Parents and Subsidiaries: Not Necessarily Joint Employers
The Court of Appeals for the Third Circuit recently issued an important decision relating to joint employer status under the Fair Labor Standards Act (“FLSA”) in the context of a holding company providing shared services to its subsidiaries. In Re: Enterprise Rent-A-Car Wage & Hour Employment Practices Litigation, 2012 U.S. App. LEXIS 13229 (3d Cir. June 28, 2012). This decision is favorable to employers and potentially has broader implications beyond the FLSA.
Enterprise Holdings, Inc. (“Enterprise Holdings”), the sole stockholder of 38 domestic subsidiaries, including Enterprise-Rent-a-Car Company of Pittsburgh, directly and indirectly supplied administrative services and support to each subsidiary. These services included business guidelines, employee benefit plans, rental reservation tools, a central customer contact service, insurance, technology, and legal services. Enterprise Holdings had a human resources department that also provided certain services to the subsidiaries. The lower court found that Enterprise Holdings had recommended that the subsidiaries not pay overtime wages to assistant managers and assistant branch managers who were employed at subsidiaries (other than in California), and this decision was at the heart of the lawsuit.
Lessons for Employers
Plaintiffs frequently argue that parent companies are joint employers of their subsidiaries’ employees, especially in an attempt to certify a nationwide class action. The new test set forth in the Enterprise case provides insight and guidance in the context of a parent/subsidiary relationship within the Third Circuit that governs Pennsylvania, New Jersey, Delaware and the Virgin Islands. A parent company within the Third Circuit will be better positioned to avoid a determination of joint employer liability if its policies ensure a measure of distance between the parent and subsidiary, including lack of day-to-day control over operations and employment decisions, and where the policies ensure that the advice given by the parent to the subsidiary in the employment area can be rejected by the subsidiary.