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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: August 28, 2019

Corporate Parent Not Liable Under Plaintiff’s Employment Agreement With a Subsidiary

On August 16, 2019, Justice Schecter of the New York County Commercial Division issued a decision in Shapiro v. Ninah Consulting, Inc., 2019 NY Slip Op. 32443(U), holding that a corporate parent was not liable under the plaintiff’s employment agreement with a subsidiary, explaining:

It is axiomatic that only parties to a contract can be sued for breach. Because Publicis is not a party to the Agreements, it cannot be sued for breaching them. Plaintiffs’ contention that Publicis is a party simply because it is mentioned in the Agreements is baseless. Plaintiffs cite no authority for the proposition that an employment agreement that merely references the fact that an employee may be eligible to receive certain benefits from the parent company of the employer makes the parent company a party to the agreement. The Agreements clearly indicate that they are only between plaintiffs and Ninah; Publicis did not sign them.

That Publicis wholly owns Ninah is unavailing. Parent companies are distinct from their subsidiaries.

Thus, to hold a parent liable for the contractual liabilities of its subsidiary, there must be grounds for veil piercing. In order to pierce the corporate veil, a plaintiff must show that the dominant corporation exercised complete domination and control with respect to the transaction attacked, and that such domination was used to commit a fraud or wrong causing injury to the plaintiff. Domination alone, without the added allegation of wrongdoing, does not permit piercing the corporate veil . Notably, the allegation that the parent caused the subsidiary to breach a contract is insufficient to show the requisite wrongdoing.

(Internal quotations and citations omitted) (emphasis added).

Usually, the only parties who have rights or obligations under a contract are the parties to the contract. Here, a party tried–but failed–to sue the corporate parent of a company with which the plaintiff had an employment agreement. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where you are unsure whether you have rights or obligations under a contract.

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