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1 THE THIRD CIRCUIT ENUNCIATES A NEW TEST FOR DETERMINING JOINT EMPLOYERS UNDER THE FAIR LABOR STANDARDS ACT IN IN RE ENTERPRISE RENT-A-CAR WAGE & EMPLOYMENT PRACTICES LITIGATION: A LOOK INTO ITS POTENTIAL IMPACT ON BUSINESS MANAGEMENT AND THE NEED TO FURTHER RECOGNIZE FLSA S LEGISLATIVE INTENT Lindsay Kreppel* EMPLOYMENT LAW THE FAIR LABOR STANDARDS ACT OF 1938 JOINT EMPLOYMENT The Third Circuit established a new test for determining joint employment under the FLSA and found that a parent corporation is not liable as a joint employer to its subsidiary s employees when the parent corporation did not exercise significant control over the employees. INTRODUCTION I. In re: Enterprise Rent-A-Car Wage & Employment Practices Litigation A. Parties & Facts B. Procedural History C. The District Court D. The Third Circuit II. History A. The Fair Labor Standards Act B. The Overtime Pay Provision C. Joint Employment under the Fair Labor Standards Act Conflicting Views on Factors for Joint Employment Test a. Outside the FLSA Context b. Within the FLSA Context Conflicting Views on the Weight of Factors III. Analysis A. Potential Effects on Employers and Employees B. Practical Impact

2 240 Duquesne Business Law Journal Vol C. Potential Criticisms D. Propositions View in Light Most Favorable to the Employees An Additional Factor: Holding Parent Corporations Liable When its Subsidiaries Adopt the Recommended Employment Practices CONCLUSION INTRODUCTION In In re: Enterprise Rent-A-Car Wage & Employment Practices Litigation, the Court of the Appeals for the Third Circuit established a test to determine whether an employer constitutes as a joint employer with regards to the Fair Labor Standards Act of ( FLSA ). In doing so, the court analyzed opinions both in and outside of the Third Circuit. The test provides a clear set of factors to aid courts determining joint employment, but partially ignores the legislative intent in enacting the FLSA. This case note determines the development and effects of the Enterprise test. First, the case note explains the facts, procedural history and analysis applied by the U.S. District Court for the Western District of Pennsylvania and by the Court of Appeals for the Third Circuit. Next, the note discusses the history and legislative intent of the FLSA, as well as the different tests applied to determine joint employers. Finally, the case note analyzes the Enterprise test by discussing potential criticisms and practical impact and provides two proposals that may eliminate the issues that arise in applying the test. I. In re: Enterprise Rent-A-Car Wage & Employment Practices Litigation The Enterprise case concerns what constitutes joint employers under the FLSA. The United States District Court for the Western District of Pennsylvania found that the defendant did not constitute as a joint employer of the plaintiffs and therefore, granted the motion for summary judgment. 2 The Court of Appeals for the Third Circuit af- * J.D. Candidate Spring 2014, Duquesne University School of Law, B.S. Business Management, Miami University of Ohio, U.S.C (2006). 2. In re: Enterprise Rent-A-Car Wage & Hour Employment Practices Litigation, 735 F.Supp. 2d 277, 283 (W.D. Pa. 2010).

3 2013 IN RE ENTERPRISE RENT-A-CAR 241 firmed the order of the District Court, finding the defendant was not a joint employer. 3 A. Parties & Facts Plaintiff Nickolas C. Hickton ( Hickton ) was formerly employed as an assistant branch manager at Enterprise-Rent-a-Car Company of Pittsburgh. 4 Defendant Enterprise Holdings, Inc. 5 ( Enterprise Holdings ), is the parent company 6 to thirty-eight subsidiary companies, 7 including defendant Enterprise-Rent-A-Car Company of Pittsburgh. 8 The subsidiaries all have their own branch location where they rent and sell vehicles to customers. 9 As the parent company, Enterprise Holdings supports its subsidiaries by providing administrative services such as insurance, technology, rental reservation tools, a central customer contact service, and employee benefit plans. 10 The individual subsidiaries have the option to use such services provided by the parent company, as long as they paid management fees and corporate dividends to Enterprise Holdings. 11 Enterprise Holdings also provides business guidelines to its subsidiaries. 12 The subsidiaries distributed a manual 13 to its employees con- 3. In re: Enterprise Rent-A-Car Wage & Employment Practices Litigation, 683 F.3d 462, 464 (3d Cir. 2012). 4. Id. at Id. 6. The term parent company is defined as a corporation that has a controlling interest in another corporation (called a subsidiary corporation), usually through ownership of more than one-half the voting stock. Black s Law Dictionary 393 (Bryan A. Garner ed., 9th ed., West 2009). 7. The term subsidiary company is defined as a corporation in which a parent corporation has a controlling share. Id. at Enterprise, 683 F.3d at Id. at 466. Each subsidiary has the same three people on its Board of Directors: Andrew C. Taylor, Pamela W. Nicholson, and William W. Snyder. Id. These three individuals were also on the Board of Directors for Enterprise Holdings, serving as the Chairman and Chief Executive Office (CEO), President and Chief Operating Officer (COO), and Executive Vice President and Chief Financial Officer (CFO), accordingly. Id. 10. Id. 11. Id. 12. Id. 13. The manual distributed to the subsidiaries employees from Enterprise Holdings stated: the [i]nformation contained in [this manual] refers to employees, of:

4 242 Duquesne Business Law Journal Vol taining the business guidelines. 14 Furthermore, Enterprise Holdings provides other services to the subsidiaries through its human resource department. Such services include compensation guides, training materials, recommended salaries and negotiation of health plans. 15 B. Procedural History Plaintiff Hickton filed a class action against Enterprise Holdings and its operating subsidiary, Enterprise Rent-A-Car Company of Pittsburgh, in the District Court for the Western District of Pennsylvania. 16 The lawsuit was filed by Hickton on behalf of himself and the other branch managers 17 from various Enterprise locations (i.e., various subsidiaries). 18 The complaint alleged that Enterprise Holdings violated the FLSA by failing to pay overtime wages to the branch managers and assistant managers. 19 Under FLSA, employers are required to pay employees overtime wages for hours worked in excess of the forty hour work week. 20 Plaintiffs alleged that Enterprise Holdings was a joint employer of the assistant branch managers and was therefore liable under FLSA for failure to pay overtime. 21 The United States Judicial Panel on Multidistrict Jurisdiction 22 ordered for similar actions pending in other districts to be transferred to [t]he Crawford Group, Inc., Enterprise Rent-A-Car Company and their various subsidiaries. Id. 14. Id. 15. Id. 16. Enterprise, 683 F.3d at At this time, managers constituted as those employed as a branch manager or as an assistant branch manager. Amend. Compl., In re: Enterprise Rent-A-Car Wage & Hour Employment Practices Litigation, 2009 WL (W.D. Pa. Oct. 23, 2009). 18. Enterprise, 683 F.3d at Id. 20. FLSA states: No employer shall employ any of his employees who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise engaged in commerce, for a workweek longer than forty hours unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than one and one-half times the regular rate at which he is employed. Id. (citing 29 U.S.C. 207(a)(1)). 21. Enterprise, 683 F.3d at The Judicial Panel on Multidistrict Litigation is a panel of federal judges responsible for transferring civil actions having common questions of fact from one

5 2013 IN RE ENTERPRISE RENT-A-CAR 243 the Western District of Pennsylvania. 23 Hickton and the other named plaintiffs filed an Amended Master Complaint 24 alleging their employers unlawfully exempted them from FLSA overtime provision and claiming that Enterprise Holdings was liable as a joint employer. 25 Enterprise Holdings filed a motion to dismiss the complaint for lack of specific jurisdiction, which the District Court denied without prejudice. 26 Enterprise Holdings claimed it was not liable to the plaintiffs as a joint employer under FLSA and moved for summary judgment. 27 The District Court granted the motion. 28 Plaintiffs appealed and the Court of Appeals for the Third Circuit affirmed the order of the District Court. 29 C. The District Court Judge Joy Flowers Conti authored the opinion for the District Court for the Western District of Pennsylvania in Enterprise. 30 In reviewing the first issue regarding jurisdiction, Judge Conti found that Pennsylvania could not exercise personal jurisdiction over the parent company, Enterprise Holdings. 31 district court to another to consolidate pretrial proceedings. Black s Law Dictionary at Enterprise, 683 F.3d at 465 nn The Amended Master Complaint sought overtime compensation, liquidated damages, attorneys fees, and costs. Id. at Id. at 465. See 29 U.S.C.A. 213(a) (West 2004) (exception for the FLSA overtime wages provision). 26. Enterprise, 683 F.3d at 465 n Id. at Id. 29. Id. at Enterprise, 735 F. Supp. 2d at 281. The district court opinion refers to Enterprise Holdings, Inc. as ERAC-Missouri. Enterprise, 683 F.3d at 464 n Plaintiffs argued that Enterprise Holdings had systematic and continuous contacts with Pennsylvanian through its business in the state, its website, advertisements, and contact centers. Enterprise, 735 F. Supp. 2d at 313. But, the court determined that Enterprise Holdings s contacts with Pennsylvania were not sufficient to exercise personal jurisdiction over Enterprise Holdings. Id. at 317. Finally, in personam jurisdiction based on the alter-ego theory could not be exercised over Enterprise Holdings in Pennsylvania because the court found that Enterprise Holdings did not fail to operate within the corporate structures. Id. at 325. The district court did not resolve the issue of specific jurisdiction because it granted the motion for summary judgment, which is dispositive such that no other claims would be against Enterprise Holdings. Id. at 336.

6 244 Duquesne Business Law Journal Vol The main issue, however, was whether a joint employment relationship under FLSA existed between a parent company and the employees of its subsidiary company. First, the court examined the applicable law with regards to the issue and determined that a defendant may be held liable under FLSA if it is an employer as the statute defines. 32 It is presumed, under the doctrine of limited liability, that a parent corporation is not the employer of its subsidiary s employees unless evidence of control demonstrates a joint employer relationship. 33 Though the Court of Appeals for the Third Circuit had never addressed this issue before, the court examined a Third Circuit case which stated that two entities may be joint employers if they exert significant control over the same employees. 34 The defendants, relying on Lewis v. Vollmer of America, 35 argued that to determine joint employment, the proper test is similar to the test applicable to cases arising from employment discrimination laws. 36 The plaintiffs argued that control is demonstrated by Enterprise Holdings with respect to the administrative services provided to its subsidiaries. 37 However, the court recognized that a parent company offering administrative services to a subsidiary company does not necessarily amount to significant control to demonstrate joint employers, and found the factors in Lewis 38 ( Lewis test ) to be consistent with the Department of Labor s regulations Id. at 338. FLSA defines an employer as any person acting directly or indirectly in the interest of an employer in relation to an employee. 29 U.S.C. 203(d) (2006). The parties did not dispute that the subsidiaries employed the plaintiffs, but they disagreed on whether Enterprise Holdings, the parent company, constituted as a joint employer to the plaintiffs. Enterprise, 735 F. Supp. 2d at Enterprise, 735 F. Supp. 2d at 338 (citing Lusk v. Foxmeyer Health Corp., 129 F.3d 773, 778 (5th Cir. 1997)). 34. Enterprise, 735 F. Supp. 2d at 338. See NLRB v. Browning-Ferris Indus. of Pa., Inc., 691 F.2d 1117, 1124 (3d Cir. 1982) (stating a joint employment relationship, in the context of the National Labor Relations Act, requires control of the terms and conditions of employment of the employees who are employed by the other employer ). 35. Infra n Enterprise, 735 F. Supp. 2d at 339. E.g. Lewis v. Vollmer of America, infra at n. 38. (analyzing joint employment issues with regards to the Age Discrimination in Employment Act, which incorporates FLSA provisions). 37. Enterprise, 735 F. Supp. 2d at Lewis v. Vollmer of America, No , 2008 WL (W.D. Pa. Feb. 7, 2008) (factors to be considered include: (1) authority to hire and fire employees, promulgate work rules and assignments, and set conditions of employment, including compensation, benefits, and hours; (2) day-to-day supervision of employees,

7 2013 IN RE ENTERPRISE RENT-A-CAR 245 Next, the court applied the Lewis test to its findings of fact. 40 The first factor examined whether Enterprise Holdings had the power to hire and fire employees, set employment conditions, and establish work assignments. 41 The court found that Enterprise Holdings had no power to hire or fire the assistant branch managers nor did it promulgate work assignments or rules. 42 However, Enterprise Holdings provided benefit packages and made recommendations to the subsidiary companies with regards to compensation. 43 The subsidiary companies were in charge of the assistant branch managers hours of employment. 44 Thus, the court found some evidence weighing in favor of the plaintiffs under the first factor of the Lewis test. 45 The second factor of the Lewis test focuses on employee supervision on a day-to-day basis. 46 Enterprise Holdings argued that the subsidiaries supervised the employees and the court agreed. 47 Therefore, the second factor was found in favor of Enterprise Holdings. 48 The third factor examines the control over the employee records, payroll, insurance, and taxes. 49 The subsidiaries maintained their own files and human resource department, and used an outside third-party payroll service. 50 Plaintiffs were paid from the bank account of the subsidiary in which they worked. 51 As a result, the third factor also weighted in favor of Enterprise Holdings. including employee discipline; and (3) control of employee records, including payroll, insurance, taxes and the like. ). 39. Enterprise, 735 F. Supp. 2d at 339, Id. at Id. at Id. at Id. at Enterprise, 735 F. Supp. 2d at Id. 46. Id. 47. Id. at 346. The employees of the operating subsidiaries ultimately reported to and were disciplined by general managers [who] worked solely for those subsidiaries as their operational leaders. Id. at Id. at Enterprise, 735 F. Supp. 2d at Id. Four subsidiaries purchased payroll services from Enterprise Holdings. Id. 51. Id.

8 246 Duquesne Business Law Journal Vol In concluding its analysis, the court noted that one factor is not dispositive of an employer/employee relationship. 52 After examining the factors from the Lewis test, the court determined that Enterprise Holdings was not a joint employer to the plaintiffs. 53 Therefore, the court granted summary judgment. 54 D. The Third Circuit The Honorable Leonard Garth authored the opinion for the Court of Appeals for the Third Circuit. 55 The issue on appeal was whether Enterprise Holdings constituted as a joint employer of the subsidiaries assistant managers 56 under the FLSA. 57 In order to resolve the issue, the Third Circuit needed to identify the appropriate test for determining whether a defendant is a plaintiff s joint employer under FLSA. 58 First, the court examined the jurisprudence 59 from the Court of Appeals for the Third Circuit and from sister circuits for determining joint employment in similar contexts. 60 Starting with N.L.R.B. v. Browning-Ferris Indus. of Pa. 61 and the FLSA regulations, the court recognized the importance of control over employment conditions, both indirect and direct, in determining whether two or more employers constitute as joint employers under FLSA. 62 Next, the court examined the Ninth Circuit s test for joint employers established in Bon- 52. Id. at 346 (citing Real v. Driscoll Strawberry Assocs., Inc., 603 F.2d 748, 754 (9th Cir. 1979)). 53. Enterprise, 735 F. Supp. 2d at Id. 55. Enterprise, 683 F.3d 462 at In District Court, Hickton filed on behalf of the branch managers and assistant branch managers. In the Third Circuit Court of Appeals, Hickton only pursued claims on behalf of the assistant branch managers. Id. at 465 n Id. at Id. at Jurisprudence is defined as the study of the general or fundamental elements of a particular legal system, as opposed to its practical and concrete details. Black s Law Dictionary at Enterprise, 683 F.3d at F.2d 1117 (3d Cir. 1982). 62. Enterprise, 683 F.3d at 468 ( ultimate control is not necessarily required to find an employer-employee relationship under FLSA, and even indirect control may be sufficient to find joint employers as long as the alleged employer exercised significant control ) (citing Browning-Ferris, 691 F.2d at 1124).

9 2013 IN RE ENTERPRISE RENT-A-CAR 247 nette v. California Health & Welfare Agency 63 ( Bonnette test ) and found the main purpose of the test was to identify whether one employer exerts a significant amount of control over the employees. 64 In Lewis, which referenced Browning-Ferris, other factors were considered in determining whether an entity is an employer (i.e., the Lewis test). 65 The court determined that the Lewis test would only find a joint employer where the employer maintained direct control over the employee. 66 However, FLSA would find a joint employer where the employer maintained both direct and indirect control over the employee. 67 Thus, the court explained that the factors enunciated in the Lewis test were inconclusive to establish the appropriate test. 68 As a result, the court modified and combined the Lewis and Bonnette tests to establish the proper test (hereinafter the Enterprise test ) for determining joint employers. 69 The Enterprise test stated that courts should consider the following factors regarding the alleged employer in determining joint employment under FLSA: (1) authority to hire and fire employees; (2) authority to promulgate work rules and assignments and to set the employees conditions of employment; (3) involvement in day-to-day employee supervision; and (4) the alleged employer s actual control of employee records, such as payroll, insurance, or taxes. 70 In examining the second prong of the test, employees employment conditions are further specified to include compensation, rate and method of payment, benefits and work schedules. 71 Under the third prong, the alleged employer s involvement in the dayto-day supervision of employees includes employee discipline F.2d 1465, 1470 (9th Cir. 1981) disapproved of by Garcia v. San Antonio Metro. Transit Auth., 469 U.S. 528 (1985). In Bonnette, the court considered whether the alleged employer: (1) had the power to hire and fire employees; (2) supervised and controlled work schedules or employment conditions; (3) determined method and rate of pay; and (4) maintained employment records. Id. 64. Enterprise, 683 F.3d at Lewis v. Vollmer of America, supra n Enterprise, 683 F.3d at Id. 68. Id. 69. Id. at Id. at Enterprise, 683 F.3d at Id.

10 248 Duquesne Business Law Journal Vol The court emphasized that the factors enunciated in the Enterprise test are not the only considerations. 73 Other evidence that demonstrates significant control 74 of an alleged employer being a joint employer of an employee should be considered and may be persuasive when incorporated with the Enterprise test. 75 To be conclusive, a court must consider all evidence 76 of the employment relationship as well as the relevant economic concerns. 77 After establishing the Enterprise test, the court applied the test to the facts of the case and concluded that Enterprise Holdings was not a joint employer under FLSA. 78 Enterprise Holdings lacked the authority to hire or fire assistant managers and set compensation, work schedules, method and rates of payment. 79 Enterprise Holdings also lacked control over employee records and was not involved in any day-to-day supervision. 80 The plaintiffs argued that Enterprise Holdings had the authority to promulgate work rules and assignments due to the distribution of the guidelines and manuals to its subsidiaries. 81 However, the court was not persuaded because the guidelines and manuals were merely suggested policies and practices and were left to the discretion of each subsidiary. 82 After examining the factors from the test, combined with the fact that Enterprise Holdings lacked significant control (or any control at all) over the assistant managers, the court concluded that Enterprise Holdings was not a joint employer. 83 The Court of Appeals for the Third Circuit found that the evidence in the case heavily favored Enterprise Holdings, even if one factor 73. Id. ( [T]his list is not exhaustive, and cannot be blindly applied as the sole considerations necessary to determine joint employment. ). 74. An alleged employer must exercise significant control, either directly or indirectly, in order to be deemed a joint employer. See 29 C.F.R (b) (indirect control may be sufficient); Browning-Ferris, 691 F.2d at 1124 (ultimate control is not necessary but the alleged employer must exercise significant control). 75. Enterprise, 683 F.3d at Id. at 469 (citing Zheng v. Liberty Apparel Co., 355 F.3d 61, 71 (2d Cir. 2003)). 77. Enterprise, 683 F.3d at 470. See Bonnette, 704 F.2d Id. at Id. 80. Id. 81. Id. 82. Enterprise, 683 F.3d at 471. The court explained that Enterprise Holdings role was similar to that of an outside consultant who merely suggests improvements for the subsidiaries business practices. Id. 83. Id.

11 2013 IN RE ENTERPRISE RENT-A-CAR 249 was neutral or favored the plaintiffs. 84 The judge noted that although Enterprise Holdings had the authority enunciated in the first two factors of the Enterprise test, such authority was never exercised and was insufficient to deem the defendant a joint employer. 85 Therefore, the Court of Appeals for the Third Circuit affirmed the order of the district court, granting defendants summary judgment because the plaintiffs failed to demonstrate that Enterprise Holdings was a joint employer (with its thirty-eight subsidiaries) of the assistant managers. 86 II. History The goal of FLSA is to protect employees by providing safe working conditions and fair labor practices. 87 The overtime pay provision requires employers to compensate employees at a higher rate for anytime worked exceeding the forty-hour workweek. 88 Many issues have arisen with regards to the exception to this overtime pay provision. 89 A. The Fair Labor Standards Act The Fair Labor Standards Act ( FLSA ) was enacted in 1938, subsequent to the Great Depression. 90 During this time, most Americans did not have jobs; however, those who did have jobs faced deplorable working conditions. 91 Congress recognized that the nation s well being and interstate commerce would be endangered if the common labor force was not protected after the Great Depression. 92 FLSA was ratified as a result of the labor conditions and the unequal bargaining power between 84. Id. 85. Id. at 471 n Id. at See Richard J. Burch, A Practitioner s Guide to Joint Employer Liability Under the FLSA, 2 Hous. Bus. Tax. L. J. 393, 394 (2001). 88. Id. at See e.g. text accompanying nn U,S,C,A, 201 (1938); See Brooklyn Sav. Bank v. O'Neil, 324 U.S. 697, (1945) ( The statute was a recognition of the fact that due to the unequal bargaining power as between employer and employee, certain segments of the population required federal compulsory legislation to prevent private contracts on their part which endangered national health and efficiency and as a result the free movement of goods in interstate commerce. ). 91. Burch, supra n. 87, at Id. at 396.

12 250 Duquesne Business Law Journal Vol employers and employees. 93 FLSA established standards for minimum wages, overtime pay, and child labor. 94 FLSA s legislative history demonstrates Congress intent to protect certain groups of workers 95 from unacceptably low wages and an excessive amount of work hours. 96 Many constitutional challenges arose from the enactment of the FLSA that required the Supreme Court of the United States to determine the powers of Congress, starting with U.S. v. Darby 97 and Tennessee Coal, Iron & R.R. Co. v. Muscoda Loc. No In Darby, the Court determined that it was within Congress power to prohibit the interstate shipment of lumber that was manufactured by employers who paid their employees less than the FLSA minimum wage. 99 In Muscoda, the Court emphasized that the FLSA was to be interpreted broadly for remedial purposes. 100 Since 1938, amendments have been enacted in order to further protect the American work force, 101 and the FLSA standards still influence employment practices today There was unequal bargaining power between employers and employees because the nation s lowest paid working population were unprotected and unorganized; thus, they lacked sufficient bargaining power to secure for themselves a minimum subsistence wage. Brooklyn Sav. Bank v. O Neil, 324 U.S. 697, n. 18 (1945) (citation omitted). 94. Id. at 707. See David K. Montgomery & M. Scott. McIntyre, The Fair Labor Standards Act, "White Collar" Exemptions, & Fairpay 2004: A Survey of Recent Decisions with Emphasis on the Sixth Circuit, 32 N. Ky. L. Rev. 651, 654 (2005) The Act established a federal minimum wage, required employers to maintain payroll records, established maximum working hours and overtime pay, and regulated child laborers working conditions. Id. 95. Congress has specifically legislated to protect workers who toil... those who sacrifice a full measure of their freedom and talents to the use and profit of others. Tennessee Coal, Iron & R. Co. v. Muscoda Local No. 123, 321 U.S. 590, 597 (1944). 96. Id. at 706. See also Jewell Ridge Coal Corp. v. Local No. 6167, United Mine Workers of America, 325 U.S. 161, 167 (1945) (Congress intended to spread employment through imposing the overtime pay requirement on the employer and to compensate the employee for the burden of a workweek in excess of the hours fixed by the Act ). 97. United States v. Darby, 312 U.S. 100 (1940). 98. Muscoda, 321 U.S. at Darby, 312 U.S Muscoda, 321 U.S. at United States Department of Labor, Wage & Hour Division History, whd/about/history/whdhist.htm (accessed Sept. 23, 2012).

13 2013 IN RE ENTERPRISE RENT-A-CAR 251 B. The Overtime Pay Provision The FLSA s overtime pay provision requires private employers pay their hourly employees at one and one half times their hourly wage for any time worked in excess of forty hours a week. 103 Congress amended the FLSA to apply to public sector employers as well. 104 However, the overtime pay provision exempts some employees who worked as executives, administrators, or professionals, who are paid on a salary basis. 105 The Supreme Court has addressed many issues dealing with the Act s exemption to the overtime pay provision. For example, the Court found that an engineer who supervised trained people was employed in an executive capacity, and therefore was exempted from overtime pay under FLSA. 106 The Court also found that employees, such a police officers, who were covered by a policy that allowed pay deductions, do not constitute as an exempted employee. 107 However, the Court has not determined the standard for whether a defendant is an employer to a plaintiff under FLSA. 108 C. Joint Employment under the Fair Labor Standards Act In order to provide more remedies, the definition of employer 109 under FLSA is a broad definition 110 compared to the common-law 102. United States Department of Labor, Fair Labor Standards Act (FLSA), (accessed May 31, 2013) U.S.C.A. 207(a) U.S.C. 203(d). See Todd N. Barnes, Christensen v. Harris County: The U.S. Supreme Court Excuses Public Employers from the Fair Labor Standards of Overtime Compensation, 11 Temp. Pol. & Civ. Rts. L. Rev. 279, U.S.C.A. 213(a) Walling v. General Industries Co., 330 U.S. 545, 550 (1947) Auer v. Robbins, 519 U.S. 452 (1997) (recognizing that the Secretary of Labor had the authority to define the scope of FLSA s overtime pay exemption provision so the Secretary s interpretation of the provision is controlling) Enterprise, 683 F.3d at An employer is defined under FLSA as any person acting directly or indirectly in the interest of an employer in relation to an employee and includes a public agency, but does not include any labor organization (other than when acting as an employer) or anyone acting in the capacity of officer or agent of such labor organization. 29 U.S.C.A. 203(d) (West).

14 252 Duquesne Business Law Journal Vol concept of employer. 111 The Supreme Court noted in Rutherford Food Corp. v. McComb, that the definition of employer, within the meaning of FLSA, raised issues with regards to the limits of the employer-employee relationship. 112 There are several circumstances dealing with limits of the employment relationship, one of which is when a defendant claims the plaintiff is an independent contractor and not an employee of the defendant. 113 Another circumstance is when plaintiff alleges the defendant and a third party were his joint employers, and the defendant claims that the plaintiff s only employer was the third party. 114 It has been determined that an employee 115 may have two or more employers, under FLSA. 116 When parties are found to be joint employers, they are held jointly liable for complying with FLSA provisions. 117 This ensures that workers will be properly paid and protected against unfair business competition See United States v. Rosenwasser, 323 U.S. 360, 363 n.3 (1945) (recognizing that the definition of employer under FLSA is the broadest definition that has ever been include in any one act ) The definition of employer under the FLSA is not limited by the common law concept of employer, and is to be given an expansive interpretation in order to effectuate the FLSA's broad remedial purposes. Bonnette, 704 F.2d at 1469 (citing Real v. Driscoll Strawberry Assocs., 603 F.2d 748, 754 (9th Cir.1979)) Rutherford Food Corp. v. McComb, 331 U.S. 722, 728 (1947) (the definition leaves open issues with regards to limits of the employer-employee relationship under the FLSA ). See infra n Infra n Infra n. 139 (noting the issue of joint employment may arise when a contractor uses a subcontractor or when a staffing company provides temporary employees to another company) FLSA defines an employee as any individual employed by an employer, unless they fall into one of the exceptions as provided in paragraphs (2), (3), and (4). 29 U.S.C.A. 203(e)(1) A determination of whether the employment by the employers is to be considered joint employment or separate and distinct employment for purposes of the act depends upon all the facts in the particular case. 29 C.F.R (a) (2000) C.F.R 791.2(a) (2000). For example, if we assume that Company A and Company Z are joint employers, and an employee works twenty hours for Company A and forty hours for Company Z in the same workweek, the FLSA will require overtime wages be paid on the twenty hours worked in excess of forty hours. Moreover, both Company A and Company Z each can be held individually responsible for the overtime compensation owed under the FLSA. Burch, supra n. 87, at Burch, supra n. 87, at 405. Employers who use substandard laborers will not gain a competitive advantage. Id.

15 2013 IN RE ENTERPRISE RENT-A-CAR 253 Generally, determining joint employment under FLSA varies caseby-case, as all relevant factors of the alleged employer-employee relationship must be considered. 119 The Department of Labor issued regulations suggesting situations in which a joint employment may be found. 120 Such examples include when an employer is acting on behalf of the other employer s interest with regards to an employee, and where employers share control of employees. 121 The Supreme Court has recognized that the test of employment under FLSA is less of a technical concept and more of an economic reality. 122 The economic reality test finds an employer-employee relationship when a group of employees is economically dependent on an employer. 123 No single factor in the economic reality test is dispositive, so the totality of each circumstance must be considered. 124 Courts struggle in applying the economic reality test because no factor is determinative, and because is broadly interpreted Conflicting Views on Factors for Joint Employment Test Many factors have been considered in determining joint employers under FLSA because they are indicators of economic independence. 126 In Rutherford, the Supreme Court acknowledged that decisions defining the limits of the employer-employee relationship under the National Labor Relations Act ( NLRA ) and the Social Security Act ( SSA ) could be persuasive when determining the limits within FLSA because the acts were all enacted for a similar purpose. 127 As a result, circuit courts addressing the issue of the employer-employee relationship under FLSA often review cases with the same issue under the NLRA or the SSA, as well as the Family Medical Leave Act ( FMLA ) C.F.R (a) C.F.R (b) 121. Id Goldberg v. Whitaker House Co-op., Inc., 366 U.S. 28, 33 (1961) Burch, supra n. 87, at Id Id. at Antenor v. D & S Farms, 88 F.3d 925, 932 (11th Cir. 1996) Rutherford, 331 U.S. at Infra n. 139, at 77 (noting the FMLA explicitly based its definition of employer and employee on the FLSA ).

16 254 Duquesne Business Law Journal Vol a. Outside the FLSA Context In N.L.R.B. v. Browning-Ferris Indus. of Pa., the Third Circuit defined a standard to determine joint employers within the NLRA, wherein two employers constitute joint employers under the NLRA when they exercise significant control over the same group of employees, with regard to the conditions of employment. 129 The court found that the employers were joint employers because they codetermined the employees terms of employment, when both employers had the right to hire and fire employees, determine the work schedules and compensation, and shared the day-to-day supervision of the employees. 130 In Lewis v. Vollmer of America, the District Court for Western Pennsylvania referred to Browning-Ferris when it enunciated the three factors to determine whether an entity constitutes as an employer by exercising significant control with respect to the Age Discrimination in Employment Act. 131 The court considered the following factors: (1) the authority to hire and fire employees, power to establish work assignments and set terms of employment (i.e., benefits, schedule, compensation); (2) supervision of employees (i.e. employee discipline); and (3) control over employment records. 132 In Lewis, the two entities did not constitute joint employers when one entity determined all the terms of employment, maintained records, and governed the essential employment conditions. 133 The District Court for Western Pennsylvania noted in Braden v. County of Washington, that the standard for joint employer under the FLSA is the same for the FMLA. 134 The plaintiff in Braden sued the Court of Common Pleas in Washington under the FMLA claiming the court and the county were her joint employers. 135 The court consid Browning-Ferris, 691 F2d at In Browning-Ferris, the court determined joint employers by examining: (1) centralized control of labor relations; (2) common management; (3) common ownership; and (4) interrelation of operations. When are separate business entities joint employers of same employees for purposes of application of federal labor laws, 73 A.L.R. Fed. 609, 4 (1985) Browning-Ferris, 691 F.2d at Lewis, 2008 WL , holding modified by Enterprise, 683 F.3d 462. See also Enterprise, 735 F. Supp. 2d at 339 (noting the Age Discrimination in Employment Act incorporates the enforcement provisions from the FLSA) Lewis, 2008 WL at * Id. at * No , 2010 WL (W.D. Pa. Apr. 23, 2010) Id. at *4.

17 2013 IN RE ENTERPRISE RENT-A-CAR 255 ered the employer s authority to hire employees and control the terms of employment. 136 It concluded that the county had the power to control the plaintiff s benefits and salary, but it was not enough to establish joint employment when the county did not control the employee s day-to-day activities or any other terms of employment. 137 b. Within the FLSA Context One of the most significant frameworks for determining joint employers under the FLSA was established by the United States Court of Appeals for the Ninth Circuit in Bonnettee v. California Health & Welfare Agency. 138 The Bonnette test has influenced many other circuits. 139 In Bonnette, the plaintiffs, workers who provided domestic services, brought suit alleging violation of the FLSA minimum wage provisions. 140 The issue was whether the defendant the state agency administering the program was a joint employer with the individuals for whom the plaintiffs performed services. 141 The court concluded the defendant was a joint employer under FLSA because they exerted significant economic control over the employment relationship. 142 The test established in Bonnette determined joint employers by considering the economic realties of the employer-employee relationship and focusing on the amount of control an alleged employer exercises over an employee by examining the alleged employer s power to: (1) control employees work conditions (i.e., work schedules); (2) hire or fire employees; (3) determine compensation; and (4) 136. Id. at * Id. at * Bonnette, 704 F.2d at The Ninth Circuit s four-factor approach in Bonnette v. California Health and Welfare Agency is by far the most common framework to guide applications of the economic realities test. Benjamin F. Burry, Testing Economic Reality: FLSA and Title VII Protection for Workfare Participants, 1 U. Chi. Legal F. 561, 564 (2009). The four-factor Bonnette approach is the most common iteration of the totality of the circumstances analysis. Id. at Vano Haroutunian & Avraham Z. Cutler, The Conflict Between the Circuits in Analyzing Joint Employment Under FLSA: Why the Supreme Court Should Grant Certiorari in Zheng v. Liberty Apparel, 12 Engage: J. Federalist Socy. Prac. Groups 77, 77 (2011) Bonnette, 704 F.2d at Id. at Id.

18 256 Duquesne Business Law Journal Vol keep employment records. 143 The enunciated test is considered a control test and is consistent with labor regulations. 144 However, it has been criticized as being bias against finding joint employers. 145 Other circuits have adopted the Bonnette test. 146 The United States Court of Appeals for the First Circuit applied the Bonnette test in Baystate Alternative Staffing, Inc. v. Herman. 147 In Baystate, the plaintiff who owned several staffing agencies was fined by the defendant, the Department of Labor, for failure to pay overtime wages in violation of the FLSA. 148 The court applied the Bonnette test and, after examining the facts, concluded the plaintiff constituted as the temporary workers employer under FLSA. 149 In Maddock v. KB Holmes, Inc., the plaintiff claimed the defendant, as a joint employer, failed to pay her overtime wages in violation of the FLSA. 150 The defendant was a home developer company that owed a subsidiary in which the plaintiff worked. 151 The court relied on the Bonnettte test, focusing on the second factor whether the defendant controlled the plaintiff s work schedule and conditions and concluded the defendant was not a joint employer. 152 Other circuits have found that the framework established in the Bonnette test is not sufficient in determining joint employers within the meaning of FLSA. 153 In Ling Nan Zheng v. Liberty Apparel Co., plaintiffs were garment workers, directly employed by contractors 143. Id. at Where the employers are not completely disassociated with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with another employer. 29 C.F.R (b) 145. Burch, supra n. 87, at 408 n. 69. But see Falk v. Brennan, 414 U.S. 190 (1973) (finding that both partners in a partnership were employers, under 29 U.S.C.A. 203(d), because the partnership exercised substantial control over the employees terms of employment, but failing to expressly find a joint employer relationship under FLSA) Haroutunian & Cutler, supra n. 139, at F.3d 668 (1st Cir. 1998) Id. at Id. at F. Supp. 2d 1226 (C.D. Cal. 2007) Id. at Id. at , E.g. Ling Nan Zheng, v. Liberty Apparel Co., 355 F.3d 61 (2d Cir. 2003).

19 2013 IN RE ENTERPRISE RENT-A-CAR 257 who were hired by a manufacturer to finish stitching the clothing. 154 Plaintiffs brought suit against the manufacturer, defendant, alleging it was a joint employer of the plaintiffs under the FLSA. 155 The United States Court of Appeals for the Second Circuit concluded the district court erred when relied only on the traditional agency principles from Carter v. Dutchess Community College. 156 In Carter, the court borrowed factors from the Bonnette test, and considered whether the alleged joint employer had authority to fire employees, control terms of employment, maintain records, and determined compensation. 157 The court in Zheng explained that a company s exercise of formal prerogatives (i.e., the Bonnette test) is not necessary in order to determined joint employment under the FLSA. 158 Some think the Supreme Court should have granted certiorari in Zheng because of split circuit opinions regarding joint employers under FLSA. 159 Prior to Zheng, the United States Court of Appeals for the Second Circuit established a more expansive test than the Bonnettee test in Brock v. Superior Care, Inc The Brock test examines the following: (1) the employer s degree of control exercised over employee; (2) the worker s investment in the business; (3) the degree of skill needed to perform a job; (4) the time frame of the working relationship; and (5) the extent the work is integral in the business. 161 This test was criticized when determining because the same factors are used in determining whether a worker is an independent contractor or an employee Id Id. at Id. See Carter v. Dutchess Community College, 735 F.2d 8 (2d Cir. 1984) Carter, 735 F.2d at Zheng, 355 F.3d at E.g. Haroutunian & Cutler, supra n. 139, at 79 (noting the Supreme Court denied certiorari, but emphasizing that [t]he significant, multi-directional split among circuit courts provides sufficient reason for granting certiorari in Zheng because the courts have addressed Zheng s facts under both the Bonnette and the Zheng tests and the circuit split is illustrated beautifully ) Brock v. Superior Care, Inc., 840 F.2d 1054 (2d Cir. 1988). When parties are seeking to establish joint employer status, they often ask the court to use the Brock test. Burch, supra n. 87, at Brock, 840 F.2d at Burch, supra n. 87, at 394.

20 258 Duquesne Business Law Journal Vol Currently, several circuits, including the First and Ninth Circuits, apply the Bonnette test. 163 The Second Circuit uses either the Bonnette test or the Zheng test. 164 The Fourth Circuit determines whether a case before it falls within one of the examples of joint employment provided by the Department of Labor and then examines the Bonnette and Zheng tests. 165 The Ninth Circuit and Eleventh Circuit have indicated that courts should tailor their test to determine joint employment relevant to a particular situation. 166 However, this view is under attack because it is not consistent with the regulation requiring joint employment to be determined on a case-by-case basis Conflicting Views on the Weight of Factors Courts are not only conflicted about the factors to apply in determining joint employers under the FLSA, but also about the weight given to each factor. 168 For example, in Braden, the court considered the totality of the circumstance and, in determining joint employment, gave a greater weight to the employer s supervision over the employee s day-to-day activities and working conditions than to the employer s administrative capabilities. 169 Braden found that providing certain human resource functions, alone, is not enough for one employer to demonstrate significant control over employees, because it is simi Haroutunian & Cutler, supra n. 139, at 79. But see Monreau v. Air France, 343 F.3d 1179 (9th Cir. 2003) (noting that the Ninth Circuit still applies the Bonnette test but recognizing other factors enunciated in Torrres-Lopez in determining employment issues) Haroutunian & Cutler, supra n. 139, at Id. See e.g. Schultz v. Capital International Security, 466 F.3d 298 (4th Cir. 2006) (determining joint employment by first examining the Department of Labor regulations and then explaining it would be helpful for courts to use the Bonnette and Zheng tests for guidelines) In Topaz-Lopez v. May, the Ninth Circuit stated, [a] court should consider all those factors which are relevant to [the] particular situation in evaluating the economic reality of an alleged joint employment relationship under the FLSA. 111 F.3d 633, 639 (9th Cir. 1997) (internal citations omitted). In Aimable v. Long and Scott Farms, after finding four of the six regulatory factors irrelevant, the Eleventh Circuit cautioned that [c]ourts must closely scrutinize such factors to determine their relevancy to each particular situation. 20 F.3d 434, 444 (11th Cir. 1994) Burch, supra n. 87, at Haroutunian & Cutler, supra n. 139, at Braden, 2010 WL at *6.

21 2013 IN RE ENTERPRISE RENT-A-CAR 259 lar to providing administrative functions. 170 In Zheng, the court found that application of the factors in the Bonnette test were not necessary for determining joint employment. 171 The Second Circuit has also noted that the main concern in determining joint employment is whether the alleged employer had the authority to control the employees. 172 The First Circuit and Ninth Circuit emphasize the importance of daily supervision and control of employment conditions, as demonstrated by application of the Bonnette test. 173 Circuits that adopted Bonnette generally do not find joint employment when the alleged employer has the authority to hire or fire employees and determine employment conditions, but has not exercised that authority. 174 With regards to parent company and its subsidiaries, the fact that the parent company provides a subsidiary with policies or suggestions concerning employment conditions or compensation, is not determinative in finding the parent company is a joint employer. 175 The Fifth and Eleventh Circuits tend to examine the totality of the employment situation, rather than emphasizing a specific factor of having greater importance. 176 The Eleventh Circuit explained that the weight of each factor depends upon the amount of economic dependence the employees have on the alleged employer, which can only be determined by considering the facts of a specific case. 177 The Fifth Circuit emphasized that the ultimate consideration to keep in mind when applying the factors is that joint employment is indicated from an employee economically depending on an alleged employer. 178 The Sixth, Seventh, and Eight Circuits are in the minority by granting weight to common ownership and management in determining 170. Id. at * Zheng, 355 F.3d at Herman v. RSR Security Services Ltd., 172 F.3d 132, 139 (2d Cir. 1999) Haroutunian & Cutler, supra n. 139, at 79. See also Bonnette, 704 F.2d at See generally Hukill v. Auto Care, Inc., 192 F.3d 437 (4th Cir. 1999) See generally Enterprise, 735 F. Supp. 2d at Haroutunian & Cutler, supra n. 139, at Antenor v. D & S Farms, 88 F.3d 925, (11th Cir. 1996) Usery v. Pilgrim Equipment Co., Inc., 527 F.2d 1309, 1311 (5th Cir. 1976) (explaining that the factors are aids-tools to be used to gauge the degree of dependence of alleged employees on the business that indicates employee status [so] [e]ach factor must be applied with that ultimate notion in mind ).