Third Circuit Addresses Individual Liability, Joint Employment and Successor Liability Under the FLSA
In Thompson v. Real Estate Mortgage Network, the Third Circuit addressed a variety of ways in which a plaintiff could pursue claims against entities that claimed they were not her employer.
The plaintiff was hired as a mortgage underwriter by defendant Security Atlantic Mortgage Company (“SAMC”). Allegedly in response to an investigation being conducted into SAMC 's mortgage practices, the plaintiff and others were directed to complete job applications for Real Estate Mortgage Network ("REMN"), a “sister company” of SAMC. The plaintiff completed the application, and subsequently her paychecks were issued by REMN instead of SAMC, and SAMC became "defunct.”
The Plaintiff’s Claims
After leaving REMN, the plaintiff filed a complaint U.S. District Court for New Jersey, alleging that she was misclassified as an exempt employee and unlawfully deprived of overtime.
The plaintiff sued REMN and SAMC, and also sued two individuals who were co-owners and executives for SAMC (and later became officers of REMN). The plaintiff contended those individuals were joint employers by virtue of their positions with the defendant companies, and therefore were "personally, jointly and severally liable for the violations” of the FLSA and the New Jersey Wage and Hour Law.
The District Court dismissed the plaintiff's complaint without prejudice pursuant to Rule12(b)(6), and she appealed to the Third Circuit.
The Third Circuit found that the plaintiff’s allegations were sufficient to state a claim that SAMC and REMN were joint employers under the FLSA based on the “Enterprise test” set forth in In re Enterprise Rent-A-Car Wage & Hour Emp't Prac. Litig., 683 F.3d 462, 467-68 (3d Cir. 2012), which looks to the following non-exhaustive list of factors:
(1) the alleged employer's authority to hire and fire;
(2) the alleged employer's authority to promulgate work rules and assignments and to set the employees' conditions of employment (compensation, benefits, and work schedules, including the rate and method of payment);
(3) the alleged employer's involvement in day-to-day employee supervision, including employee discipline; and
(4) the alleged employer's actual control of employee records, such as payroll, insurance, or taxes.
The Third Circuit held that the plaintiff had stated a claim for joint employment status by alleging that (i) an employee of REMN trained SAMC employees, (ii) REMN and SAMC were referred to as "sister companies," and (iii) Plaintiff and some other SAMC employees were “abruptly and seamlessly” integrated into REMN's business, and some employees continued to be paid by SAMC even after that integration.
The Third Circuit did not address joint employer status under the New Jersey Wage Hour Law.
The Third Circuit then concluded that REMN could be liable not only for its own violations, but also for the violations of SAMC as a successor corporation.
The Third Circuit applied a federal common law standard, which considers (1) continuity in operations and work force of the successor and predecessor employers; (2) notice to the successor-employer of its predecessor's legal obligation; and (3) ability of the predecessor to provide adequate relief directly.
The Third Circuit concluded that the plaintiff had alleged facts sufficient to support such liability, because it contended that all facets of the business at issue, including work in progress, operations, staffing, office space, email addresses and employment conditions remained the same whether plaintiff was an employee of SAMC or REMN.
The Circuit Court stated that, for the same reasons, the plaintiff could pursue atheory of successor liability under the New Jersey Wage and Hour Law.
In regard to the individual defendants, the Third Circuit cited to case law under the FLSA and FMLA providing that an individual may be subject to liability when he or she exercises "supervisory authority over the complaining employee and was responsible in whole or part for the alleged violation" while acting in the employer's interest. An individual supervisor has adequate authority over the complaining employee when the supervisor "independently exercises control over the work situation."
For purposes of Rule 12(b)(6), the plaintiff satisfied these requirements by alleging that the individual defendants made decisions concerning “day-to-day operations, hiring, firing, promotions, personnel matters, work schedules, pay policies, and compensation," and were consulted when personnel issues arose at SAMC. The Third Circuit did not address individual liability under the New Jersey Wage Hour Law.
In light of the foregoing, the Third Circuit reversed and remanded the case to the District Court.