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.

A Joint Employer But Not a Cat's Paw

A recent federal case out of the Northern District of Illinois has some important points for employers that place their employees in another company's facilities, and for the companies that receive and monitor those workers. The decision sets several important standards for so-called "joint employers", and is worth a look.

Plaintiff, a black female, worked for a janitorial service, which assigned her to clean offices of a specific customer company in a building in Chicago. Although her employer was the janitorial service, her cleaning performance was monitored on a day-to-day basis by a management employee of the customer. The customer manager had significant control over the working conditions of the plaintiff, to the extent that he was able to request that she be assigned to a specific position, as well as directing her to perform additional tasks, and monitoring complaints about the plaintiff's performance from other customer employees. Ultimately, complaints about the plaintiff sleeping in a conference room reached the point that the customer manager sent a message to the janitorial service, saying that the plaintiff was no longer allowed to work in the building.

The janitorial service attempted to reassign the plaintiff, but it did not have a permanent position for her and assigned her to a position that caused her to lose her union seniority, and employee benefits. The plaintiff ultimately resigned, and sued both the janitorial service and the customer for race discrimination.

Both the janitorial service and the customer filed for summary judgment, seeking to get the case dismissed before trial. The janitorial service argued that there was insufficient evidence to show that it was motivated by race in its employment decisions; the customer argued that it could not be liable because it was not the plaintiff's employer.

The judge initially ruled that the customer could be found liable as an employer, because it was responsible for demonstrating to the plaintiff how she was to clean its offices, because the customer directed her to perform additional tasks and because the customer had the power to stop the janitorial service employees for working for it and to request the services of specific employees. Although the customer did not provide pay and benefits, and did not have the responsibility for costs of the operation, the degree of its control over the day-to-day workings of the plaintiff and her coworkers was significant enough that the court determined that the issue should go to a jury. The court also determined that the differences between the way the customer allegedly treated the plaintiff, and the way other non-African-American employees were treated raised issues of fact that required the discrimination claim to go forward.

But there was a different result for the janitorial service, which, remember, was actually paying the plaintiff and carried her on its rolls as an employee. The evidence here showed that the janitorial service was simply told that the plaintiff was not allowed in the customer's offices anymore. It reacted appropriately, placing her in the only available position that it had. The court specifically stated that the fact that the janitorial service did not conduct an investigation before it demoted her (and therefore might have made an incorrect demotion decision) was irrelevant because, "Title  VII sanctions employers who discriminate, not those who are simply inept or incompetent."

What about the argument that the janitorial service was simply channeling the alleged discriminatory animus of this customer? It's pretty well settled law that a company's desire to cater to the perceived racial preferences of its customers is not a defense under Title VII. But here, the court noted that the janitorial service had no idea that the plaintiff's race was a factor; all it knew was that the plaintiff was no longer allowed in the customer's offices. Thus, there was no intent to carry forward the alleged racial bias of the customer, and therefore, no liability.

Finally, the court stated that there was no cat's paw liability here (see the post in Simians and Feline Appendages, below, for a detailed discussion of this theory of liability), because the cat's paw circumstance doesn't apply when the discriminatory animus is coming from another company under circumstances that effectively removes discretion from the alleged cat's paw employer. Here, the janitorial service had no other option but to demote the plaintiff when she was no longer allowed to work at the customer's offices.

This is a noteworthy decision for several reasons, but the case mainly stands for the proposition that employers that have outside contractors in their workspace need to monitor what is actually going on in terms of their supervisors' oversight of contractor workers assigned within their facilities.  It's far too easy under these circumstances to become an employer of the contractor personnel, whether a company means to or not.