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Third Circuit Narrows Down FLSA Definition of Employer

By Tanya Roth, Esq. | Last updated on

The definition of “employer” is crucial to a valid federal employment claim and for class certification in class action lawsuits by employees. In a recent decision, the Third Circuit Court of Appeals narrowed down the Fair Labor Standards Act’s definition of “employer.”

The district court had previously held that Enterprise Holding (of Enterprise Rent-a-Car) was not a “joint employer” under the FLSA.

How did the Third Circuit Court of Appeals deal with the question? Interestingly, while the appellate court applied a different test from the district court, the Third Circuit Court of Appeals nevertheless affirmed the district court's holding.

Let's talk about the underlying case, briefly. This is your average wage-and-hour type lawsuit. Plaintiffs contended the usual violation of the 40-hour-workweek rule and claimed entitlement to overtime. The class action was nationwide and alleged that Enterprise Holdings was a "joint employer" of the assistant branch managers in the class.

While the FLSA's definition of "employer" is vague, at best, it states that an employer is "any person acting directly or indirectly in the interest of an employer in relation to an employee."

The Third Circuit Court of Appeals applied the "Enterprise Test" which stated that in order to be an employer, Enterprise Holdings would need to meet a four-prong test of non-exhaustive factors, namely:

  1. The authority to hire and fire the assistant managers;
  2. The authority to promulgate work rules or assignments, set compensation, benefits, schedules or rates or methods of payment;
  3. The active supervision and discipline of employees; and
  4. Control over employee records.

In essence, this was a more comprehensive version of the test applied by the district court, which combined the four factors above into three factors.

The Third Circuit found that Enterprise Holdings was not an employer of the assistant managers and upheld the district court's grant of summary judgment to Enterprise Holdings.

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