Authored by Gerald Maatman, Jr. 

Seyfarth Synopsis: Workplace class action filings were flat overall and even decreased as compared to levels in 2015. However, that is apt to change in 2017. In the 4th in a series of blog postings on workplace class action trends, we examine what employers are likely to see in 2017.

Introduction

Overall complex employment-related litigation filings increased in 2016 insofar as employment discrimination cases were concerned, but decreased in the areas of ERISA class actions, governmental enforcement litigation, and wage & hour collective actions and class actions. For the past decade, wage & hour class actions and collective actions have been the leading type of “high stakes” lawsuits being pursued by the plaintiffs’ bar. Each year the number of such case filings increased. However, for the first time in over a decade, case filing statistics for 2016 reflected that wage & hour litigation decreased over the past year.

Additional factors set to coalesce in 2017 – including litigation over the new FLSA regulations and the direction of wage & hour enforcement under the Trump Administration – are apt to drive these exposures for Corporate America. To the extent that government enforcement of wage & hour laws is ratcheted down, the private plaintiffs’ bar likely will “fill the void” and again increase the number of wage & hour lawsuit filings.

Complex Employment-Related Litigation Filing Trends In 2016

While shareholder and securities class action filings witnessed an increase in 2016, employment-related class action filings remained relatively flat.

By the numbers, filings for employment discrimination and ERISA claims were basically flat over the past year, while the volume of wage & hour cases decreased for the first time in over a decade.

By the close of the year, ERISA lawsuits totaled 6,530 filings (down slightly as compared to 6,925 in 2015 and 7,163 in 2014), FLSA lawsuits totaled 8,308 filings (down as compared to 8,954 in 2015 and up from 8,066 in 2014), and employment discrimination lawsuits totaled 11,593 filings (an increase from 11,550 in 2015 and a decrease from 11,867 in 2014).

In terms of employment discrimination cases, however, the potential exists for a significant jump in case filings in the coming year, as the charge number totals at the EEOC in 2015 and 2016 reached record levels in the 52-year history of the Commission; due to the time-lag in the period from the filing of a charge to the filing of a subsequent lawsuit, the charges in the EEOC’s inventory will become ripe for the initiation of lawsuits in 2017.

The Wave Of FLSA Case Filings Finally Crested

By the numbers, FLSA collective action litigation filings in 2016 far outpaced other types of employment-related class action filings; virtually all FLSA lawsuits are filed and litigated as collective actions.  Up until 2015, lawsuit filings reflected year-after-year increases in the volume of wage & hour litigation pursued in federal courts since 2000; statistically, wage & hour filings have increased by over 450% in the last 15 years.

The fact of the first decrease in FLSA lawsuit filings in 15 years is noteworthy in and of itself. However, a peek behind these numbers confirms that with 8,308 lawsuit filings, 2016 was the second highest year ever in the filing of such cases (only eclipsed by 2015, when 8,954 lawsuits were commenced).

Given this trend, employers may well see record-breaking numbers of FLSA filings in 2017.  Various factors are contributing to the fueling of these lawsuits, including: (i) new FLSA regulations on overtime exemptions in 2016, which have been delayed in terms of their implementation due to legal challenges by 13 states; (ii) minimum wage hikes in 21 states and 22 major cities set to take effect in 2017; and (iii) the intense focus on independent contractor classification and joint employer status, especially in the franchisor-franchisee context. Layered on top of those issues is the difficulty of applying a New Deal piece of legislation to the realities of the digital workplace that no lawmakers could have contemplated in 1938. The compromises that led to the passage of the legislation in the New Deal meant that ambiguities, omitted terms, and unanswered questions abound under the FLSA (something as basic as the definition of the word “work” does not exist in the statute), and the plaintiffs’ bar is suing over those issues at a record pace.

Virtually all FLSA lawsuits are filed as collective actions; therefore, these filings represent the most significant exposure to employers in terms of any workplace laws.  By industry, retail and hospitality companies experienced a deluge of wage & hour class actions in 2016.

This trend is illustrated by the following chart:

The Dynamics Of Wage & Hour Litigation – Low Investment / High Return

The story behind these numbers is indicative of how the plaintiffs’ class action bar chooses cases to litigate. It has a diminished appetite to invest in long-term cases that are fought for years, and where the chance of a plaintiffs’ victory is fraught with challenges either as to certification or on the merits. Hence, this reflects the various differences in success factors in bringing employment discrimination and ERISA class actions, as compared to FLSA collective actions.

Obtaining a “first stage” conditional certification order is possible without a “front end” investment in the case (e.g., no expert is needed unlike the situation when certification is sought in an ERISA or employment discrimination class action) and without conducting significant discovery due to the certification standards under 29 U.S.C. § 216(b).  Certification can be achieved in a shorter period of time (in 2 to 6 months after the filing of the lawsuit) and with little expenditure of attorneys’ efforts on time-consuming discovery or with the costs of an expert. As a result, to the extent that litigation of class actions by plaintiffs’ lawyers are viewed as an investment, prosecution of wage & hour lawsuits is a relatively low cost investment without significant barriers to entry relative to other types of workplace class action litigation. As compared to ERISA and employment discrimination class actions, FLSA litigation is less difficult or protracted, and more cost-effective and predictable. In terms of their “rate of return,” the plaintiffs’ bar can convert their case filings more readily into certification orders, and create the conditions for opportunistic settlements over shorter periods of time. The certification statistics for 2016 confirm these factors.

What Is In Store For 2017

Has the wage & hour litigation crested for good, or will 2017 see more case filing? My bet is that employers will see more case filings.

An increasing phenomenon in the growth of wage & hour litigation is worker awareness. Wage & hour laws are usually the domain of specialists, but in 2016 wage & hour issues made front-page news.  The widespread public attention to how employees are paid almost certainly contributed to the sheer number of suits.  Big verdicts and record settlements also played a part, as success typically begets copy-cats and litigation is no exception. Yet, the pervasive influence of technology is also helping to fuel this litigation trend. Technology has opened the doors for unprecedented levels of marketing and advertising by the plaintiffs’ bar – either through direct soliciting of putative class members or in advancing the overall cause of lawsuits. Technology allows for the virtual commercialization of wage & hour cases through the Internet and social media. These factors all suggest that 2017 will see an increase in wage & hour lawsuit filings.

And state court cases are not to be forgotten. In 2016, wage & hour class actions filed in state court also represented an increasingly important part of this trend.  Most pronounced in this respect were filings in the state courts of California, Florida, Illinois, Massachusetts, New Jersey, New York, and Pennsylvania.  In particular, California continued its status in 2016 as a breeding ground for wage & hour class action litigation due to laxer class certification standards under state law, exceedingly generous damages remedies for workers, and more plaintiff-friendly approaches to class certification as well as wage & hour issues under the California Labor Code.  For the fourth year out of the last five, the American Tort Reform Association (“ATRA”) selected California as one of the nation’s worst “judicial hellholes” as measured by the systematic application of laws and court procedures in an unfair and unbalanced manner. Calling California one of the worst of the worst jurisdictions, the ATRA described the Golden State as indeed that for plaintiffs’ lawyers “seeking riches and the expense of employers …” and where “lawmakers, prosecutors, and judges have long aided and abetted this massive redistribution of wealth.”

 

SDFLAuthored by Christopher Kelleher and Noah Finkel

Seyfarth Synopsis: Federal court denies motion for conditional certification for a proposed class of employees working at separate Subway franchises.

Earlier this year, the DOL’s Wage-Hour Division issued a much-publicized Administrator Interpretation on what employers constitute joint employers, including an explanation of how two or more employers under common ownership can constitute “horizontal” joint employers.  As articulated by the WHD’s sweeping pronouncement, it appeared that virtually any jointly-owned entities might constitute joint employers, at least in the eyes of the WHD.

But in a victory for employers in the battle over joint employer status, a federal district judge in the Southern District of Florida recently denied a motion for conditional collective action certification for a group of Subway employees of different franchises with common ownership.  In Aguiar, et al. v. Subway 39077, Inc., Timothy E. Johnson, et al., plaintiff Yirandi Aguiar sought collective action certification for the overtime claims for all “Store Managers” working at approximately 38 Subway franchises owned and operated as separate corporate entities by Timothy Johnson in Southern Florida.

Applying the usual “fairly lenient standard” to determine whether conditional collective action  certification was warranted, the Court rejected Aguiar’s attempt to certify the collective on several levels.  First, the proposed collective was comprised of individuals employed by approximately 38 separate, non-party corporate entities.  Second, Aguiar only provided “Consent to Join” forms and affidavits from three individuals including herself, and thus failed to sufficiently show the existence of other employees who wished to opt into the action.

Third, and most significantly, even if Aguiar could satisfy these first two elements, the Court found that the putative plaintiffs were not similarly situated.  In making this determination, the Court noted that the individuals worked at separate corporate entities, and Aguiar did not show that she or other employees were authorized to sell or make sandwiches at any other of the 38 franchises.  Additionally, the franchises were spread throughout Southern Florida, and thus were not geographically concentrated.  And finally, Aguiar failed to provide information regarding a joint payroll department or joint supervision over the proposed collective action members.

This case demonstrates that even under the “lenient standard” described above, merely alleging common ownership over a number of franchises is not enough to show joint employment status or to obtain a broad conditional certification order.

Authored by Alex Passantino

The President’s FY2017 budget request seeks a nearly $50 million increase in the Wage & Hour Division’s budget.  This more than 20% increase would fund, among other things, 300 additional investigative staff — putting the number of WHD employees over 2,000 for the first time in recent memory.  WHD also seeks around $9 million for case management system upgrades and data analytics capabilities, stating its need for

a more in-depth understanding of industries, business models, and a more coordinated approach to conducting enforcement across networks of businesses, supply chains, or contracting relationships.  

Not surprisingly, WHD describes its focus on fissured industries, and specifically details the change in its investigative process:

WHD has also shifted its approach from one that focused on single establishments and resolving complaints, to one that proactively seeks to improve compliance across industries for greater numbers of workers.

Although not specifically referenced, WHD’s recent Administrator’s Interpretation on joint employment is part of the larger plan:

As businesses have contracted out work, sometimes through several layers of contractors, more parties have a role to play in ensuring compliance with labor standards.

The budget documentation also reminds the regulated community of WHD’s efforts on the regulatory side. First and foremost, of course, is WHD’s effort to revise the white-collar exemption regulations.  WHD also plans to focus on issuing a proposed regulation on the federal contractor sick leave Executive Order (currently at OMB for review), implementing its recent regulation related to home care workers, and enforcing the regulation addressing government contractor minimum wage.  Finally, WHD notes that it will “continue refining the requirements and implementation strategies for Executive Order 13673 — Fair Pay and Safe Workplaces.”  [This Executive Order, often referred to as the “blacklisting” Executive Order, would require prospective government contractors to report certain labor law violations to the government, which would use compliance records in making contracting decisions.]

Of course, the budget request is not likely to pass, given Republican control of Congress, the budget deal reached with the President on FY2017 spending levels, and the upcoming Presidential election. Nevertheless, it provides a clear road map of where WHD is headed . . . and what it would do in the unlikely event that it was funded at the requested levels.

 

Co-authored by Brett Bartlett and Kevin Young

As we predicted, the federal Wage and Hour Division has issued another edict that will have far-ranging effects on businesses across the U.S. economy, specifically those sharing employees with related operations or relying on third parties to perform or staff services that their own employees would otherwise carry out. On Wednesday, the WHD issued a new Administrator’s Interpretation that enunciates what its author, Dr. David Weil, describes as clear guidance regarding the standards for determining whether a business can be held jointly responsible with one or more other businesses for violating the pay and labor provisions of the FLSA and the Migrant Worker Protection Act. Here, we focus here on the FLSA.

Dr. Weil, who is the WHD Administrator, issued related guidance last summer in which he stated his agency’s position that almost all workers are employees, regardless of whether they work pursuant to a contract providing that they are anything but. Again noting that a contract between two or more businesses will not answer key questions inherent to the determination of employer-employee status, Dr. Weil has made clear that it is the economic realities of a business’s relationship with a given worker that is dispositive. In this most recent guidance, Dr. Weil examines two joint employment scenarios that will ring familiar with many businesses:

  • Horizontal Joint Employment: When two or more related businesses share an employee and thereby undertake obligations to pay her in accordance with federal law. For example, a nurse who works during a single week for three hospitals within the same hospital system is jointly employed by the three hospitals. This means if she works cumulatively more than 40 hours for the three hospitals, she would be entitled to overtime from all three, which would be jointly and severally liable for such pay under the FLSA.
  • Vertical Joint Employment: When a primary business becomes jointly responsible under the FLSA for the employees of an unrelated business because the economic realities demonstrate that it too employs such individuals. For example, if the nurse in the above example is employed directly by a staffing agency that the hospital system engages to provide nurses to its healthcare providers, then the hospital system might be deemed to be jointly and severally liable for violating the FLSA, along with the staffing agency and the three hospitals operating in its system, if the economic realities proved an employer-employee relationship between the hospital system and the worker.

The WHD has not previously enunciated standards tied to these horizontal and vertical employment scenarios. Dr. Weil does, however, strive in this week’s guidance to provide some clarity around what they mean. We have done our best to translate what some might describe as regulatory jargon into practical terms in our recent One Minute Memo.

As we explain in the Memo, an Administrator’s Interpretation is not entitled to judicial deference. It is not clear, in fact, that any court will heed the guidance that Dr. Weil attempts to provide. Certainly businesses should expect that some judges will treat his words as gospel. Others will not.

What is more certain is that plaintiffs’ lawyers and their clients will view the substance of the Administrator’s Interpretation as justifying claims made against tenuously-related businesses as they try to expand the scope of those from whom they might extract settlement dollars and, occasionally, judgments.

The more immediate impact that businesses must anticipate is that WHD investigators and their supervisors will aggressively examine relationships between related and unrelated businesses, aiming to assess whether the economic realities allow more than one business to be held responsible for employing and paying workers in compliance with the FLSA.

This WHD ruling is important. Businesses should take notice, regardless of the industry in which they operate. Our Memo provides some useful tips for reducing the risks that the Administrator’s Interpretation creates. We are here to discuss further preventative actions that any business can take.

Authored by Alex Passantino

‘Twas the week before Christmas, 2-0-1-5
When the poetry elves on the blog came alive.
Crafting their rhymes with a purpose so clear:
Presenting the wage-hour gems of the year.

In January, for new regs in this year our breath bated.
Then for six painful months, we speculated and waited.
And just as we geared up to celebrate Independence,
Out came a proposal that will create more defendants.

With a salary level that for 10 years has been flat,
They looked at New York’s and said “higher than that.”
More than double the old; and then they got clever …
The proposed sal’ry level will increase for forever.

Anticipated changes to duties caused quite a fuss
When DOL said “If you’ve got some ideas, just tell us.”
Of the Department’s proposal, employers were understandably wary,
So we wrote down some ideas on how to make it less scary.

Nearly 300 thousand comments they have to review,
It will be late into next year before they are through.

Next up on the list of your wage-hour joy,
Are the efforts to change what it means to employ:
ContractorsJoint employment. Fissured industry.
Interns. The “third way” and gig economy.

Economic realityRight to control.
They’re integral to your business? Now you’re in a deep hole.
So many angles, it can drive you berserk.
As agencies and courts figure out what is “work.”

And if divergent decisions bring you a sense of elation,
Then please focus attention on class certification.
Approvals, denials, and some decerts, too.
No matter the side, there’s a case for you.

But as summer approached, there arose quite a stir,
A case that’d explain what the class cert rules were.
A Supreme explanation, o my-o, o me-o
We’d learn about class via Bouaphakeo.

They’ve argued, but there’s no decision, not yet,
And a limited ruling on records might be all that we get.
But the cases keep coming. Their numbers broke the charts.
Whether giant class actions or cases broken in parts.

And the response to those filings? The employers’ retort?
A wide range of ways to get them out of court.

Some cases get mooted. Some cases do not.
At Genesis’s open question, SCOTUS might take a shot.
Does an offer of judgment that’s not been accepted
Mean the plaintiff cannot proceed with his class as expected?

Increasingly used as a litigation life saver
Arbitration agreements with a class action waiver;
And when asked if state laws could class waivers prevent, yo,
The Supremes laid the smack-down to dear Sacramento.

With all of these options, it comes as a surprise then,
That one resolution keeps on getting the Heisman.
For reasons that many cannot understand,
To settle wage claims courts think they must hold your hand.

That’s our year in review, we whipped you right through it.
Next year? The new regs and a mad dash to review it.
But before 2015 joins the past’s ranks,
You keep on reading our blog, and for that we give thanks!

THANKS TO ALL OF OUR READERS. BEST WISHES FOR A HAPPY, HEALTHY, AND PROSPEROUS NEW YEAR!

Co-authored by Richard Alfred and Patrick Bannon

The National Labor Relations Board’s decision in Browning-Ferris Industries of California, Inc., announced last week, dramatically expands joint employer liability under the National Labor Relations Act. A business can be found to be a joint employer of individuals, the Board concluded, even if the business has only unexercised potential power to control the individuals’ work indirectly. The Board argues that this broad concept of joint employment is necessary because otherwise an entity with real control over the economics of a business could insulate itself from the obligations of an employer by contracting with a third party to employ the workers who keep the business running. Seyfarth Shaw’s discussion of the ramifications of the Browning Ferris decision, for both unionized and non-unionized employers, is available here.

Wage and hour lawyers who treat the Browning-Ferris decision as simply a matter of traditional labor law overlook the potentially major significance of the decision for wage and hour law. Even though the NLRA and the FLSA embody different tests for identifying employer-employee relationships (common law v. eceonomic realities), the Wage and Hour Division will undoubtedly cite the NLRB’s expanded view of who can be a “joint employer” to support the Wage and Hour Division’s expected further efforts to expand the range of parties that may be found responsible for wage and hour violations.

The Wage and Hour Division is likely to argue that the NLRB’s increased readiness to recognize joint employers under the NLRA, which has always been understood to embody a more stringent common-law agency test for establishing joint employer status, supports a broad view of joint employment under the Fair Labor Standards Act’s “economic realities” test for whether an employment relationship exists. The NLRB’s majority labored to explain how its joint employer concept is consistent with the common-law agency test. The Wage and Hour Division is not constrained by the common law’s right to control test and is likely to be emboldened to adopted an expansive joint employer standard under the more flexible economic realties test.

Indeed, last month, the Wage and Hour Division issued an Administrator’s Interpretation addressing the distinction between employees and independent contractors under the FLSA. That guidance is noteworthy for emphasizing the importance of whether an individual’s services are an integral part of a company’s business and downplaying the importance of whether the business controls an individual’s work. The Administrator’s view of what constitutes an employment relationship–if the courts accept it–would potentially support a joint employer doctrine that is dramatically broader than employers have seen to date and that could be used by the DOL and aggressive plaintiffs’ lawyers to pursue businesses for wage and hour violations involving individuals with whom the defendant companies have never had a direct relationship.

The Administrator of the Wage and Hour Division has long expressed concern about what is termed the “fissuring” of the employment relationship. At the heart of this concept, is the notion that business giants profit from the services of individuals who are direct employees of third-party companies, usually lower on the economic totem-pole. For example, the employees who run hotels and restaurants are often employees of local franchisees, not of the well-known national companies whose names are on the door. Similarly, the employees who work in a call center or distribution center are often employees of a staffing company, not of the business whose customers they help or whose products they handle.

The Wage and Hour Division has adopted a strategic enforcement plan that seeks to hold top-level companies responsible for wage and hour compliance as to the individuals who work in their business sector–regardless of whether a direct employment relationship exists. As the Wage and Hour Division appears to see things, a broad joint employer theory is essential to its efforts to target supposedly deep-pocketed national companies. Businesses that could be vulnerable to joint employer claims include suppliers, contractors, lessors, private equity and venture capital investors, companies that outsource work, staffing agencies, franchisors, creditors, and parent entities that have subsidiary businesses.

The combination of the Browning-Ferris decision and the Wage and Hour Division’s recent independent contractor guidance should serve as a warning to businesses in general to assess their potential exposure to wage and hour claims based on a joint employer theory. Assessments of this type should start with a close examination of contractual relationships with third-party employers to determine whether changes can be made to those agreements to reduce the risk of joint employer liability under the expanded definition of that term adopted by the NLRB and likely on the horizon from the Wage and Hour Division.

We will continue to report in the months ahead on developments regarding the joint employer issue and its impact on wage and hour law.

SDNY.jpgAuthored by Robert Whitman

Advocates for interns seeking wage payments under federal and NY law received some welcome news this week with the decision in Glatt v. Fox Searchlight Pictures, Inc. [here].  As we have discussed previously [See here, here, here], Glatt is one of a number of recent cases brought on behalf of interns, paid or unpaid, who allege that they should have been classified as employees and entitled to receive minimum wage (and, if applicable, overtime).

Just a few weeks ago, the trendlet of internship filings may have appeared to be waning after a decision denying class certification in a case involving interns for a number of Hearst publications [See here].  The Glatt decision – a grant of summary judgment on the merits – is sure to ease the sting for plaintiffs of the loss in Hearst, and signals that employers should not be complacent or expect this wave to subside any time soon.

Glatt involved interns who worked on production of the film Black Swan.  Judge William Pauley of the Southern District of New York, after first deciding a complex issue of joint-employment and dismissing one intern’s claims (under California law) as untimely, held that the interns should have been classified as employees and paid wages under the FLSA and NY Labor Law.

The court applied the six-factor test articulated by the U.S. Department of Labor for determining whether a worker is a bona fide intern [See here].  In deferring to the DOL factors, the judge refused to adopt the “primary beneficiary” test advocated by the defendants and adopted by other courts.  Under that test, the court decides whether the benefits of the internship accrue more to the intern than to the engaging entity.  Judge Pauley said that test is “subjective and unpredictable,” such that “an employer could never know in advance whether it would be required to pay its interns.”

The court then held that five of the six DOL factors weighed in favor of employee status for the Black Swan interns.  Specifically:

  • they did not receive any formal training or education during the internship;
  • they benefitted from the experience only in a manner “incidental to working in the office like any other employee” and not as “the result of internships intentionally structured to benefit them”;
  • they “performed routine tasks” – such as filing, taking lunch orders, and answering phones – that “would otherwise have been performed by regular employees”;
  • the company “obtained an immediate advantage” from the interns’ work; and
  • the interns did not appear to be entitled to a job at the end of the internships.

As to the sixth factor – whether the interns were paid – the court acknowledged that the interns “understood they would not be paid,” but said this factor “adds little,” since the FLSA does not allow employees to waive their entitlement to wages.

While other courts may not follow Judge Pauley’s lead, Glatt is sure to serve as a roadmap for plaintiffs’ counsel who are looking to capitalize on the recent growth (if anecdotal reports are to be believed) of internships in private-sector workplaces as a consequence of the sluggish job market.

The case should thus be an object lesson for employers:  the mere fact that a worker is labeled an “intern,” and is willing to work for free (or work for pay without getting minimum wage and overtime premiums), is not by itself enough to remove the worker from the coverage of wage-hour laws.  After Glatt, careful compliance remains as important as ever.

3rdCircuit-Seal.pngCo-authored by Timothy F. Haley and John W. Egan

Plaintiffs often attempt to impose liability on parent corporations for Fair Labor Standards Act (“FLSA”) violations allegedly committed by their subsidiaries.  They do so by arguing that the parent is a joint employer of its subsidiaries’ employees.  That strategy has just become more difficult for plaintiffs, at least those filing in the Third Circuit.  On June 28, 2012, that Court of Appeals affirmed the District Court’s decision awarding summary judgment in favor of Enterprise Holdings, Inc. (“Enterprise Holdings”) on the grounds that Enterprise Holdings was not the joint employer of its subsidiaries’ employees.  In Re Enterprise Rent-a-Car [“Enterprise”] Wage & Hour Employment Practices Litigation.

Enterprise is a consolidated nationwide collective action in which the plaintiffs allege that Enterprise Holdings and its subsidiaries violated the FLSA by failing to pay their assistant branch managers required overtime wages.  Enterprise Holdings is the sole shareholder of 38 subsidiary companies using the “Enterprise” brand.  These subsidiaries operated branches located throughout the United States.   The Board of Directors for each of the subsidiaries consisted of the same three people, and each of these individuals also served on the Board of Directors of Enterprise Holdings.  Plaintiffs alleged that Enterprise Holdings was the joint employer of its subsidiaries’ employees and, therefore, was liable for the alleged FLSA violations.  The district court disagreed and granted Enterprise Holdings’ motion for summary judgment.

The Third Circuit decided that the following non-exclusive factors should be considered when determining whether an entity is a joint employer under the FLSA: whether the putative employer (1) had the authority to hire and fire the employees in question; (2) had the authority to promulgate work rules and assignments and set the employees’ conditions of employment, including compensation, benefits, and hours; (3) was involved in day-to-day employee supervision, including discipline; and (4) has control of employee records, including payroll, insurance or taxes.  The court entitled this the “Enterprise test.”

The court applied this analytic framework to the facts presented and concluded that Enterprise Holdings was not a “joint employer.”  The Third Circuit agreed with the district court that Enterprise Holdings did not have authority to hire or fire assistant branch managers, promulgate work rules or assignments, or set compensation, benefits, schedules, or rates or methods of payment.  It was also not involved in employee supervision or employee discipline, and did not exercise any control over employee records.

The court noted that Enterprise Holdings did make human resource services available to its subsidiaries, including job descriptions, best practices and compensation guides.  The best practices included recommendations as to which employees should be salaried and which employees should receive an hourly wage.  The plaintiffs argued that the policies and guidelines provided by Enterprise Holdings were not merely suggestions but in fact were mandatory, particularly in light of the shared Board members.  The court rejected this argument, however, finding that it was not supported by the record.  On this basis, the Third Circuit affirmed the district court’s award of summary judgment.

The Third Circuit’s decision in Enterprise is helpful to employers.  First, it affirms the district court’s summary judgment decision, even though the joint employer analysis is fact specific.  The court expressly rejected the plaintiffs’ argument that there was a material issue of fact in dispute over whether the policies and guidelines provided by Enterprise Holdings were suggested or required.  It is not unusual for parent corporations to provide human resources support to their subsidiaries and to share members of their boards of directors.  This case holds that these facts alone are insufficient to establish joint employer status, at least in cases where the guidelines and policies are merely suggested and are not mandatory.

Also, plaintiffs frequently argue that parent companies are the joint employers of their subsidiaries’ employees in an attempt to certify a nationwide collective action class.  While it is theoretically possible to certify a nationwide class even if the parent is not a joint employer, it is far more challenging to do so if the parent can obtain a summary judgment ruling on that issue.  Defendants should investigate whether there is an opportunity to obtain such a ruling even at the pleading stage.

Authored by Rob Carty

It’s been said that when you can’t break through an obstacle, try going around it.  That’s exactly what the plaintiffs tried to do (unsuccessfully) in an FLSA case recently decided by the Tenth Circuit Court of Appeals.  Dennis v. Watco Companies, Inc., No. 10-6079 (10th Cir. Jan. 21, 2011).

The plaintiffs, two railway employees, filed a collective-action lawsuit to recover unpaid overtime compensation under the FLSA.  But they faced a critical problem:  They were railway employees, and the FLSA expressly exempts from its overtime requirements “any employee of an employer engaged in the operation of a rail carrier.”  29 U.S.C. § 213(b)(2).  Knowing that this exemption threatened to preclude their claims, the plaintiffs concocted a strategy to neutralize it. 

Instead of suing their respective employers—two rail carriers—they took aim at Watco, the parent corporation that ultimately owned both companies.  The plaintiffs tried to justify their strategy with a two-part argument:  first, that Watco and the railway companies were joint employers, thus making Watco liable for overtime pay; and second, that Watco could not assert the rail-carrier exemption because it was not itself a rail carrier.  Without the exemption, the plaintiffs reasoned, they could proceed with their suit.

The district court rejected the plaintiffs’ arguments and, finding that the rail-carrier exemption plainly applied, dismissed the case at the outset.  The plaintiffs appealed to the Tenth Circuit, which agreed with the district court and affirmed the dismissal.  Citing the plaintiffs’ own pleadings, the Court found that they worked for rail carriers and performed railroad work; and that for this reason alone, the rail-carrier exemption barred their claims.  It didn’t matter  whether Watco was a rail carrier—in FLSA parlance, the plaintiffs were “employee[s] of an employer engaged in the operation of a rail carrier,” and thus were subject to the exemption. 

Because it didn’t matter whether Watco was a carrier, the Court didn’t have to decide the joint-employment issue; the same result would have occurred either way.  The plaintiffs also tried a few other arguments—none worth mentioning here—but the Tenth Circuit rejected them all.  Ultimately, the Tenth Circuit simply relied on the FLSA’s plain language and rebuffed the plaintiffs’ attempts to get around it.  Some obstacles are just too big to avoid.