Plaintiffs in FLSA litigation often file suit against additional entities and parties beyond their primary or W-2 employer. One common allegation is that the corporate parent of an employing subsidiary is a “joint employer.” This can impact not only which entities are liable for any FLSA violation (where a joint employer relationship is found), but also the scope of any class or collective action, as the corporate parent is alleged to be the joint employer of not only one subsidiary, but all. The Court of Appeals for the Third Circuit has rejected one such sweeping allegation, upholding a District Court finding that the corporate parent of Enterprise Rent-A-Car’s operating companies (Enterprise Holdings, Inc.) was not a “joint employer” of assistant managers employed by the 38 operating subsidiaries. In re Enter. Rent-A-Car Wage & Hour Empl. Practices Litig., 2012 U.S. App. LEXIS 13229 (3d Cir. 2012).
In Enterprise, plaintiffs alleged that Enterprise Holdings exercises control over the policies of the 38 subsidiaries (including employment policies) and thus over assistant managers across the 38 subsidiaries, all of whom (plaintiffs urged) should be included in a single massive collective action lawsuit alleging misclassification as exempt. In affirming the District Court’s rejection of this theory, the Third Circuit articulated for the first time the standard it will apply to determine if there is joint employment under the FLSA, namely whether: “1) the alleged employer's authority to hire and fire the relevant employees; 2) the alleged employer's authority to promulgate work rules and assignments and to set the employees' conditions of employment: compensation, benefits, and work schedules, including the rate and method of payment; 3) the alleged employer's involvement in day-to-day employee supervision, including employee discipline; and 4) the alleged employer's actual control of employee records, such as payroll, insurance, or taxes.” The Court then observed that there was no evidence that “Enterprise Holdings, Inc.'s actions [in recommending policies or practices to the subsidiaries] at any time amounted to mandatory directions rather than mere recommendations,” and, thus, no evidence to support a joint employer finding under any of the factors it identified as relevant to the analysis.
Enterprise is a welcome victory for Third Circuit employers (those in Pennsylvania, New Jersey and Delaware), especially those utilizing a similar corporate structure while simultaneously seeking to limit FLSA (and other employment liability) to individual subsidiaries. Corporate parents, franchisors and other non-operating entities exerting any business influence over operating corporations must continue to use discretion in their directives to those entities and those entities’ employees, to avoid assertions that the level of control exerted is distinguishable from the level found to exist in Enterprise.