New Joint Employer Test for FLSA Cases

An interesting case from the Third Circuit raises a seldom litigated feature of the FLSA, albeit a critical one.

Unlike some other employment laws, notably Title VII, the ADEA, and the ADA, the FLSA (and its cousin, the FMLA) has a very broad definition of the term "employer." Individual supervisors can be employers under the FLSA, as can corporate entities up or down the line of the corporate entity actually employing the plaintiff.

That was the situation in this case. The Court was confronted with a type of joint employer claim in the form of a rental car company (a holding company) that used some 38 separate leasing organizations, all under the umbrella of the corporate parent. The parent provided services in the form of business guidelines, benefits plans, car rental reservation tools, insurance, technology and legal support. The business guidelines were communicated directly to the subsidiaries' employees in the form of a corporate manual. The holding company also offered HR services, including recommended pay scales and wage rates, to the subsidiaries. But the use of the services was optional to each of the subsidiaries, and the subsidiaries paid for each of the services that they used or subscribed to.

Assistant branch managers for the 38 subsidiaries sued collectively under the FLSA for overtime wages, claiming they were improperly categorized as "exempt" employees who are not entitled to overtime, and instead work on a fixed salary basis. Noteworthy is the fact that the holding company had previously recommended that the subsidiaries consider the assistant managers "exempt" and not pay them overtime. The assistant managers sued their subsidiaries and the holding company, claiming that the holding company was an employer under the FLSA. The holding company denied liability, saying that it was not an FLSA employer because it did not involve itself sufficiently in the day-to-day operations of the individual leasing companies.

The Court determined that the holding company was not an employer, based on its review of the facts, as measured against the standard the Court fashioned for this case. The factors in measuring the employer status in a joint employment circumstance are whether the alleged employer has:

Authority to hire and fire employees;
Authority to determine work rules and assignments, and set conditions of employment (e.g., compensation, benefits, hours and work schedules, including the rate and method of payment);
Day-to-day supervision of the workforce, including employee discipline; and
Control of employee records, including payroll, insurance, taxes, and the like.

While this list looks relatively straightforward, the Court said that each situation will be different, and there may be factors militating strongly one way or the other that are not contained in the formal list. One of the keys here was that the holding company sold its services, and that the policies that it did put forth were not binding on the subsidiaries. Companies should note that less entanglement in actual supervision of employees, and the use of recommended rather than mandatory policies, is a good way to maintain enough legal distance from subsidiary employees to avoid wage and hour liability. This is one of those legal areas where it would be smart to consult your employment counsel before making any final determinations.