The Fifth Circuit Court of Appeals recently ruled in an unpublished opinion that an investment manager and a Hawaiian resort owned and operated by a subsidiary of the investment manager were a “single employer” under the National Labor Relations Act and were jointly and severally liable for unfair labor practices stemming from their failure to allow union officials access to hotel workers and prohibiting the union from collecting dues at the resort. Oaktree Capital Mgmt. LP v. NLRB, 5th Cir., No. 10-60749, unpublished opinion 9/26/11.

The union included Oaktree Capital Management as a respondent in its charge. Oaktree was an investment partnership and an indirect owner (through another subsidiary) of a property management company (“TBR”) that leased the resort and contracted with another company, to operate the resort. TBR and the resort operator conceded that they jointly employed resort workers, and thus would be responsible for any unfair labor practices. Oaktree, however, contended vigorously that as an “investment manager,” its only role was to advise its investors, who ultimately owned but did not run the resort. The NLRB and Fifth Circuit disagreed.

In analyzing whether two or more entities like Oaktree and TBR are a single employer under the NLRA, the court noted that such a showing “depends on all the circumstances of the case and is characterized by the absence of an arm’s length relationship found among un-integrated companies.” The court identified the following as key factors in making the determination: : (1) common ownership or financial control; (2) common management; (3) centralized control over labor relations; and (4) interrelation of operations. It found all factors were met, noting that Oaktree was not operating solely as an asset and investment manager/financial advisor, but was also directly involved in labor relations at the resort.

As to the first factor, the record evidence was confusing, but ultimately pointed to Oaktree’s ownership of the resort, at least indirectly, through its subsidiary TBR. The record also showed common officers and management between Oaktree and TBR, and in fact, TBR did not have its own separate officials, directors, or principals. A member and principal of Oaktree, who was also president of TBR, held himself out as speaking for the resort with respect to collective bargaining matters and communications with the union and was involved in approval of bargaining proposals. The NLRB and Fifth Circuit found that the TBR president’s apparent involvement in the negotiations, despite the absence of any other day-to-day control over labor relations, was sufficient to meet the “control over labor relations” prong, and pierce the corporate veil, even though prior Fifth Circuit precedent had suggested a higher degree of involvement was necessary. The court further found that lease agreements between the resort property owner and TBR were actually signed by Oaktree, thus demonstrating interrelation of operations between those entities.

The Chief Judge of the Fifth Circuit filed a strong dissent arguing that it was on its face inappropriate to apply the single employer theory to an investment/manager, “especially given the facts in this case where a culpable and solvent subsidiary is not denying liability.” The dissent argued that the Board’s historical use of the single employer theory was narrow, and that its expansion contradicted more recent U.S. Supreme Court pronouncements enforcing corporate separateness, which the dissent noted was “a doctrine on which much of our current economy depends to safeguard risk-taking and investment.” As the dissent noted, Oaktree’s business was the management of some $80 billion in 40 investment funds, and the resort’s business, owned by an entity within one of those funds, was “unrelated functionally” to Oaktree’s business.

While the decision was designated as non-precedential, it demonstrates that the NLRB is seeking to expand the universe of possible respondents in unfair labor practice charges, and may encompass parties well outside the immediate employment relationship, provided that party or entity bears a corporate overlap with a responsible party and has had some level of involvement with labor relations. On the latter point, the decision is noteworthy because it appears to rest its finding of “control over labor relations” on evidence of involvement far weaker than it had previously required in single employer cases.

Photo credit: Alex Nikada