March 26, 2026|Franchise Frontlines
March 26, 2026 | U.S. District Court for the District of Minnesota | Findings of Fact, Conclusions of Law, and Order for Partial Judgment
Executive Summary
In a post-trial decision, Judge Jeffrey M. Bryan of the U.S. District Court for the District of Minnesota entered partial judgment in favor of a union benefit fund, finding that two related companies operated as alter egos and therefore constituted a single employer under ERISA. The plaintiff alleged that a union-signatory entity and a non-union affiliate failed to pay required fringe-benefit contributions. Defendants argued that only the signatory entity was bound by the collective bargaining agreement. The court rejected that position, concluding that the non-signatory entity lacked any meaningful independent existence and was used to avoid union obligations. The court further held that the owner was personally liable based on contractual language binding her individually.
Relevant Background
The dispute arose from a union collective bargaining agreement governing wages and fringe-benefit contributions for cement-finishing work. One entity, Quality Coatings, LLC, signed the agreement and was obligated to pay union wages and contributions. A related company, Quality Cleaning, Inc., performed similar work but operated as a non-union entity.
Although formally separate, the two entities operated in tandem. They shared ownership within the same family, used the same employees to perform work, relied on the same equipment and facilities, and conducted operations out of the same physical location. The non-union entity supplied labor, equipment, and financial support to the union entity, which lacked independent assets and relied on the affiliated company for payroll and operational expenses.
The plaintiff alleged that this structure was used to divert work and compensation away from the union-signatory entity, thereby reducing required contributions. In particular, employees performing union work were paid through the non-union entity for certain hours—especially overtime—at lower rates and without corresponding fringe-benefit contributions.
Following a bench trial, the court issued detailed findings addressing whether the entities should be treated as a single employer under an alter ego theory.
Decision
The court concluded that the two entities were alter egos and therefore must be treated as a single employer for purposes of ERISA liability.
The court applied a two-part test, asking first whether the purportedly separate entity had any meaningful independent existence, and second whether the structure was used to avoid legal obligations. On the first prong, the court found overwhelming evidence that the union entity existed “in form only.” It had no employees of its own, no independent equipment, no separate operational infrastructure, and no meaningful financial independence. Instead, all work was performed by employees of the affiliated company, using shared resources, under the direction of common management.
The court emphasized that management, ownership, and operations were deeply intertwined. The same individuals directed daily work, assigned employees to projects, controlled equipment usage, and handled payroll functions for both entities. The companies shared vendors, customers, facilities, and internal systems. Even outwardly, there was no meaningful distinction between them, leading to confusion among third parties regarding which entity they were dealing with.
On the second prong, the court found that the structure was used as a subterfuge to avoid union obligations. The evidence showed that the defendants systematically shifted work and compensation between entities to reduce liability under the collective bargaining agreement. Most notably, overtime hours worked on union-covered projects were often paid through the non-union entity at lower rates, thereby avoiding higher union wages and associated fringe-benefit contributions.
The court found that this practice was not incidental but consistent throughout the relevant period. The manipulation of payroll and timekeeping records, combined with the absence of clear separation between the entities, demonstrated that the structure was used to “defeat” obligations under the agreement. As a result, the court held that both entities were jointly responsible for compliance, including the obligation to submit to an audit and pay any delinquent contributions.
The court also held that the owner of the union-signatory entity was personally liable. The governing agreement explicitly provided that it was binding “personally and individually” upon the owner, and the court enforced that provision in light of the alter ego finding.
Looking Forward
This decision provides a pointed reminder that courts will look beyond corporate formalities to assess how a business actually operates. For franchisors and multi-entity systems, the case highlights the risks associated with structures that appear separate on paper but function as a single integrated enterprise in practice.
The court’s analysis underscores that shared ownership, overlapping management, and common operations are not inherently problematic. However, when those factors are combined with commingled finances, lack of independent infrastructure, and unified control over employees and resources, the risk of alter ego liability increases significantly. The critical issue is whether each entity maintains a genuine, independent role within the broader system.
Equally important is the court’s focus on how the structure is used. The existence of multiple entities is not, by itself, improper. But where those entities are used to shift obligations—such as wages, benefits, or compliance responsibilities—in a way that undermines contractual or statutory requirements, courts may treat them as a single employer. The use of one entity to absorb costs while another captures revenue, or to selectively allocate hours and compensation, presents a particularly acute risk.
For franchisors, this case illustrates how similar arguments could arise in systems involving affiliates, shared service entities, or parallel operating companies. Where franchisors or related entities exert overlapping control over employees, operations, or financial flows, plaintiffs may attempt to characterize the structure as an alter ego arrangement. Maintaining clear operational boundaries, separate financial systems, and consistent allocation of responsibilities remains critical.
Finally, the decision highlights the potential for personal liability where contractual language extends obligations beyond the entity itself. Owners and principals who execute agreements on behalf of their companies should be mindful of provisions that bind them individually, particularly in contexts involving wage-and-hour or benefit obligations.
Taken together, this case serves as a practical example of how courts evaluate substance over form. For multi-entity business models, including franchise systems, ensuring that corporate separateness is real—and not merely formal—remains an essential component of risk management.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Partner at Buchalter LLP and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This communication is not intended to create, and does not create, an attorney-client relationship or any other legal relationship. No statement herein constitutes legal advice, nor should it be relied upon or interpreted as such. This communication is for general informational purposes only and is not a substitute for legal counsel. Readers should not act or refrain from acting based on any information provided without seeking appropriate legal advice specific to their situation. For more information, visit www.buchalter.com.
