Employer Issues: Volume 3-Where a Corporate Parent May be Found Liable for a Subsidiary's Actions


Elzey v. Wal-Mart Assocs., 2012 U.S. Dist. LEXIS 122158 (D. Md. Aug. 28, 2012)

Larry Elzey, an employee of Sam's Club, brought an employment discrimination action against Defendants Wal-Mart Associates, Inc., Wal-Mart Stores East, L.P. (collectively Wal-Mart) and Sam's East, Inc. (Sam's Club). All Defendants filed a Motion to Dismiss.

Elzey was terminated from his employment with Sam's Club in July 2009 following an investigation into accusations by female coworkers that they were subjected to unwelcome physical and verbal conduct of a sexual nature. In support of his claim, Elzey alleged that female employees had engaged in similar conduct to that he was being accused of, without reprimand.

Elzey initially filed a Charge of Discrimination with the Equal Employment Opportunity Commission (EEOC), which rejected his claim but issued a Right to Sue Letter. When filing this action, Wal-Mart was included because "they control the employment practices and decisions of Sam's Club and dominate the operations of Sam's Club to such an extent that Sam's Club and Wal-Mart are one entity." Though Wal-Mart was not named in the EEOC charge, the Court found that this did not preclude their being part of the civil suit.

The Court set forth a 4-part test often used to assess the degree of a parent corporation's control over a subsidiary: 1.) the interrelation of operations; 2.) centralized control of labor relations; 3.) common management; and 4.) common ownership of financial control. The Court also noted a strong presumption of limited liability for a parent company as a means of encouraging shareholder investment on the basis of a stable and predictable business environment. Due to the interest in preserving this presumption, Courts generally refuse to treat a corporate parent and its subsidiary as one entity.

Elzey was unable to plead sufficient facts to demonstrate Wal-Mart exerted such control over Sam's Club such that they should be treated as a single entity. Therefore, Wal-Mart's Motion to Dismiss was granted.