In recent years, employers have seen a significant rise in the number of lawsuits filed under the Fair Labor Standards Act (“FLSA”), which is the federal wage-and-hour law applicable to most employers.  One issue that continues to vex courts, lawyers, and businesses is whether an employment relationship exists that gives rise to possible liability under the FLSA.  The FLSA recognizes that an employee can have more than one employer at the same time and that each of those employers could be held liable for violations of the FLSA.  This is commonly referred to as the joint employer doctrine.

Courts have fashioned different tests to determine whether a joint employer relationship exists.  Although no uniform test applies to all jurisdictions, the tests generally focus on the amount of control the alleged employer has over the workers at issue.   On June 28, 2012, the United States Court of Appeals for the Third Circuit, which covers Pennsylvania, Delaware, New Jersey, and the Virgin Islands, issued an important decision in which it clarified the standard courts in those states should apply when determining whether a business is a joint employer.

In In re Enterprise Rent-a-Car Wage & Hour Employment Practices Litigation, No. 11-2883, 2012 WL 2434747 (3rd Cir. June 28, 2012), the plaintiffs, who were assistant managers at various Enterprise locations throughout the United States, claimed that they had been misclassified as exempt employees and were owed overtime compensation pursuant to the FLSA.  Enterprise is organized in such a way that a holding company, Enterprise Holdings, Inc., is the sole stockholder of 38 subsidiary companies.  The plaintiffs worked directly for the subsidiary companies, such as Enterprise-Rent-a-Car Company of Pittsburgh.

The plaintiffs sought to hold both Enterprise Holding and its subsidiaries liable for any violations of the FLSA under a theory that both the holding company and the individual subsidiaries were the plaintiffs’ joint employer.  Enterprise Holding supplied administrative services to each of the subsidiaries, which included business guidelines, benefit plans, rental reservation tools, central customer contact services, insurance, and legal services.  In addition, the holding company has a human resources department that provided services and made employment-related recommendations to the subsidiaries.  Each of the subsidiaries had a board of directors that consisted of only three members who were all senior officials and board members of Enterprise Holding.

After reviewing case law from other circuits, the Third Circuit held that courts should consider the following factors when determining whether a company is a joint employer under the FLSA:

  1. the alleged employer’s authority to hire and fire the relevant employees;
  2. the alleged employer’s authority to promulgate work rules and assignments and to set the employees’ conditions of employment: compensation, benefits, and work schedules, including the rate and method of payment;
  3. the alleged employer’s involvement in day-to-day employee supervision, including employee discipline; and,
  4. the alleged employer’s actual control of employee records, such as payroll, insurance, or taxes.

The focus of the test is whether the alleged employer exercised “significant control” over its workers.  The court stressed that the list is not exhaustive, and a court may consider whether other examples of “significant control” are present that suggest a joint employer relationship exists.

Applying this test, the court held that Enterprise Holding was not a joint employer of the assistant managers.  The court noted that Enterprise Holding could not hire or fire assistant managers, could not discipline or supervise employees, could not issue work rules or assignments, and could not set compensation or benefits.  The guidelines that Enterprise Holding issued were merely suggestions and did not have to be followed.  As such, Enterprise Holding did not exercise “significant control” over the assistant managers and could not be held liable for any failure to pay overtime.

Joseph Leonoro concentrates his practice in matters involving labor and employment law.
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