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.