Third Circuit Establishes Joint Employment Test

In late June, the U.S. Court of Appeals for the Third Circuit considered the broad definition of “employer” under the Fair Labor Standards Act (FLSA) to determine when two employers jointly employ an employee, an issue that has been arising with increasing frequency as plaintiffs' lawyers seek to file sweeping collective actions encompassing parent corporations, subsidiaries, and affiliated entities.

The decision in In re Enterprise Rent-A-Car, No. 11-2883 (June 28 2012), announces a new test ' which the court dubbed “the Enterprise test” ' for determining joint employment under the FLSA. Drawing on its existing test for joint employment under the National Labor Relations Act (NLRA) and the Ninth Circuit's FLSA joint employment test set forth in Bonnette v. California Health & Welfare Agency, the Third Circuit instructed lower courts to analyze the following factors when considering whether a joint employment relationship exists:

• Authority to hire and fire.
• Authority to promulgate work rules and assignments and set employees' conditions of employment (compensation, benefits, and work schedules, including the rate and method of payment).
• Involvement in day-to-day employee supervision, including employee discipline.
• Actual control of employee records, such as payroll, insurance, or taxes.

A Balanced Approach

Emphasizing that application of the Enterprise test requires a balanced approach, the Third Circuit cautioned that the factors should not be “blindly applied,” and said that courts also may consider “other indicia of 'significant control'” that might suggest a joint employment relationship.

The Third Circuit then applied its newly crafted test and held that Enterprise Holdings, Inc. ' the parent company and sole stockholder of 38 domestic subsidiaries ' was not a joint employer of the subsidiaries' assistant managers. Because Enterprise Holdings lacked the authority to hire or fire employees, promulgate work rules or assignments, or set compensation or benefits, and had no involvement in daily supervision or control over employment records, the Third Circuit found that Enterprise Holdings did not exert control over the assistant managers sufficient to make it a joint employer.

Conclusion

While the Third Circuit's decision provides guidance for courts and employers in assessing whether joint employment liability exists, the court's decision, not surprisingly, ultimately centers on the degree of control exercised by a putative joint employer. Entities that seek to avoid FLSA joint employment liability should evaluate the factors enunciated by the Third Circuit to assess the degree of control exerted over putative employees.

Daniel V. Johns is a partner in Ballard Spahr's Litigation Department, Practice Leader of the Higher Education Group, and a member of the Labor and Employment Group and Health Care Group. Kelly T. Kindig is an associate with the firm.

In late June, the U.S. Court of Appeals for the Third Circuit considered the broad definition of “employer” under the Fair Labor Standards Act (FLSA) to determine when two employers jointly employ an employee, an issue that has been arising with increasing frequency as plaintiffs' lawyers seek to file sweeping collective actions encompassing parent corporations, subsidiaries, and affiliated entities.

The decision in In re Enterprise Rent-A-Car, No. 11-2883 (June 28 2012), announces a new test ' which the court dubbed “the Enterprise test” ' for determining joint employment under the FLSA. Drawing on its existing test for joint employment under the National Labor Relations Act (NLRA) and the Ninth Circuit's FLSA joint employment test set forth in Bonnette v. California Health & Welfare Agency, the Third Circuit instructed lower courts to analyze the following factors when considering whether a joint employment relationship exists:

• Authority to hire and fire.
• Authority to promulgate work rules and assignments and set employees' conditions of employment (compensation, benefits, and work schedules, including the rate and method of payment).
• Involvement in day-to-day employee supervision, including employee discipline.
• Actual control of employee records, such as payroll, insurance, or taxes.

A Balanced Approach

Emphasizing that application of the Enterprise test requires a balanced approach, the Third Circuit cautioned that the factors should not be “blindly applied,” and said that courts also may consider “other indicia of 'significant control'” that might suggest a joint employment relationship.

The Third Circuit then applied its newly crafted test and held that Enterprise Holdings, Inc. ' the parent company and sole stockholder of 38 domestic subsidiaries ' was not a joint employer of the subsidiaries' assistant managers. Because Enterprise Holdings lacked the authority to hire or fire employees, promulgate work rules or assignments, or set compensation or benefits, and had no involvement in daily supervision or control over employment records, the Third Circuit found that Enterprise Holdings did not exert control over the assistant managers sufficient to make it a joint employer.

Conclusion

While the Third Circuit's decision provides guidance for courts and employers in assessing whether joint employment liability exists, the court's decision, not surprisingly, ultimately centers on the degree of control exercised by a putative joint employer. Entities that seek to avoid FLSA joint employment liability should evaluate the factors enunciated by the Third Circuit to assess the degree of control exerted over putative employees.

Daniel V. Johns is a partner in Ballard Spahr's Litigation Department, Practice Leader of the Higher Education Group, and a member of the Labor and Employment Group and Health Care Group. Kelly T. Kindig is an associate with the firm.