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A determination that a company is a "joint employer"
can dramatically increase its potential exposure to liability under
the Fair Labor Standards Act, because joint employers can be held
responsible for each other's violations of the law. Until now,
employers in Pennsylvania, New Jersey and Delaware have been
without clear instruction on what it means to be a joint employer.
That changed on June 29, when the U.S. Court of Appeals for the 3d
Circuit issued an opinion articulating the standard under which
joint employer status will be evaluated in cases filed in federal
court within those states.
At issue in the case, In re: Enterprise Rent-a-Car Wage
& Hour Employment Practices Litigation, was whether
Enterprise Holdings – the sole stockholder of 38 domestic
subsidiaries – is a joint employer of the assistant
managers who work for those subsidiaries. For the reasons discussed
below, the court found that no joint employer relationship exists
between Enterprise Holdings and its subsidiaries. A link to the
opinion is
here.
The plaintiff alleged that he, along with other assistant branch
managers at Enterprise locations, was improperly classified as
exempt from overtime under the FLSA. He sued Enterprise Holdings
and a number of subsidiaries for failure to pay overtime.
Enterprise Holdings moved for summary judgment on the grounds that
it was not a joint employer with the subsidiaries, and therefore
could not be held liable for their actions. The district court
granted the motion, and the 3rd Circuit affirmed.
The court noted that the three-member board of directors for
each subsidiary consisted of the same people who sat on Enterprise
Holding's three-member board. The court also pointed out that
Enterprise Holdings provided certain administrative support to the
subsidiaries, and provided them with business guidelines, employee
benefit plans, rental reservation tools, job descriptions, best
practices, compensation guides, and performance review forms, among
other things. Key to the court's decision was that "each
individual subsidiary can choose to use any or all of these
guidelines or services in its own discretion; none of these
guidelines or services are mandatory."
In applying these key facts to determine whether a joint
employer relationship was present, the court adopted the standard
it established in NLRB v. Browning-Ferris Industries of
Pennsylvania, for cases brought under the National Labor
Relations Act. Under this standard, a joint employer relationship
exists for purposes of FLSA liability "where two or more
employers exert significant control over the same employees
– [whether] from the evidence it can be shown that they
share or co-determine those matters governing essential terms and
conditions of employment." The court emphasized that
"ultimate control" over employees is not necessary for an
entity to be found a joint employer.
In order to determine whether significant control over employees
is present, the court identified the following factors that courts
should consider:
the alleged employer's authority to hire and fire the
relevant employees;
the alleged employer's authority to promulgate work rules
and assignments and to set the employees' conditions of
employment: compensation, benefits, and works schedules, including
the rate and method of payment;
the alleged employer's involvement in day-to-day employee
supervision, including employee discipline; and
the alleged employer's actual control of employee records,
such as payroll, taxes, and insurance.
These factors are not meant to be an exhaustive list, the court
emphasized, and should not be "blindly applied as the sole
considerations necessary to determine joint employment."
Rather, if other indicia of significant control are present in a
given case, the court should take those indicia into account when
analyzing joint employer status.
Take-away for employers
The determination of whether a company is a joint employer for
purposes of FLSA liability is a fact-intensive analysis that will
vary from case to case. Courts within the 3rd Circuit will now
apply the Enterprise factors to determine whether a
company exerts sufficient control over another's employees to
be considered a joint employer. Companies unsure of whether they
are a joint employers for purposes of FLSA liability should consult
their labor and employment counsel.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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