Sister Companies May Be a “Single Employer” Under Title VII

by Sherman & Howard L.L.C.

[author: Ted Olsen]

Businesses that have a common owner naturally bear some similarities.  But such similarities normally are insufficient to make them a "single employer" under Title VII.  However, EEOC v. Moreland Auto Group, LLLP,[1] is a recent court decision suggesting that the "single employer" theory is being resurrected, to impose discrimination law liability on entities owned by the owner of the primary employer, even if the entities are recognized as separate.

In Moreland Auto Group, the plaintiff, a former employee of Kids' Financial, Inc., sued her former employer and two sister companies - Moreland Auto Group, LLLP and Brandon Financial.  The Court denied the summary judgment motions of the two sister companies, ruling that a jury might find the three companies were a "single employer." 

The companies were clearly related.  The controlling shareholder of each company was Doug Moreland.  (He owned 40% of Moreland Auto Group, and each of his four children owned 15%.  He owned 90% of the other entities.)  All three companies were located on the same property, and they all made lease payments to another sister company, Moreland Properties, LLC.  The three companies had the same management team.  Mr. Moreland was the President and Manager of all the entities.  There was a single "Moreland Group Employee Handbook," distributed to the employees of the three companies.  One of the policies permitted the transfer of employees from one company to another, but no evidence indicated that employees were shifted back and forth.

What is most remarkable about the Moreland Auto Group decision is the lengths to which the Court stretched to find a possible "single employer."  The Court conceded that the companies held separate board meetings and had separate minute books, but then noted that the books were located in a single office.  The Court also inexplicitly emphasized that all board meetings took place at another Moreland-controlled company.  Undue significance was attached to the fact that Mr. Moreland received monthly statements regarding the financial performance of each company (as if a controlling shareholder would not follow such matters).  The benign fact that each company sent its separate monthly lease payments directly to Mr. Moreland's home was also emphasized by the Court.  The EEOC contended that Mr. Moreland had the authority to hire, fire and promote employees (of course he did, as controlling owner and President of the companies), but the evidence showed that he was not typically involved in employment policy decisions and was not involved in decisions regarding the plaintiff. 

No matter how independently they are operated, closely-held companies with common ownership and interrelated management teams should learn from Moreland Auto Group that Title VII liability may be shared among sister companies.

[1]EEOC v. Moreland Auto Group, LLLP, Case No. 11-cv-1512-RBJ-MJW (D. Colo. July 20, 2012).


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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