Shared Services Does Not Necessarily Make Affiliated Companies a Single Title VII Employer
The U.S. Court of Appeals for the Seventh Circuit refused to allow an employee to sue a dealer network with which his employer was affiliated, finding no evidence to support the employee’s attempt to pierce the dealerships’ corporate veils and combine them for purposes of Title VII coverage.
In Prince v. Appleton Auto, LLC, the employer was a member of a network of five affiliated but corporately distinct used car dealerships, of which the same individual was the majority owner. The members received management services from another company that was also owned by that individual. Because the employer had fewer than 15 employees, it was not subject to Title VII. Thus, the employee sought to “pierce the corporate veil” (i.e. combine the affiliates in order to hold them liable for each others’ legal violations) in order to trigger Title VII coverage for his race discrimination claim.
Although “the overlap between these companies was substantial,” with the same owner for each entity, the management company providing extensive shared services, group social functions for all employees, and a shared network website, the Seventh Circuit nonetheless refused to combine the dealerships for purposes of Title VII coverage. It stated, “Piercing the corporate veil for the purpose of employee aggregation requires a plaintiff show more than a degree of integration of corporate operations.”
Rather, under state law governing the piercing of corporate veils, the Seventh Circuit found that the “determinative question” is “whether the two entities neglected forms intended to protect creditors from being confused about whom they can look to for the payment of their claims.” In this case, they did not. Each dealership and its LLC owner were distinct corporate entities, as each: properly maintained corporate formalities and records; was separately billed by the management company; paid for the use of the network trademark and website; had its own General Manager, bank accounts and financial reports; filed and paid its own taxes; paid its own employees; and entered into its own contracts.
This case recognizes the reality that “[f]irms too tiny to achieve the realizable economies of scale or scope in their industry will go under unless they can integrate some of their operations with those of other companies, whether by contract or by ownership.” And that in so doing, as long as they maintain their corporate formalities, they may still remain exempt from Title VII. As the Seventh Circuit explains, this exemption “was not to encourage discrimination by them but rather to spare very small firms from the potentially crushing expense of mastering the intricacies of the antidiscrimination laws, establishing procedures to assure compliance, and defending against suits when efforts at compliance fail.”