Parent Company and Subsidiary Considered Single Entity Federal Contractor for OFCCP Purposes

On June 14, 2011, a U.S. Department of Labor Administrative Law Judge (ALJ) ruled that two affiliated companies operated as a “single entity” federal contractor, even though neither company met federal contractor status requirements independently.  This was the outcome of a case involving the Office of Federal Contract Compliance Programs (OFCCP) and Manheim Auctions, Inc., along with its subsidiary, Manheim Auctions Government Services.  As a result, the companies were jointly and individually liable for meeting the requirements set forth in the laws regulated by OFCCP, including Executive Order 11246, Section 503 of the Rehabilitation Act, and the Vietnam Era Veterans Readjustment Assistance Act. Manheim Auctions, Inc. has 50 or more employees but does not have any government contracts.  Manheim Auctions Government Services has government contracts of $50,000 or more but has fewer than 50 employees.  Even though they are separate entities, the ALJ ruled that, for the purposes of affirmative action planning and recordkeeping requirements, the two companies can be treated as a single entity.  When combined, that one entity has government contracts of $50,000 or more and more than 50 employees. The ALJ based the decision on information provided by OFCCP, as defined by the Worker Adjustment Retraining and Notification Act (WARN) in section 20 C.F.R. Part 639.3(a)(2), that states that two or more companies are considered a single entity when there is:

• common ownership;
• common directors and/or officers;
• de facto exercise of control;
• unity of personnel policies emanating from a common source; and
• dependency of operations.

According to the ruling, employers should conduct a “single employer test” regarding their operations using the considerations above, followed by an “integrated employer test.” The integrated employer test considers four major factors including the interrelation of operations, centralized control over labor and employment decisions, common management, and common ownership or financial control. As more audits loom for federal contractors, resulting in large fines and the potential for debarment, companies with federal contracting subsidiaries are encouraged to monitor the status of their operations to ensure that, if applicable, all entities of the business are operating within OFCCP’s guidelines. For additional information and OFCCP compliance assistance resources, visit www.agc.org/topicalresources.