Can a Company Split into Separate Entities to Evade the ADA?

Employee in Wheelchair

What is the ADA and Whom Does it Cover?

The Americans with Disabilities Act (“ADA”) was enacted in 1990 and amended in 2008 by the ADA Amendments Act. The purpose of the act is to remedy discrimination against persons suffering in the workplace because of a disability. (See footnote 1.) In order for an employee to be entitled to the protections of the ADA, the employee must be a “qualified individual” with a “disability.” (See footnote 2.) Additionally, the employer must employ at least fifteen (15) employees in order to fall under the requirements of the ADA.

An employee is considered qualified where the individual can perform the essential functions of his or her job with or without reasonable accommodation. Similarly, the ADA defines a disability as a physical or mental impairment that substantially limits one or more major life activities. (See footnote 3.) A major life activity is one that an average person in the general population can perform with little or no difficulty (seeing, hearing, eating, sleeping, etc.). (See footnote 4.)

Can Legally Separate Entities be a Single “Employer” for ADA Purposes?

Unfortunately, neither Minnesota nor the Eighth Circuit has clarified this issue. Nonetheless, the U.S. District Court for the Western District of Pennsylvania shed some light on the issue in Cheskawich v. Three Rivers Mortgage Co., LLC, 2006 WL 2529591 (W.D. Pa. Aug. 31, 2006). In Cheskawich. (See footnote 5.) The court held that single employer treatment is only appropriate where:

  1. a company has split itself into separate entities for the purpose of evading the ADA;
  2. a parent company directed a subsidiary’s discriminatory acts; or
  3. where two or more entities’’ affairs are so interconnected that they collectively caused the alleged discriminatory employment practice.

Further, the court determined that the focus of the inquiry should be on the degree of operational entanglement—whether operations of the companies are so united that nominal employees of one company are treated interchangeably with those of another. (See footnote 6.) The relevant operational factors specifically mentioned by the court include: “(1) the degree of unity between the entities with respect to ownership, management (both directors and officers), and business functions (e.g., hiring and personnel matters), (2) whether they present themselves as a single company such that third parties dealt with them as one unit, (3) whether a parent company covers the salaries, expenses, or losses of its subsidiary, and (4) whether one entity does business exclusively with the other.” (See footnote 7.)

[1] 42 U.S.C. § 12101.

[2] 42 U.S.C. § 12102.

[3] 42 U.S.C. § 12102(1).

[4] 42 U.S.C. § 12102(2).

[5] Cheskawich, 2006 WL 2529591 at 4.

[6] Id.

[7] Id.

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