In In re Enterprise Rent-A-Car Wage & Hour Employment Practices Litigation, 2012 U.S. App. LEXIS 13229 (3d Cir. June 28, 2012), the Third Circuit Court of Appeals established a new test for determining whether a joint employment relationship exists under the Fair Labor Standards Act ("FLSA"). The 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. In such “joint employment” situations, all of the employers are required to comply with the FLSA’s overtime requirements.
Background of the Enterprise Case:
A former assistant branch manager of Enterprise Rent-a-Car Company of Pittsburgh 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. A collective action was brought on behalf of all current and former assistant branch managers at all Enterprise Rent-a-Car locations.
Test for Determining Whether a Joint Employment Relationship Exists Under the FLSA:
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 Third Circuit adopted the following test for determining whether the necessary level of control exists to deem a party a “joint employer”:
In determining whether joint employment exists, courts must first consider the alleged employer’s:
- authority to hire and fire employees;
- authority to promulgate work rules and assignments and set conditions of employment, including compensation, benefits and hours;
- day-to-day supervision, including employee discipline; and
- control of employee records, including payroll, insurance, taxes, and the like.
The Third Circuit emphasized that these four factors were not to be viewed as exhaustive and that they should not be “blindly applied.” Rather, courts must also consider any other indications of “significant control” over the employee by the alleged employer which may be persuasive to a finding of joint employment when viewed with the above factors.
Outcome of the Enterprise Case:
Applying this newly articulated test to the facts of the Enterprise case, the Third Circuit concluded that Enterprise Holdings, Inc. was not a joint employer because it did not have: authority to hire or fire assistant managers; authority to promulgate work rules or assignments; authority to set compensation, benefits, schedules or rates or methods of payment; involvement in employee supervision or discipline; or control over employee records.
Courts within the Third Circuit (New Jersey, Pennsylvania and Delaware) will apply the Enterprise test going forward. As this articulated test shows, the analysis to be conducted by such courts remains fairly flexible, highly fact sensitive and always case specific. Moreover, courts are not limited to consideration of the four factors set forth within the test, but, rather, are required to look at other indicia of significant control. Accordingly, employers with parent/subsidiary/affiliate relationships should be aware of the Enterprise decision and its potential effect on their entities, and any employers that may be unsure of their joint employer status should consult with employment counsel to determine whether or not joint employer liability may exist and/or may be avoided. Further, any parent entities that require its subsidiaries to adopt particular policies or practices should have such arrangements/requirements reviewed by legal counsel to avoid any unintended FLSA liability in light of this decision.