A parent company was forced to absorb the cost of litigating claims at the trial and appellate court levels under Title VII and the Equal Pay Act (“EPA") simply because its name was found on a subsidiary’s checks, employee handbooks, and other documents.

On July 23rd, the U.S. Court of Appeals for the Eighth Circuit issued an opinion in Brown v. Fred’s Inc. Nos. 06-2503/2791 (8th Cir., July 23, 2007) that (1) provides a reminder regarding how easily a parent company can be unwittingly sued by an employee of a subsidiary company, and (2) reinforces the principles of the EPA for all employers.

In 2003, Donna Brown was hired by Fred’s of Tennessee (“Fred’s") as a cashier. She was subsequently promoted to assistant manager and then to manager. At some point, Brown was terminated for reasons unrelated to her suit. Following her termination, Brown first brought suit against Fred’s Inc. (the parent company of Fred’s) alleging that Fred’s Inc., as the parent company, violated Title VII and the EPA by paying Brown less than her male counterparts. The district court ruled in favor of Fred’s Inc. on the Title VII and EPA claims. The suit continued against Fred’s with a jury awarding Brown $4,109.20 in lost wages on her EPA claim.

On appeal, Brown claimed that the district court improperly concluded that Fred’s Inc., as the parent company, was not her employer. Although conceding that her W-2 listed Fred’s and not Fred’s Inc. as her employer, Brown attempted to establish that because the parent company’s name appeared on her payroll check, and on other important documents, such as her employee handbook, the parent company and Fred’s were actually a single entity, thereby making the parent company liable for her Title VII and EPA claims.

Citing case law, the appellate court declared that a parent company may be considered to be employing its subsidiary’s employees if (1) the parent company so dominates the subsidiary’s operations that the two are one entity and therefore one employer, or (2) the parent company is linked to alleged discriminatory action because it controls individual employment decisions. Using this test, the appellate court found that Fred’s Inc. did not dominate Fred’s operations, nor did it control individual employment decisions. As a result, the appellate court held that the district court did not err when it ruled in favor of Fred’s Inc. because Brown failed to establish that Fred’s Inc., as the parent company, was her employer.

Also on appeal, Fred’s sought to reverse the district court’s finding regarding the EPA claim. Citing the EPA statute and case law, the appellate court noted that to establish liability under the EPA, Brown must first establish that Fred’s discriminated on the basis of sex by paying different wages to men and women who performed equal work. To avoid liability, once Brown established her case, Fred’s needed to prove that the pay differential was based on any other factor other than sex.

To establish her case on appeal, Brown simply argued that while she was an assistant manager and a manager, she made less money per week than her male counterparts performing the same job based on skill, effort, and responsibility.

In its defense, Fred’s argued, that (1) the jobs were not similar because of differing sales volumes at the stores, (2) Brown and her male counterparts did substantially different work, and (3) Brown lacked experience in ‘big-box" retail stores. The appellate court quickly dispensed with each defense and found that a reasonable juror could have weighed the evidence and found that Fred’s failed to prove that the pay differences between Brown and her male counterparts were based on a factor other than sex. As a result, the appellate court affirmed the district court’s findings on Brown’s EPA claims.

According to Frank Del Barto, an attorney in the Employment and Labor Practice Group, this case is an important reminder to all clients regarding both references to a parent company in a subsidiary company’s materials and the principles of the EPA. Accordingly, Frank recommends that clients review all company paychecks, summary plan descriptions, employee handbooks, company policies, bulletin boards, insurance polices, and other significant documents or communications for direct and indirect references to a parent company. To the extent possible, he recommends removing these references to limit the possibility that a parent company will unwittingly be named in a lawsuit by an employee. Moreover, he recommends that company’s periodically review pay practices to ensure compliance with the principles of the EPA.