Recent Federal Court Decision Affirms Use of Joint Employer Doctrine to Hold Staffing Agency and Automotive Design Company Jointly Liable for Violations of the FMLA

Robin Foret
May 7, 2008 — 4,315 views  
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Recent Federal Court Decision Affirms Use of Joint Employer Doctrine to Hold Staffing Agency and Automotive Design Company Jointly Liable for Violations of the FMLA.


On March 26, 2008, the United States Court of Appeals for the Sixth Circuit concluded that a staffing agency and an automotive design company could be combined for purposes of finding that the 50 employee requirement of the FMLA had been met.  In Grace v. USCAR and Bartech Technical Services, LLC, ______ F.3d _____, 2008 WL 782470 (6th Cir. (Mich.)), the court applied the joint employer doctrine to hold that an automotive design company, which had no employees, and a staffing agency from which the automotive design company obtained its employees, had joint liability for violations of the FMLA.


Enacted in 1993, the Family Medical Leave Act (“FMLA” or the “Act”), attempts to balance the demands of the work environment with the needs of modern family life.  Eligible employees may take up to 12 weeks of unpaid leave for certain enumerated family-related situations, including a serious medical condition of the employee or a member of the employee’s immediate family.  Most companies have become familiar with the FMLA’s basic requirements.  For example, an eligible employee is an individual who has worked for a covered employer for at least 12 months and for at least 1,250 hours during the previous 12 month period.  A covered employer is any person who employs 50 or more employees within a 75 mile radius of the eligible employee’s worksite during 20 or more calendar weeks of the current or preceding calendar year. See 29 U.S.C. §2611(2)(4).  


Not as well understood, is the application of other doctrines rooted in traditional labor law that allow the number of employees hired by different entities to be added together for purposes of evaluating whether the 50 employee requirement of the FMLA has been met.  The FMLA is silent on this issue.  The Department of Labor (DOL), however, is charged with promulgating regulations to carry out the intent of the Act, and has issued guiding principles in this regard.  Specifically, 29 C.F.R. §825.104(c) & §825.106 set forth two scenarios under which employees of separate entities may be combined to satisfy the 50 employee requirement of the FMLA.  The two principle theories are the joint employer doctrine, and the integrated employer doctrine.  Both concepts were addressed by the Sixth Circuit in the Grace case.  The court held that the joint employer doctrine applied so that both a staffing agency and its customer could be held jointly liable under the FMLA, even though the customer had no employees on its books.  


In Grace, the employee worked directly for a staffing agency with over 50 employees.  The staffing company supplied workers to various companies, including USCAR.  In this case, Rosalyn Grace (“Grace”) was employed directly by Bartech Technical Services (“Bartech”), which in turn leased Grace to USCAR (a partnership formed between Ford Motor Co., Daimler Chrysler Corp. and General Motor Corp. for research and development).  Grace was employed directly by Bartech to work in USCAR’s information technology (“IT”) department.  Grace, however, reported to USCAR’s Director of Operations, who had significant control over Grace’s day-to-day work activities.  Grace developed asthma that resulted in hospitalization, took a leave of absence and contacted Bartech to request FMLA leave.  Grace was informed that USCAR had decided to outsource her job duties and that her position had therefore been terminated.  Grace sued Bartech and USCAR for violations of the FMLA.  


The Sixth Circuit court determined that when a company such as USCAR leases an employee from a staffing agency, but maintains control of the individual’s day-to-day work activities, a joint employer relationship is established with the staffing agency.  Under the joint employer doctrine, the court will consider three factors: (1) whether the companies share employees; (2) whether the companies act in the interest of one another in relation to the employee; and (3) whether the companies share control of the employee’s employment.  In Grace, USCAR had significant control over Grace’s day-to-day work, and therefore, the company was considered a joint employer with Bartech, which had in excess of 50 employees.  Accordingly, both Bartech and USCAR became covered employers under the FMLA. 


The court also explained the concept of primary and secondary employer status concerning potential liability under the FMLA.  As is generally the default rule, Bartech as the leasing company was the primary employer with sole responsibility for giving the required notices to its employees, providing health benefits and providing FMLA leave.  USCAR, as the secondary employer, shared equal responsibility with Bartech with respect to obligations of accepting an employee’s request to return to the job after FMLA leave, as well as not violating the Act’s prohibitions against (1) interfering with the employee’s attempt to exercise his or her FMLA rights; and (2) discharging or discriminating against an employee for opposing an unlawful practice under the FMLA.  In Grace, USCAR announced that it had terminated Grace’s position in the IT department, which prevented her return to USCAR following FMLA leave.


The court concluded that the integrated employer doctrine did not apply to the facts of this case.  Nevertheless, the court discussed this alternative theory of liability, which is frequently used to combine the employees of two or more companies in order to satisfy the FMLA’s 50 employee threshold requirement.  Under the integrated employer test, entities may be deemed to be a single employer for purposes of FMLA if they share: (1) common management; (2) interrelated business operations; (3) centralized control of labor relations; and (4) common ownership and/or financial control. See §825.104(c).  The Sixth Circuit concluded that none of the four factors were met because Bartech and USCAR were truly separate entities.


When the integrated employer doctrine is considered, the most important factor appears to be a finding of centralized labor/human resources control.  Common management and/or common ownership alone are often insufficient in most jurisdictions.  The trouble frequently arises when separate companies, which are owned and managed by the same individuals, employ centralized human resource functions such as having one entity perform all hiring and firing decisions, all payroll functions and maintain all employee records.  For example, companies may be set up with different corporate names and adhere to separate corporate formalities only to then use one handbook, one employment application as well as other documents that contain both company names.  Such centralized labor functions may result in a finding that the integrated employer doctrine has been satisfied.  


How can companies with less than 50 employees prevent the application of the joint employer or integrated employer doctrines in the FMLA context? 


Joint employers – the most common situation arises when a staffing agency is used to obtain workers, as illustrated in the Grace case.  First, when using a staffing agency check the agreement under which employees will be leased.  Consider requiring the staffing agency to indemnify you as the customer in the event FMLA claims are asserted by leased employees.  Second, determine whether you will be required to supervise the day-to-day job duties of the leased worker; the type of position will often be the determinative factor.  In the event that you will likely be considered a joint employer, make sure that you follow the obligations of a secondary employer under the FMLA.   


Integrated employers – if separate companies will share common ownership and/ or common officers and directors, make sure that the companies are kept separate.  This is especially important with respect to labor relations.  Make sure that the companies have separate handbooks and employment applications, and that personnel decisions are handled by different human resources departments located within each separate entity.  Do not have the same office address for both companies.  If you must share human some resources functions, have one company pay the other company for those services. 


The information contained in this article is not designed to address specific situations, and does not include rules and regulations that apply to all states.  If you have questions concerning this topic, you should consult with legal counsel of your choice to obtain advice on various fact specific matters. 


Robin Foret

The Foret Law Firm

Robin Foret practices in the areas of employment law, commercial litigation and specialty insurance defense claims. She handles a variety of employment matters such as theft of trade secrets, breach of employment agreements, non-competition agreements, wage and hour issues under the Fair Labor Standards Act (FLSA), discrimination and harassment issues under Title VII of the Civil Rights Act of 1964 (Title VII) and the Texas Commission on Human Rights Act (TCHRA), the Americans with Disabilities Act (ADA), Family Medical Leave Act (FMLA) issues, and the Sarbanes-Oxley Act (SOX). Robin has handled a wide variety of employment law matters for employers, as well as for executive-level employees, before agencies, and state and federal courts.