Who’s The Boss: Third Circuit Announces Joint Employer Test for FLSA Cases, Opening the Door to Broader Exposure to Wage and Hour Liability

By:  Meredith R. Murphy

On June 29, 2012 the Third Circuit responded for the first time to a question pondered by many employers and courts within its judicial districts: what constitutes a “joint employer” under the FLSA?  In a case captioned In re: Enterprise Rent-a-Car Wage & Hour Employment Practices Litigation, the Third Circuit announced a four part, multi-factor test as an answer to this question.

In the Enterprise case, the joint employer question was raised as a result of the filing of a collective action by assistant branch managers at subsidiaries of Enterprise Holdings, Inc., seeking overtime pay under the Fair Labor Standards Act (FLSA).  While these assistant managers were employees of Enterprise Holdings’ subsidiaries, they nevertheless sought relief from Enterprise Holdings on the theory that it was a joint employer.

In answering whether Enterprise Holdings falls within the category of “joint employer,” the Third Circuit noted that the definition of “employer” under the FLSA is “the broadest definition that has ever been included in any one act.”  Emphasizing that the definition of employer focuses on “control,” the Third Circuit concluded that ultimate control over employees is not necessarily required and even “indirect” control may be sufficient

To determine whether a party is a “joint employer,” and thereby subject to FLSA liability, the Third Circuit adopted the following analysis:

Does the alleged employer have:

  1. Authority to hire and fire employees;
  2. Authority to promulgate work rules and assignments, and set conditions of employment, including compensation, benefits, hours and work schedules, including the rate and method of payment;
  3. Day-to-day supervision, including employee discipline; and
  4. Control of employee records, including payroll, insurance, taxes, and the like.

The Third Circuit emphasized that the factors identified do not constitute an exhaustive list and should not be “blindly applied.”  Rather, under the Third Circuit’s guidance, courts are to look to the “total employment situation” and “economic realities of the work relationship.”

How did Enterprise Holdings, the sole stockholder of thirty-eight domestic subsidiaries, avoid the label of “joint employer”?  Even despite finding that a three-member board of directors for each subsidiary consisted of the same people who sat on Enterprise Holding’s three-member board, the Third Circuit focused on other key facts in support of its decision:  (i) Enterprise Holdings had no authority to hire or fire assistant managers; (ii) Enterprise Holdings had no authority to promulgate work rules or assignments; (iii) Enterprise Holdings had no authority to set compensation benefits, schedules, or rates or methods of payment; (iv) Enterprise Holdings was not involved in employee supervision or employee discipline; and (v) Enterprise Holdings did not exercise or maintain any control over employee records.  Among these factors, the Third Circuit emphasized that Enterprise Holdings only “suggested” various Human Resources and salary policies and that the adoption of such suggestions was not mandatory, rendering the parent company more akin to a third-party consultant.

In light of this decision, employers and, in particular, parent corporations, should be aware of the fact that courts within the Third Circuit (Delaware, New Jersey and Pennsylvania) will apply the “Enterprise” test going forward.  Notwithstanding, while the test has been articulated, the analysis remains highly fact intensive and courts are by no means limited to consideration of the factors identified in the Enterprise decision.  Employers unsure of their FLSA joint employer status should contact their labor and employment counsel.