A group of Pennsylvania Enterprise Rent-a-Car assistant managers decided they never should have been classified as exempt employees and that the chain owed them overtime compensation. One, a former employee, filed a class action suit on behalf of all assistant managers. The group sued both Enterprise Rent-a-Car and its parent, Enterprise Holdings.

What happened. “Higgins” was the lead plaintiff, who had been an assistant manager in Pittsburgh. The group reasoned that Enterprise Holdings was a joint employer for a number of reasons: It presented itself as such on the corporate website, which announced that the parent has 64,000 employees nationwide and 6,900 offices. And, three board members of the parent are also on the boards of each of the subsidiaries. Furthermore, the parent supplies administrative services and support, including business guidelines, employee benefit plans, rental reservation tools, a central customer contact service, insurance, technology, and legal services to all subsidiaries.

The HR function provides job descriptions, best practices and compensation guides, training material, standard performance review forms, and recommended salary ranges. Finally, at a corporate meeting in 2005, the parent had recommended that subsidiaries not pay overtime to assistance managers and assistant branch managers. Sound like a joint employer? It did to the plaintiffs, but it didn’t to the judge in a federal district court. The plaintiffs appealed to the 3rd Circuit, which covers Delaware, New Jersey, and Pennsylvania.

What the court said. Appellate judges agreed with the district judge, but they went further. They created a new and narrower definition of a joint employer under the Fair Labor Standards Act (FLSA), which governs such decisions. Judges established a four-pronged test saying that a joint employer must have: (1) authority to hire and fire employees; (2) authority to promulgate work rules or assignments and set compensation, benefits, schedules, and rates or methods of pay; (3) active supervision and discipline of employees; and (4) control over employee records. In this case, Enterprise Holdings had none of the four factors; judges noted that it served more as a third-party consultant than as an employer. So the plaintiffs’ class action cannot be certified as filed. In re: Enterprise Rent-a-Car Wage & Hour Employment Practices Litigation, U.S. Court of Appeals for the 3rd Circuit, No. 11-2883 (6/28/12).

Point to remember: This is an employer-friendly ruling that will prove especially helpful to employers in the 3rd Circuit states. It provides clarity that is missing in FLSA’s description.