The Third Circuit Establishes Factors For Joint Employer Status Under The FLSA

July 24, 2012

The Fair Labor Standards Act (“FLSA”) requires employers to provide overtime compensation to non-exempt employees who work more than 40 hours a week.  Under the FLSA, a single individual can be considered to be the employee of more than one employer.  When such a joint employment situation exists, both employers are required to comply with the FLSA’s overtime requirements.  In In re Enterprise Rent-A-Car Wage & Hour Employment Practices Litigation, 2012 WL 2434747 (3d Cir. June 28, 2012), the Third Circuit set forth the factors to determine whether one is a joint employer for purposes of the FLSA.

Nicholas Hickton was a former assistant branch manager for Enterprise Rent-a-Car Company of Pittsburgh.  Mr. Hickton claimed that he was a joint employee of both Enterprise Rent-a-Car Company of Pittsburgh and Enterprise Rent-a-Car Company of Pittsburgh’s parent company, Enterprise Holdings, Inc., and that both companies had violated the FLSA by failing to provide him with overtime compensation.  Suit was brought on behalf of Mr. Hickton and all current and former assistant branch managers at all Enterprise Rent-a-Car locations.

According to the underlying facts, Enterprise Holdings, Inc. is the sole shareholder of 38 domestic subsidiaries, including Enterprise Rent-a-Car Company of Pittsburgh.  Enterprise Holdings, Inc. did not directly rent or sell any vehicles.  Rather, this activity was performed solely by the subsidiaries.  However, Enterprise Holdings, Inc. directly and indirectly supplied the subsidiaries with administrative services and support such as business guidelines, employee benefit plans, rental reservation tools, a central customer contact service, insurance, technology and legal services.  The subsidiaries had the ability to choose whether they would participate in these services or not.  Those who did participate were required to pay corporate dividends and management fees to Enterprise Holdings, Inc. Additionally, the board of directors of each of the subsidiaries consisted solely of the same three people who also served on the Board of Directors of Enterprise Holdings, Inc. as Chairman and Chief Executive Officer, President and Chief Operating Officer and Executive Vice President and Chief Financial Officer.

The Third Circuit held that where two or more employers exert significant control over the same employees, they are considered joint employers under the FLSA.  The court then set forth four factors to determine whether the necessary level of control exists.  In order to determine whether a the necessary level of control exists, the court will consider the following factors:  (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) day-to-day supervision, including employee discipline; and (4) control of employee records, including payroll, insurance, taxes, etc.  The Third Circuit emphasized that these factors were not to be viewed as exhaustive and that they should not be applied blindly.  Rather, a court could consider other indications of significant control along with the factors set forth above.

Applying these considerations to the facts of this case, the Third Circuit concluded that Enterprise Holdings, Inc. was not a joint employer because it 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.  It also did not have any involvement in employee supervision or discipline and did not exercise or maintain control over employee records. While Enterprise Holdings, Inc. had promulgated recommendations and guidelines for how subsidiaries should conduct their business, the subsidiaries had the right to decide whether or not these recommendations and guidelines would be adopted.  According to the Third Circuit, Enterprise Holdings, Inc. had no more authority over an assistant branch manager’s conditions of employment than did a third-party consultant who provided suggestions on how a subsidiary could improve its business practices.  As a result, because Enterprise Holdings, Inc. did not have any control over the assistant managers, it was not a joint employer and not subject to liability under the FLSA.

The decision in In re Enterprise indicates that a company will not necessarily be viewed as a joint employer for purposes of the FLSA just because it offers services to an affiliate or provides input on how an affiliate should conduct its business. Rather, the company must have some level of control over the conditions of employment at the affiliate before it will be subject to the requirements of the FLSA with respect to the affiliate’s employees.

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