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Posts Tagged ‘collective bargaining agreement’

Common Ownership of HVAC Firms Not Enough to Pierce Corporate Veil

by HDlawblog Posted: Tuesday, 7/9/2013

Earlier this year in Sheet Metal Workers’ Int’l Ass’n Local 19 v. Main Line Mech. Inc., the Eastern District of Pennsylvania decided a case that is important to members of the construction industry who own multiple companies. In the aforementioned case, two HVAC firms shared common ownership and a union that had a contract with one of the HVAC firms was trying to piece the corporate veil of the other HVAC firm based upon the common ownership. The court ruled against the union, holding that although the HVAC firms shared common ownership, the corporate veil of the HVAC firm that never entered into a contract with the union could not be pierced because the companies did not share employees and the companies targeted different types of HVAC work. The facts of the case, which I discuss in greater detail below, are quite interesting.

HVAC Company No. 1 Enters Into Collective Bargaining Agreement With Union

Main Line Mech. Inc. was a Pennsylvania based HVAC firm. Several years after its incorporation, Main Line entered into a collective bargaining agreement with Sheet Metal Contractors Association, which contract contained a number of provisions that required Main Line to perform sheet metal work using only union-represented workers. The contract also forbid Main Line from setting up another business to evade contract obligations. Leonard Santos served as the president of Main Line and was a minority shareholder in the firm while the majority of the stock was owned by his wife.

HVAC Company No. 2 Does Business Outside of the Union’s Jurisdiction

Santos and his wife also owned another HVAC firm referred to as “Sands.” Sands and Main Line maintained an office at the same location. Santos formed Sands to seek business in Northern New Jersey outside the union’s jurisdiction. Santos and his wife performed work at Sands that was similar to their activities at Main Line, but the court said other than the couple, no one worked for both companies at the same time.

Separation of the HVAC Businesses

Despite the common ownership, Sand and Main Line kept separate unconnected offices and equipment, along with separate finances and corporate records. Sands competed for public projects in New Jersey requiring payment of prevailing wages, and the court found that the nonunion firm never undertook any contracts within the union’s jurisdiction while Main Line was an active HVAC installation business.

The Nature of HVAC Company No. 1 Changes

Unfortunately, Main Line lost a job in Pennsylvania and was sued for poor performance. Subsequently, the company gave up HVAC work and limited itself to buying and reselling equipment.

Union officials spot HVAC Company No. 1’s equipment being used by HVAC Company No. 2

Thereafter, Sands was awarded a contract to do HVAC work in New Jersey where union officials spotted the company using several gang boxes and ladders that were labeled Main Line property. The union filed a grievance against Main Line alleging the company used Sands to perform bargaining unit work, bypassing the union’s contract. The union-management adjustment board sustained the grievance and assessed more than $202,000 against the firm. Thereafter, the union filed a lawsuit under Section 301 of the Labor-Management Relations Act seeking confirmation of the arbitration award. The district judge confirmed the award against Main Line, but rejected the union’s request to hold Sands jointly and several liable as the alter ego of Main Line.

The Legal Analysis

In rejecting the request to hold HVAC Company No 2 liable for HVAC Company No. 1, the court examined whether the two organizations had substantially identical supervision, business purpose, operations, equipment or customers.

Although Santos ran both companies, the daily operations were handled by supervisors who differed from one company to the other. Moreover, Main Line installed large rooftop heating and cooling units on top of hotels, schools, and other large buildings while Sands installed small HVAC units in multifamily residential complexes. Significantly, apart from Mr. and Mrs. Santos, the companies at no time shared the same employees.

Lessons Learned: Members of the construction industry who operate multiple construction related businesses need to be vigilant in their efforts to separate the entities. Here, it was the presence of the Main Line equipment spotted on a Sands job that raised suspicions. Fortunately, there was evidence that Main Line had formally sold at least some of the equipment to Sands, but it would have been best for Sands to have removed Main Line’s name from the equipment before using it.

This article is authored by attorney Shannon O. Young and is intended for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice. Any particular questions should be directed to your legal counsel or, if you do not have one, please feel free to contact us.

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Construction Contractors: Don’t Be Fooled, Read Your Collective Bargaining Agreement

by HDlawblog Posted: Monday, 12/10/2012

In IBEW Local Union No. 102 v. Quality Electric & Data, Inc. the Third Circuit (a federal appellate court) recently held that a union became the exclusive bargaining representative for all of the electrical contractor’s employees by virtue of the electrical contractor entering into an 8(f) pre-hire agreement with the union, even though the electrical contractor’s employees did not authorize the union as their 9(a) representative. Accordingly the employer was required to make pension contributions for all of its employees, not just for its employees who were union members or who worked on union jobsites.

In so ruling, the court explained that an 8(f) pre-hire agreement, which is unique to the construction industry, binds an employer to a collective bargaining agreement in relatively the same manner as a 9(a) agreement whereby employees authorize a union to be their representative. Hoping that other construction contractors can learn from the electrical contractor’s mistakes, I have included a brief overview of the case below.

Several years ago, a union representative met with the electrical contractor and insisted that the electrical contractor use union labor on one of its jobsites. The electrical contractor agreed and signed up with the union. The union presented the electrical contractor with several documents known as “Letters of Assent.” By signing the letters, the electrical contractor agreed to be bound by the union’s Collective Bargaining Agreement (“CBA”). Accordingly, the Letters of Assent constituted 8(f) pre-hire agreements under the applicable statute.

The union’s CBA required employers to contribute to workers’ pension benefits by making contributions into a fund designated by the union. The electrical contractor claims that the union representative told him that the Letters of Assent only bound the electrical contractor to the CBA for its union employees and employees who worked on union jobsites. Thus, the electrical contractor claimed that it was under the impression that it did not have to make contributions to the fund for its employees who were non-union members or who worked on non-union projects.

Thereafter, the electrical contractor sporadically used union labor and worked on union projects. When it did, the electrical contractor made contributions to the fund as required by the CBA. During this time, the electrical contractor also employed non-union workers who did not work on union jobsites. The electrical contractor made no contributions to the union’s fund for these employees.

As the result of a compliance audit of the union’s fund, the union discovered that the electrical contractor owed $201,424.40 for delinquent pension contributions to the fund. The delinquency was accounted for by the fact that the electrical contractor was not making contributions for its non-union workers who did not work on union jobsites. The union took the position that per the CBA the electrical contractor was supposed to make contributions for such individuals. The electrical contractor took the position that because the union never became the exclusive bargaining representative of all its employees, via the employees authorizing the union to serve as their 9(a) representative, the electrical contractor was not required to contribute to the fund for all of its employees.

Although the court found that the electrical contractor was correct in asserting that an 8(f) agreement could not convert into a 9(a) agreement, absent a majority election, it noted that an 8(f) pre-hire agreement binds and employer to a collective bargaining agreement in relatively the same manner as a 9(a) agreement. According to the court, the only true difference between an 8(f) agreement and a 9(a) agreement is that a 9(a) agreement requires an employer to bargain with the union after the agreement expires, whereas when an 8(f) agreement expires, the employer can walk away.

Because the CBA clearly required the electrical contractor to make pension contributions for all of its employees working within the union’s jurisdiction, the court held that it must interpret and enforce the unambiguous terms of the agreement. Specifically, the CBA required the employer to contribute funds for “each employee under the jurisdiction of the agreement.” Accordingly, the electrical contractor could not escape the CBA’s plain meaning that it was required to make pension contributions to funds for all its employees performing work within the union’s trade and territory.

Lesson for Contractors: When entering into Collective Bargaining Agreements read the terms carefully and do not rely upon any verbal assurances that conflict with the terms of the CBA.

This article is authored by attorney Shannon O. Young and is intended for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice. Any particular questions should be directed to your legal counsel or, if you do not have one, please feel free to contact us.