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Unions say settlement shows risks of ‘alter egos’

Justin Cummins: “Contractors that are thinking about...doing a dance to evade their contractual obligations do so at their peril” (Submitted photo)

Justin Cummins: “Contractors that are thinking about…doing a dance to evade their contractual obligations do so at their peril” (Submitted photo)

Phil Raines: there are legitimate reasons for a company to be double-breasted. (Submitted photo)

Phil Raines: there are legitimate reasons for a company to be double-breasted. (Submitted photo)

Minnesota construction trade unions are turning up the heat on union-signatory contractors who set up a separate non-union company, or “alter ego,” with the intent — in the unions’ view — of sidestepping their collectively bargained obligations.

Unions say the practice, known as “double-breasting,” is an attempt by union-signatory contractors to avoid paying union wages and benefits, though others say it’s a legitimate effort to become more competitive in union and non-union marketplaces.

What’s not disputed is that the practice has inspired a number of union-driven complaints in Minnesota, including a recent case that resulted in a $1.3 million settlement against Corcoran-based Hicks Concrete and Construction Science.

Justin Cummins, a Minneapolis attorney who represented construction trade unions in that case, said the Hicks/Construction Science settlement is a “cautionary tale” for contractors.

“Contractors that are thinking about playing games with their corporate form and doing a dance to evade their contractual obligations do so at their peril,” said Cummins, a shareholder with Minneapolis-based Cummins & Cummins.

Jim Susag, an attorney for Hicks and Construction Science, denied wrongdoing on the part of his clients, and said they agreed to the settlement as a business and financial decision.

“We deny the allegations of double-breasting and alter ego,” said Susag, a shareholder with the Larkin Hoffman law firm in Minneapolis.

Speaking in general terms, construction industry experts say it’s OK for contractors to maintain both union and non-union operations, but that they should proceed with caution.

Phil Raines, vice president of public affairs for the Associated Builders and Contractors of Minnesota and North Dakota, said that it’s not uncommon in the industry for a company to be double-breasted and that there are legitimate reasons for it.

“In order for a contractor to be able to work on a variety of jobs, sometimes they feel that is the best way to do it,” Raines said.

Dave Semerad, CEO of the Associated General Contractors of Minnesota, said unions argue that the double-breasted entity is “simply an alter-ego for the union entity,” and is therefore covered by the collective bargaining agreement.

He said there are “lots of ways for contractors to get into trouble” when going down that road, and that they should consult a good labor attorney for advice.

“You can’t go to your corporate counsel and expect that person to know the nuances of how to do that,” Semerad said. “It’s like going to a general practitioner to have a knee replacement.”

Curt Smith, an attorney with Moss & Barnett in Minneapolis, said the trick is to keep the two entities separate.

Sounds simple enough, but it’s easy to blur the lines.

“Any contractor or subcontractor looking to do that does need to get appropriate legal advice from someone who knows what they are talking about,” said Smith, who provides legal counsel for the Minnesota Subcontractors Association.

Meanwhile, local unions have been increasingly proactive in pursuing double-breasting cases.

Brendan Cummins, a Cummins and Cummins shareholder, said such cases have been on the rise since the economy went south in 2008.

“The construction economy was particularly bad, and contractors were looking for ways to pinch pennies any way they could,” Brendan Cummins said.

“Some of them tried to outright reject union contracts. … But others attempted to avoid their contracts by creating double-breasted operations, operating non-union when it was convenient to, to try to save costs and avoid paying union-scale wages and benefits.”

The Hicks case is one of the bigger recent settlements in Minnesota, but it’s not an isolated case.

In other recent double-breasting disputes in Minnesota, the Laborers Union 563 recently won a $656,622 settlement, and the Bricklayers and Allied Craft Workers won a $200,000 settlement.

Plaintiffs in the Hicks case included local unions representing laborers, cement masons, bricklayers and operators. Trustees of several fringe benefits funds also sued for damages.

In 2013, the unions sued Hicks Concrete, a union signatory company, and Construction Science in federal court, alleging that the companies operated as a single employer in violation of the union’s contracts.

The unions alleged in their complaint that Hicks Concrete Construction “supposedly closed its doors at the end of 2011,” but in fact continued to operate “as a single employer” with Construction Science LLC.

Business records showed that Hicks and Construction Science shared the same assets, including office, telephone number, storage facility, vehicles, equipment, trade name, corporate counsel, managers, supervisors, and field employees, the unions said.

The unions pursued back wages, back fees and dues, and back benefits contributions. On June 30, shortly before trial, Hicks and Construction Science agreed to the $1.3 million settlement.

Brendan Cummins said double-breasting has gone on for decades, both locally and nationally.

“This is not new in the playbook,” he said. “They want to have the best of both worlds, as they see it. They can’t do it. The contract applies to their company. It’s a contract evasion technique, and that is not lawful.”

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