Labor: The 3rd Circuit adopts a joint employer test to determine FLSA liability

The court’s distinction between recommendation and control allows significant involvement in subsidiaries’ affairs

In a case of first impression (In re Enterprise Rent-A-Car Wage & Hour Employment Practice Litigation), the 3rd Circuit provided employers, particularly parent entities, some much-needed guidance regarding joint employment relationships under the Fair Labor Standards Act (FLSA). The court adopted a revised version of a test created by the 9th Circuit (which the 1st and 2nd Circuits adopted) to address the joint employment issue.  According to the Enterprise test, the focal point of the joint employment analysis under the FLSA is the alleged ability of the employer to control, either directly or indirectly, the employees of another entity.

Enterprise Holdings, Inc. wholly owns 38 car rental subsidiaries throughout the U.S. Several assistant branch managers employed by the subsidiaries filed collective action lawsuits across the country claiming that their respective employers failed to pay them overtime wages in violation of the FLSA by misclassifying them as exempt. The plaintiffs sought national class certification and included Enterprise as a defendant.

The district court held that Enterprise did not jointly employ the plaintiffs because “each individual subsidiary can choose to use any or all of these guidelines or services in its own discretion; none of these guidelines or services are mandatory.”

On appeal, the 3rd Circuit agreed. This court concluded that “where two or more employers exert significant control over the same employees—whether from the evidence it can be shown that they share or co-determine those matters governing essential terms and conditions of employment—they constitute ‘joint employers’ under the FLSA.” Ultimately, to determine whether a potential joint employment relationship exists, courts must consider:

Contributing Author

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Christine McLaughlin

Christine Liu McLaughlin is a shareholder in Godfrey & Kahn, S.C.'s Labor & Employment Law Practice Group in the Milwaukee office and is chair of the firm's...

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Contributing Author

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Rufino Gaytán

Rufino Gaytán is an associate in Godfrey & Kahn, S.C.'s Labor & Employment Law Practice Group in the Milwaukee office. Rufino assists private and public employers in addressing...

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