Labor & Employment Law I NOVEMBER 25, 2020

Court Will Not Aggregate Employees of Separate Companies to Reach Title VII Threshold

Smaller companies are exempt from some employment-related laws, including some federal antidiscrimination laws. The decision excerpted below refused the plaintiff’s attempt to try to combine the employees of several related companies to reach or exceed the necessary numerical threshold for the law to apply.

Applecars, LLC is a member of a network of affiliated, but corporately distinct, used-car dealerships located in Wisconsin. Shannon Prince worked at Applecars for several months in 2018 before he was fired. Prince claimed his firing was retaliatory, and sued Applecars and its affiliates for racial discrimination under Title VII of the Civil Rights Act of 1964. The district court granted summary judgment to the defendants, noting that Applecars had fewer than fifteen employees and, therefore, was not subject to Title VII.

On appeal, the court of appeals explained how the dealerships were both related, and yet legally separate. The Applecars dealership was affiliated with four other dealerships throughout Wisconsin. Each of these dealerships was independently owned by a separate Wisconsin limited liability company. Robert McCormick owned a majority, or outright share, in each of these LLCs. Furthermore, each of the dealerships received management sendees from Capital M, Inc., which McCormick also owned. Applecars had fewer than fifteen employees, but if the court were to aggregate all the dealerships, they would have more than fifteen employees.

The dealerships had several things in common. Capital M provided management services to each dealership including marketing, financial, accounting, “visionary,” and payroll services. Capital M also tracked shared dealership inventory, held personal employee records, and issued identical employee handbooks for each dealership. Additionally, Capital M’s operations manager hired, fired, and promoted each dealership’s general manager. McCormick was the sole, or majority owner, of each dealership. The employees of each dealership gathered for events and parties several times per year.

All of the dealerships also advertised on a single website, The landing page marketed the dealerships with language suggesting a single entity including “Wisconsin’s #1 Highest Volume Independent Dealer” and “We are a dealer for the people.” Yet, according to the appeals court, there were other clear indicators that each dealership was a separate entity. The landing page displayed all four dealerships’ names, physical addresses, and phone numbers. Under a “Locations” tab, a visitor could access a drop-down menu with names of each dealership linked to their own websites. The bottom of the landing page included the d/b/a for each dealership as well.

Importantly, though, each dealership and its LLC owner properly maintained corporate formalities and records. Capital M’s management services billed each dealership separately. Each dealership individually paid for Capital M’s management services and for the use of the trademark and website. Each dealership had a distinct general manager, its own bank accounts, and its own financial reports. The dealerships also filed and paid their own taxes, paid their own employees (and issued their own W-2 forms for their employees), and entered their own contracts for business purposes.

The court of appeals looked to its leading case, Papa v. Katy Industries, Inc., 166 F.3d 937 (7th Cir. 1999). There, the court addressed “what test to use to determine whether an employer that has fewer than 15...employees, and thus falls below the threshold for coverage by the major federal antidiscrimination laws,...should be deemed covered because it is part of an affiliated group of corporations that has in the aggregate the minimum number of employees.” In Papa, the court noted that the purpose of exempting small businesses from Title VII 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.” The court laid out three circumstances when the existence of an affiliated company would result in potential liability under Title VII. Employee aggregation is appropriate where  (1) the enterprise has purposely divided itself into smaller corporations to dodge requirements imposed by the antidiscrimination laws; (2) a creditor of one corporation could, by piercing the corporate veil, sue its affiliate; or (3) the affiliate directed the discriminatory act or practice of which the plaintiff complains.

Accordingly, piercing the corporate veil for the purpose of employee aggregation requires a plaintiff show more than a degree of integration of corporate operations. Because piercing the corporate veil is governed by state law, the appeals court also looked to Wisconsin state law to determine whether to pierce the corporate veil. This did not change the outcome.

The logic in Papa—that it makes sense for affiliated small businesses to share some operational efficiencies—applied to the coordination between Applecars, the other dealerships, and Capital M. Applecars and its related dealerships overlapped a great deal in terms of operations, particularly in the areas of shared services received from Capital M. However, the court had already deemed it was legitimate to share those services, such as marketing, financial, accounting, and employee records, without risking veil piercing. That McCormick was the sole or majority owner of the business was not dispositive; indeed, the fact that other owners held shares in some dealerships but not others is a textbook reason for such companies to maintain formal corporate separation, even if they contracted together for some services.

True, the dealerships shared a web address (where they were advertised and counted together as Wisconsin’s largest independent used car dealership), perhaps weighing in favor of piercing the veil. However, that alone was not enough—particularly where identified the dealerships separately by name and by address, and importantly, where the companies in question respected every corporate formality. The undisputed evidence that the dealerships properly kept records and maintained separate financial accounts overwhelmed any slight doubts brought on by the website.

As the appellate court wrote in Papa, it is nonsense to suggest that a corporate group must erect firewalls among its affiliates or else risk Title VII liability. “The corporate veil is pierced, when it is pierced, not because the corporate group is integrated...but (in the most common case) because it has neglected forms intended to protect creditors from being confused about whom they can look to for the payment of their claims.” Here, there was no evidence the defendants neglected corporate forms or risked confusing their creditors. While substantially integrated, the dealerships properly maintained separate accounts, identities, and corporate records. Therefore, there was no basis to pierce the corporate veil.

The case is Prince v Appleton Auto, LLC, 2020 WL 6156882 (7th Cir. Oct. 21, 2020)