In Brown v. Daikin America, the Second Circuit (in an opinion dated June 27, 2014) held that plaintiff sufficiently alleged that his direct employer and its Japanese parent engaged in national origin and race discrimination under Title VII and NYS Human Rights Law claims.
While this decision arises in the context of defendants’ motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) – i.e., it assesses only the sufficiency of plaintiff’s pleadings – is nonetheless instructive on parent/subsidiary liability, the sufficiency of allegations of discrimination, and the contours of the at-will employment rule.
Plaintiff Todd Brown, who is white, was directly employed by Daikin America, a Delaware corporation headquartered in New York that is a wholly-owned subsidiary of Daikin Industries, a Japanese corporation based in Japan. In 2009, plaintiff was discharged as part of a company-wide reduction in force.
In sum, Brown alleges that, for discriminatory reasons, Daikin America did not consider terminating any of the Japanese “rotational” employees – i.e., Japanese employees who previously worked for the Japanese parent in Japan, but assigned to Daikin America to work as a Daikin america employee while in the United States – or any employees of Japanese national origin who had been hired directly by Daikin America.
Brown also alleged that the Daikin entities had a policy of firing employees only for cause, that that he accepted and stayed at his job at Daikin America in part because of this policy.
Claims Against the Foreign Parent
First, the court held that plaintiff sufficiently alleged that the Japanese parent, DIL, was plaintiff’s “employer” under Title VII and the NYS Human Rights Law.
“To prevail in an employment action against a defendant who is not the plaintiff’s direct employer, the plaintiff must establish that the defendant is part of an ‘integrated enterprise’ with the employer, thus making one liable for the illegal acts of the other.”
The court cited and applied the four-part “single-employer” test, under which “[a] parent and subsidiary cannot be found to represent a single, integrated enterprise in the absence of evidence of (1) interrelation of operations, (2) centralized control of labor relations, (3) common management, and (4) common ownership or financial control”.
While the district court found that Brown sufficiently alleged that DIL and Daikin America maintained interrelated operations and were under common ownership, it held that he “failed adequately to allege that the two entities constituted a single integrated enterprise because he did not plausibly allege centralized control of labor relations and common management.” This, the Second Circuit held, was error.
“In determining whether a plaintiff adequately alleges centralized control over labor relations — the most important prong in the four-part test — the central question is ‘[w]hat entity made the final
decisions regarding employment matters related to the person claiming discrimination?'”
Applying the law, the court held:
Here, Brown alleged that DIL “closely directed the operations of its wholly owned subsidiary, Daikin America” and that DIL’s approval “was required as to all significant actions by Daikin America.” Brown charged that DIL “immuniz[ed]” Japanese rotational employees from discharge by directing Daikin America to discharge only employees who were not Japanese, and by prohibiting Daikin America from reassigning or discharging Japanese rotational employees. Taken together, these allegations sufficiently suggest that DIL exercised centralized control over Daikin America’s decisions about which employees to terminate in the course of the workforce reduction, and that DIL, by protecting Japanese employees from discharge, effectively ensured that employees of other races or national origins, like Brown, would be terminated.
We recognize that Brown does not plead facts suggesting that DIL had significant responsibility for other aspects of Daikin America’s labor relations. For instance, Brown does not allege that DIL participated in the decision to hire him or expressly directed Daikin to end his employment. Nor, for that matter, does he allege common management. Nonetheless, at this early stage in the litigation, the control that Brown alleged DIL to have exercised over Daikin America’s employment actions — lying at the
core of Brown’s charges of discrimination — is adequate to sustain the action against DIL.
Because Brown has pleaded facts that, if true, demonstrate that Daikin America and DIL conducted interrelated operations, had common ownership,
and were subject to centralized control of labor relations, we conclude that he has plausibly alleged that DIL and Daikin America both were his employer for purposes of his Title VII and NYSHRL claims.
Plaintiff Pleaded Plausible Claims of Race and National Origin Discrimination
Second, the court held that plaintiff adequately alleged his discrimination claims.
Here’s the law:
To state a prima facie case of discriminatory discharge under Title VII, a plaintiff must allege that: (1) he falls within a protected group; (2) he held a position for which he was qualified; (3) he was discharged; and (4) the
discharge occurred under circumstances giving rise to an inference of discrimination. A plaintiff may demonstrate circumstances giving rise to an inference of discrimination by alleging that he was treated less
favorably than similarly situated employees of other races or national origins.
Defendants did not dispute elements (1), (2), or (3), but rather argued that Brown’s allegations did not support an inference of discrimination because the Japanese “rotational employees” at Daikin America were not “similarly situated” to Brown and his American colleagues, and thus that the companies were not required to consider the Japanese employees for termination as part of the workforce reduction.
The Second Circuit disagreed. First, in light of the determination that DIL and Daikin America were a “single integrated enterprise”, Brown adequately alleged that he and the Japanese employees had a common employer.
Second, “[e]mployees may be similarly situated … if they are subject to the same standards governing performance evaluation and discipline”. Brown alleged that he worked in the same group with three Japanese employees, two of whom reported to the same supervisor. Therefore, “both Brown and the Japanese employees in the Group are plausibly alleged to be subject to the same performance evaluation and disciplinary standards, and therefore similarly
situated in their employment circumstances.”
The court also rejected defendants’ argument that Brown failed to state a claim “because there were other plausible, non-discriminatory reasons for the allegedly disparate treatment”, reasoning that “[w]hether there existed non-pretextual, non-discriminatory explanations for the defendants’ employment decisions” (on which defendants bear the burden of production) was not properly decided on a motion to dismiss.
Plaintiff Was an At-Will Employee and Failed to Establish Breach of Implied Contract
Finally, citing New York’s “at will” employment rule, the court affirmed the dismissal of plaintiff’s breach of implied contract claim.
Plaintiff alleged that it was the defendants’ “policy” not to fire employees for economic reasons, but only “for cause”, and that he accepted and remained at his job in reliance on this policy.
“Under New York law, employment for an indefinite or unspecified term is presumed to be at will and . . . freely termina[ble] by either party at any time without cause or notice. An employee may rebut the presumption of at-will employment, however, by demonstrating an express limitation in the individual contract of employment curtailing an employer’s right to terminate at will.” This is a difficult burden, however, and the New York Court of Appeals has warned that “[r]outinely issued employee manuals, handbooks and policy statements should not lightly be converted into binding employment agreements.”
The court held that Brown’s employment was “at will”, noting that his employment was not governed by a written contract, and that he did not allege that defendants “had an express written policy limiting their rights to discharge employees.”
His allegation that he was “reassured on several occasions by his superiors that the policy of Daikin America and DIL was not to terminate on the basis of … financial difficulties, and that he should not fear termination on such basis” was, as such, “insufficient to establish an implied contract that supervenes New York’s presumption of at-will employment.”