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Third Circuit Announces Joint Employer Test Under the FLSA

Monday, July 02, 2012

Last week, the United States Court of Appeals for the Third Circuit defined a new test for determining a joint employer relationship under the Fair Labor Standards Act (FLSA) in In Re: Enterprise Rent-A-Car Wage & Hour Employment Practice Litigation, and applied that test to conclude that Enterprise Holdings, Inc. was not the joint employer of its car rental subsidiaries’ assistant managers.

The plaintiffs consisted of assistant branch managers who alleged that Enterprise Holdings Inc., the parent of Enterprise Rent-A-Car as well as several other subsidiaries, violated the FLSA by improperly classifying them as exempt and failing to pay them overtime. The plaintiffs alleged that the parent company was liable for overtime as a joint employer of the plaintiffs. The parent, Enterprise Holdings, Inc., is the sole shareholder of 38 subsidiaries that rent and sell vehicles. Enterprise Holdings, Inc. does not directly sell or rent vehicles, but provides administrative services and support to the subsidiaries. Enterprise Holdings, Inc. also has a human resources department that provides certain services to the subsidiaries. The district court granted the defendants’ motion for summary judgment and determined that Enterprise Holdings, Inc. was not a joint employer by applying a variety of factors. As a result, the district court refused to certify a nationwide class action against Enterprise Holdings, Inc. The Third Circuit agreed with the district court’s conclusion but applied a different test in reaching its decision.

In determining whether a joint employer relationship exists, the Third Circuit concluded that “where two or more employers exert significant control over the same – [whether] from the evidence it can be shown that they share or co-determine those matters governing essential terms and conditions of employment – they constitute joint employers.” Most importantly, the alleged employer must exercise significant control (direct or indirect) over the employee. The court held that district courts should consider the following factors: whether the employer has (1) authority to hire and fire employees; (2) authority to promulgate work rules and assignments and set conditions of employment including compensation, benefits, and hours; (3) involvement in day-to-day supervision, including employee discipline; and (4) control of employee records, including payroll, insurance, taxes, and the like. The court noted that these factors are not an exhaustive list of all potentially relevant factors. The court directed district courts to consider all relevant evidence including evidence that does not fall neatly within one of the above factors, reasoning that a determination as to whether an entity is a joint employer must be based on the totality of the employment circumstances and the economic realities of the work relationship.

In applying the newly adopted “Enterprise Test,” the court held that Enterprise Holdings, Inc. was not a joint employer of the plaintiffs because (1) plaintiffs produced no evidence that Enterprise Holdings’ actions amounted to mandatory directions rather than mere recommendations; (2) Enterprise Holdings, Inc. had no authority to hire or fire assistant managers, promulgate work rules or assignments, set compensation, benefits, schedules, or rates, or methods of payment; (3) Enterprise Holdings, Inc. was not involved in employee supervision or discipline nor did it exercise or maintain control over employee records; and (4) the fact that Enterprise Holdings, Inc. suggested policies and practices that were entirely discretionary on the part of the subsidiaries was not sufficient to suggest control or authority over the employees.

The Third Circuit’s decision gives district courts clear direction as to the factors they should analyze when determining whether joint employer liability exists under the FLSA. The case is significant for employers because it may hinder plaintiffs’ ability to implicate certain parent corporations in FLSA class action lawsuits and make it more difficult to obtain nationwide class certification.

Kali T. Wellington-James

Written by

Kali T. Wellington-James
Phone: 610.640.7801
Fax: 610.640.7835
wellingtonk@pepperlaw.com


The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.

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