The US Court of Appeals for the Third Circuit issued an opinion in In re Enterprise Rent-A-Car Wage & Hour Employment Practices Litigation on June 28, 2012. A key litigated issue was whether a parent company qualified as a joint employer under the FLSA and therefore was a proper party to the litigation.

The plaintiff, a former assistant branch manager at an Enterprise Rent-A-Car location, filed a collection class action on behalf of all current and former assistant branch managers under the FLSA, claiming the Enterprise Rent-A-Car branches and their parent company, Enterprise Holdings, Inc., failed to pay required overtime wages. Although Enterprise Holdings does not directly rent or sell vehicles, it does provide administrative and human resources services and support to its subsidiaries, including employee benefit plans, business guidelines, rental reservation tools, insurance, technology and legal services. However, these services are not mandatory; the subsidiaries can choose whether or not to accept them.

Enterprise Holdings moved for summary judgment on the grounds that it was not liable under the FLSA because it was not a joint employer of the plaintiffs. The district court granted its motion, and the plaintiffs appealed.

The Third Circuit affirmed the district court's opinion, finding Enterprise Holdings was not a joint employer under its new "Enterprise test."

Under the FLSA, an employer is any person who acts directly or indirectly in the interest of an employer in relation to an employee. The FLSA regulations add that multiple associated employers may share control of one employee where one employer controls the other, such as in a parent-subsidiary relationship.

The Third Circuit noted that an employer must exert significant direct or indirect control over an employee to qualify as a joint employer under the FLSA. Since this was a case of first impression in the Third Circuit, the court looked to Lewis v. Vollmer of America, from the US District Court for the Western District of Pennsylvania, and Bonnette v. California Health & Welfare Agency, from the US Court of Appeals from the Ninth Circuit, for the relevant factors to determine the extent of a joint employer's control.

Based on the factors used in those cases and considering both the total employment situation and the economic realities of the working relationship, the Third Circuit held that to determine whether a joint employment relationship exists, courts should consider the alleged employer's:

The court noted that this list of factors is not exhaustive and should not be applied blindly as the only factors relevant to determine joint employment. Instead, courts should consider all factors, including whether the employers have interlocking directorates and the nature of their respective businesses, to determine whether a joint employment relationship exists.

In this case, the court found Enterprise Holdings was not a joint employer, since it:

The Third Circuit's decision establishes the new Enterprise test for determining joint employment status under the FLSA. Employers should be aware, however, that the factors listed in the Enterprise test are not exclusive, and that courts will consider all circumstances in a parent-subsidiary relationship to determine whether a parent company may be liable as a joint employer under the FLSA.

For more information on liability under the FLSA, see Practice Note: Wage and Hour Law: Overview.