When employees work for two ostensibly independent employers, and the aggregate hours worked exceeds forty, overtime must be paid if the employers are “sharing” the employee or both deriving benefits from that employee’s work. That is the doctrine of “joint employer” status. Now, in a recent holding, the Third Circuit has set forth a new test for determining when a joint employer relationship exists under the Fair Labor Standards Act. In this case, the Court concluded that Enterprise Holdings Inc. was not a joint employer with its car rental subsidiaries' and therefore the plaintiff assistant managers could not seek relief against the parent company. The case is entitled In re: Enterprise Rent-A-Car Wage & Hour Employment Practices Litigation.
The assistant managers claimed they were improperly classified as exempt. The district court granted summary judgment to the employer on the joint employer issue and the plaintiffs appealed to the federal appellate court. In its groundbreaking opinion, the Third Circuit enumerated a standard that involves examination of the putative employer’s: 1) ability to hire and fire the relevant employees; 2) ability to issue and implement work rules/assignments; 3) ability to establish conditions of employment for the workers; 4) involvement in day-to-day supervision of workers, notably the right to discipline; and, 5) actual control of employee records, such as payroll, insurance, or taxes.
The Court took pains to point out that these factors are not exclusive and should not be rigidly applied. The Court emphasized that if other factors demonstrated that an entity exercised significant control over a group of employees, then that evidence, when coupled with the enumerated factors, might be persuasive on the issue of whether a joint employment relationship exists.
Applying the test to Enterprise, which is the sole stockholder of 38 domestic subsidiaries, the Third Circuit found that it was not a joint employer of its subsidiaries' assistant managers. The parent company had no authority to hire or fire assistant managers, no authority to promulgate work rules or assignments, and no authority to set compensation, benefits, schedules, or rates or methods of payment, the Third Circuit said. Enterprise was also not involved in employee supervision or employee discipline and did not exercise or maintain any control over employee records, the appeals court said.
The Court rendered this ruling, notwithstanding that the parent company provided some services to the other entities, such as business guidelines, rental reservation tools, a central customer contact service, insurance, technology, legal services and some human resources services. Even with all of these administrative-type services provided, it was still insufficient to establish joint employer status. The main focus of the joint employer analysis is the control and direction by the putative employer on the employees, not whether it provided these ancillary support services.
I think this is very good from a strategizing posture, as well as a defense posture. Now, management side labor lawyers will be better able to advise their clients how far they can go in their interfacing with and interacting with related entities (e.g. subsidiaries) and yet not be found to be joint employers under the FLSA.