The federal appellate court with jurisdiction over Indiana recently addressed the “joint employer” issue under the Family and Medical Leave Act (FMLA) for the first time. According to the Seventh Circuit Court of Appeals, the worker’s FMLA retaliation claim was properly dismissed because she failed to establish that the non-profit corporation she worked for was a joint employer with the city and county that financed and sponsored the corporation. Moldenhauer v. Tazewell-Pekin Consolidated Communications Center, et al., No. 07-1118, Seventh Circuit Court of Appeals (July 31, 2008).

Factual Background

The City of Pekin and the County of Tazewell, both in Illinois, created a non-profit corporation in 1976 to provide emergency 911 communication services at an affordable rate. The non-profit corporation, Tazewell-Pekin Consolidated Communications Center (referred to as “Tazcom”), provides service to 38 public and private entities.

Denise Moldenhauer began working at Tazcom in 1983. After Moldenhauer was diagnosed with chronic pancreatitis in 1991, she began to miss work because of acute flare-ups. As her illness progressed, she missed additional time from work. In 1998, Tazcom’s Executive Director, Steve Thompson, began to express his concern over the amount of work being missed.

In May 2002, Moldenhauer notified Thompson that she wanted to take a leave of absence under the FMLA. That request was denied, and Moldenhauer filed a complaint with the Department of Labor (DOL). The DOL investigated the issue, and sent a preliminary letter designating the City, the County, and Tazcom as “joint employers” under the FMLA. In January 2003, Thompson suspended Moldenhauer for 20 days due to absenteeism, and ultimately terminated her employment in April of that year, when she continued to miss work.

Moldenhauer filed suit in federal court against the City, the County, and Tazcom, alleging violation of the FMLA. The trial judge granted summary judgment for defendants, finding that neither the City nor County controlled Moldenhauer’s work, and that Tazcom did not have a sufficient number of employees to be held liable under the FMLA. Moldenhauer appealed this decision to the Seventh Circuit Court of Appeals.

Legal Analysis

The FMLA makes it unlawful for any employer to interfere with an employee’s rights under that Act. Although the Act itself does not address situations in which multiple entities may be viewed as “joint employers” for purposes of the FMLA, the DOL has issued regulations outlining the situations in which joint-employer liability may be found. Those situations typically involve circumstances in which an individual employee has a relationship with more than one company, including, for instance, the assignment by a placement agency of a temporary/contract employee to a second entity. If the placement agency determines the rate and method of pay, while the second company determines the work schedule and amount of supervision needed, those two companies might be deemed to be “joint employers” for purposes of the FMLA. This issue becomes especially important when one of the two entities has less than the requisite “50 employees within a 75-mile radius” to fall within the purview of the FMLA, but when added to the second company, falls within the applicable number of employees.

The Seventh Circuit agreed with the trial judge and refused to extend joint-employer liability in this case. The court’s decision was premised on the fact that although the bulk of Tazcom’s operating funds are derived from the two municipal entities, that its offices are in space rented from the City, that its employees contract with the City for health and life insurance, and that its payroll was managed by the City, Tazcom is run by an Executive Director unaffiliated with either the City or Tazewell County. The Executive Director manages the day-to-day operations, including assignments and schedules, hiring and firing of employees, and the creation of a budget for the operation of Tazcom.

Although multiple entities can be viewed as joint employers when each share the employee’s services or exert control over those services, in this case, neither the City nor the County was involved in Moldenhauer’s actual work. Therefore, the Seventh Circuit concluded that the number of individuals employed directly by Tazcom (23) could not be consolidated with any other entity to create the requisite number of employees necessary to trigger FMLA liability. On that basis, the court affirmed summary judgment in favor of the defendants, and dismissed Moldenhauer’s FMLA claim.

Practical Impact

According to Steven Pockrass, a shareholder in Ogletree Deakins’ Indianapolis office: “This case should be of particular interest to companies that ‘share’ employees with a placement agency or other potential joint employer. An entity with no direct involvement or control of an individual’s actual work is not likely to be deemed a joint employer. However, such entities also should be aware that under the rationale of this case, a company may be considered a joint employer by reason of its control of any aspect of an individual’s work, whether or not that control includes the ability to hire or fire the employee. Based on that fact, specific attention should be paid to issues related to leaves of absence that might implicate FMLA rights and obligations, whether or not a company is the direct employer of the individual requesting the leave.”

Note: This article appeared in the August 28, 2008 issue of the Indiana eAuthority.