Court Narrows Definition of “Joint Employers” in Class Action Lawsuits

A recent ruling in the Third Circuit will make it harder for plaintiffs to include parent companies, subsidiaries, and affiliated companies in class action employment lawsuits.

Some background, from law firm McNees Wallace & Nurick:

“As in most types of class-based litigation, plaintiffs in Fair Labor Standards Act (FLSA) collective actions typically seek certification of as broad a class as possible. As the number of potential class members grows, so does the size of the employer’s potential liability and the plaintiffs’ leverage to obtain a large and lucrative settlement. One way to broaden the class size is to include employees of the employer’s sister companies in the class, under the theory that the sister companies’ parent company qualifies as the plaintiffs’ ‘joint employer.’”

That’s what plaintiff Nickolas Hickton did when he sued Enterprise Rent-a-Car and its parent Enterprise Holdings for unpaid overtime. Law firm Proskauer Rose:

“… Hickton – a former assistant branch manager at the Enterprise-Rent-a-Car company of Pittsburgh – filed a nationwide collective class action under the FLSA in the Western District of Pennsylvania. Hickton alleged on behalf of the class that Enterprise Rent-a-Car and its parent company, defendant Enterprise Holdings, failed to pay him and the class members overtime wages.”

The district court that first heard the case dismissed the claims against Enterprise Holdings, ruling that the parent company was not a joint employer and accordingly not liable for the FLSA overtime claims. The Third Circuit Court of Appeals agreed, and in doing so established a new test for determining whether a joint employment relationship exists, writes law firm Schnader:

“In reaching [its] conclusion the Third Circuit applied a new four factor test to examine whether a purported joint employer exerts sufficient direct control to be potentially liable as an employer of workers more directly employed by another entity. The new Enterprise test asks ‘does the alleged employer have: (1) authority to hire and fire employees; (2) authority to promulgate work rules and assignments and set conditions of employment, including compensation, benefits, and hours; (3) day-to-day supervision, including employee discipline; and (4) control of employee records, including payroll, insurance, taxes, and the like.’”

The ruling is good news for employers because it could potentially apply to a much broader range of employment law suits than those involving the Fair Labor Standards Act. Law firm Littler explains:

“Because the Third Circuit emphasized that the Enterprise test represents the most permissive test for joint-employer status, companies facing joint-employer claims under other statutes, such as Title VII, may argue that, if the plaintiff cannot satisfy the Enterprise test for joint employer status under the FLSA, he cannot satisfy the more difficult test for joint-employer status under other statutes. This is significant because the law in the Third Circuit for determining joint-employer status under Title VII and other statutes is not thoroughly developed. The Enterprise test therefore gives companies a new tool for arguing by analogy in non-FLSA cases that joint-employer status does not exist.”

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