The Third Circuit recently established a new test for determining if a joint employer relationship exists under the Fair Labor Standards Act (“FLSA”). Among other things, the FLSA requires employers to pay non-exempt employees overtime (at the rate of time and one-half) for all hours in excess of 40 hours in a workweek and defines which employees are exempt and not exempt from overtime. In pursing claims for overtime, employees (like the employees in this case) may sue not only their actual employer but other entities that they allege are joint employers and fall within the definition of employer under the FLSA.

In the instant case, assistant managers of several Enterprise Rent-A-Car locations claim they were improperly classified as exempt from overtime pay. These employees sued not only individual subsidiaries but also Enterprise Holdings, Inc. (a parent company). The Third Circuit held that the parent was not a joint employer of these plaintiffs who were employed by subsidiaries for purposes of the FLSA.

In this landmark decision, the Third Circuit established the Enterprise Test, which for the first time clearly articulates the standard for identifying a joint employer under the FLSA. The Court suggested balancing the following non-exhaustive list to determine whether the alleged joint employer has:

  • ability to hire and fire employees;
  • ability to promulgate work assignments, rules and set conditions of employment, including compensation, benefits, and hours;
  • daily employee supervision, including employee discipline; and
  • control of employee records, including payroll, taxes, and insurance.

In applying the test to Enterprise, the Court found that a joint employment relationship did not exist, although Enterprise was the sole stockholder of 38 domestic subsidiaries. Enterprise had no authority to hire, fire, or promulgate work rules or assignments for the assistant managers. Enterprise also had no authority to set compensation, benefits, schedules or rates. Enterprise had no involvement with employee discipline or supervision and did not control employee records. Although Enterprise did provide subsidiaries with access to services and guidelines regarding business practices, insurance, reservation tools, and some human resources, the Court was not persuaded that these services established a joint employment relationship. Instead, the Court found these policies and practices to be at most suggestions, similar to advice given by a third-party consultant.

This is an important decision for employer parent companies and subsidiaries and has provided more clarity in determining if a joint employment relationship exists. Parent companies should be careful to limit the amount of control over subsidiaries or risk facing potential liability as a joint employer under the FLSA. Also, subsidiaries may not take for granted that parent companies will be automatically viewed as joint employers.