Is a Parent Company The Employer of a Subsidiary’s Employees?
On occasion, an aggrieved employee of a subsidiary may seek to assert claims not only against their employer, but also against related entities including the parent company. The Minnesota Federal District Court recently reviewed, and dismissed, such a claim in Sasorith v. Detector Electronics Corporation, Civ. No. 14-5045 (D. Minn. July 22, 2015).
In Sasorith, the plaintiff claimed that she had been sexually harassed by a co-worker at the subsidiary. In part, her lawsuit claimed that the parent company was also liable for this alleged harassment because it knew or should have known that she was being harassed. On a motion to dismiss, the court rejected this claim because the employee did not establish an employment relationship with the parent company.
As stated by the court: “There is a strong presumption that a parent company is not the employer of the subsidiary’s employees.” (quoting Brown v. Fred’s Inc., 494 F.3d 736, 739 (8th Cir. 2007)). Sasorith failed to overcome this presumption by showing that the parent company dominated the subsidiary’s operations to the extent that the two entities actually operated as one or that the parent company controlled individual employment decisions of the subsidiary. As a result, the court dismissed the claims against the parent company.
Takeaway: While a strong presumption in the law exists to protect a parent company from employment claims by subsidiary employees, a parent company seeking to avoid liability should ensure that it does not appear to dominate employee relations of its subsidiary. The employment relationships at the subsidiary level should operate independently and outside of the control of the parent company.