is facing significant liability in terms of ERISA contributions. For example, if the open shop is not properly separated from the union company, this could expose the open shop to liability under the collective bargaining agreement of which the union company is a signatory, which may include paying welfare, health and pension benefits required by the union. Moreover, a double-breasted operation can get expensive. The firm must adequately allocate resources to the double-breasted operation, which includes time and money, at the inception of the entity. If the firm does not have resources to allocate to the new entity, it will spread itself too thin, thus risking the success of the firm. Lastly, the double-breasted operation can expose the open shop or the union entity to lawsuits which could bankrupt the entire firm. Though these outcomes are not common, they are a possibility, and therefore, it is important for the firm to take appropriate steps in ensuring that the firm’s double-breasted operation is a viable option and that the firm is taking all steps to ensure that it operates legally.
Conclusion
While establishing a lawful double-breasted operation opens the doors for more opportunity, that opportunity does not come without risks. It is important that any firm deliberating on whether to open a business with double-breasted operations first speak with legal counsel familiar with the vast amount of caselaw surrounding double-breasted operations. This article has only provided you with a brief overview of factors for consideration. Each situation should be closely reviewed and analyzed based upon the facts and circumstances of the individual case.
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