April 10, 2014

Under the Fair Labor Standards Act (“FLSA”), multiple corporations may be considered a worker’s joint employer. A joint employer relationship can exist where one employer controls, is controlled by, or is under common control with the other employer. In such situations, each joint employer may be held liable for the other’s violations of the FLSA. In Thompson v. Real Estate Mortgage Network, No. 12-3828 (3rd Cir. April 3, 2014), the United States Court of Appeals for the Third Circuit discussed the role of paychecks in the joint employer analysis.

Patricia Thompson was hired as a mortgage underwriter by Security Atlantic Mortgage Company (“Security Atlantic”). Several months later, she and other employees were instructed to complete new job applications to work for Real Estate Mortgage Network (“REMN”). From that day forward, Thompson’s paychecks were issued by REMN rather than Security Atlantic. The district court granted a motion to dismiss Thompson’s claim that Security Atlantic and REMN were joint employers under the FLSA. In determining that Thompson’s employment with Security Atlantic was separate and distinct from her work for REMN, the trial court apparently focused on the names appearing on her paychecks. The Third Circuit disagreed and held that who issued the paycheck was not dispositive. Rather, Thompson had also alleged that: a) an employee of REMN provided her with training immediately after she was hired by Security Atlantic; b) REMN was described as Security Atlantic’s sister company and c) she and virtually all other Security Atlantic employees were abruptly and seamlessly integrated into REMN’s business. According to the Third Circuit, these allegations supported Thompson’s contention that the two companies shared authority over hiring and firing practices. As a result, the court remanded the case for discovery on payroll and taxation documents, disciplinary records, internal corporate communications and leadership and ownership information.

Thompson demonstrates that form does not trump substance. Rather, courts will examine the actual relationship between companies, rather than formalities such as who issued the paycheck, to determine whether they are joint employers for purposes of the FLSA.