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How responsible is a parent company for an action filed against a subsidiary company?

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in Discrimination and Harassment,Employment Law,Human Resources,Leaders & Managers,Management Training

Q. A former employee has filed an employment discrimination lawsuit against one of my company’s subsidiaries. The suit names both the subsidiary and us—the parent company—as the responsible employers. Isn’t this charge just the subsidiary’s problem and not ours?

A. Not necessarily. It is possible for a parent company to be held liable for an employment discrimination claim against its subsidiary under what the courts call an “integrated enterprise” theory.

The most important question in determining whether the parent company and the subsidiary company are an integrated enterprise is “[w]hat entity made the final decisions regarding employment matters related to the person claiming discrimination?”

The factors the courts consider in answering this question are:

  1. The interrelations of the operations between the subsidiary and parent company
  2. Whether there is centralized control of labor relations
  3. Whether there is common management
  4. Whether there is common ownership or financial control.

While all four factors are considered, the most important one is whether there is centralized control over labor relations, or whether the subsidiary acts with a significant degree of autonomy over its labor relations.

If sufficient labor relations autonomy exists in the subsidiary, the parent company is unlikely to be found responsible for employment claims brought against the subsidiary. If, however, a parent company and the subsidiary entity are found to be an integrated enterprise, the parent may be liable for an employment discrimination charge filed by an employee of the subsidiary.

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