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Fifth Circuit Finds Investment Manager Liable for NLRA Violations

    Client Alerts
  • October 28, 2011

EmployNews previously reported on a growing trend in employment litigation involving lawsuits against creditors or other financial investors in an employing company. These suits contend that the financial entities are liable for the company's employment practices due to their level of control over its day-to-day management. Last month in a 2-1 decision, the Fifth Circuit Court of Appeals concluded that an investment manager serving as the general partner for several funds was responsible for unfair labor practice claims brought by the union representing employees at one of its investments.

In Oaktree Capital Management LP v. NLRB, a union representing employees at a resort filed unfair labor practice claims against the business with the National Labor Relations Board. The NLRB in turn initiated an enforcement action against both the resort and the investment manager representing the fund owners, contending that they were a "single employer" for purposes of NLRA compliance.

Despite a complex ownership structure, the Fifth Circuit determined that the investment manager maintained general control over operation of the resort, including its labor relations. The court upheld the single employer determination despite its conclusion that Oaktree did not exercise day-to-day control over employee relations. The investment manager's overall ability to control management functions was sufficient to create liability for NLRA compliance purposes.

The dissenting judge found that the relationship between the manager and the resort's labor practices was too tangential to apply liability, especially where the actual employer was solvent and capable of providing an effective remedy to the unionized employees.

This case represents a new and aggressive tactic by the NLRB to expand the universe of parties responsible for labor law compliance. Investment entities and their management companies should be aware of possible liabilities that accompany their investment targets.