The Individual Liability You Never Knew You Had: Second Circuit Rules HR Directors May Be Liable for FMLA Violations

HR Directors, Beware: Your role in terminating employees may expose you to individual liability under the Family and Medical Leave Act (FMLA).

In Graziadio v. Culinary Institute of America, et al., Graziadio, a Payroll Administrator, took a three-week leave pursuant to the FMLA to care for her son suffering from diabetes, followed immediately by a second leave to care for her other son, who had broken his leg.  After Graziadio submitted the required paperwork, she heard from neither her supervisor nor the HR Director. When Graziadio tried to return work, the Culinary Institute required “additional paperwork” to justify her absence.  Graziadio was notified that she had seven days to submit the paperwork but was not provided any specific detail about what paperwork was required.  Graziadio then retained an attorney. Prior to submitting the “additional paperwork”, Graziadio was informed that she was terminated on the basis of job abandonment and failure to comply with the FMLA. Graziadio thereafter brought suit alleging claims based on interference with her FMLA leave, retaliation and associational discrimination under the Americans with Disabilities Act (ADA) against the Culinary Institute, the HR Director and another supervisor.  The Southern District of New York granted the Culinary Institute’s motion for summary judgment and dismissed the complaint against the individual defendants.

On appeal, United States Court of Appeals for the Second Circuit held that the Culinary Institute’s HR Director can be individually liable under the FMLA.  Under the FMLA, an individual may be held liable if he or she is considered an “employer,” defined as “any person who acts, directly or indirectly in the interest of an employer to any of the employees of such employer.” Applying the “economic-reality test,” the Second Circuit held that individual liability can be found when the alleged employer (1) has the power to hire and fire employees; (2) supervises and controls the employee work schedules or conditions of employment; (3) determines the rate and method of payment; and (4) maintains employment records. The Second Circuit further noted that in the FMLA context, the economic reality of employment relationships exists if the putative employer controls in whole or in part the plaintiff’s rights under the FMLA.

While the Second Circuit found that the Culinary Institute’s Vice President held ultimate termination authority, it also found that its HR Director played a key role in terminating Graziadio.  The HR Director admitted Graziadio’s termination was a joint decision between her and the Culinary Institute’s Vice President. The Vice President also admitted to directing the HR Director to handle the dispute with Graziadio, rather than conducting an independent investigation. The Second Circuit found that sufficient evidence existed that the HR Director controlled Graziadio’s rights under the FMLA through her review of Graziadio’s paperwork, controlled Graziadio’s return ability to return to work and under what conditions, and was responsible for sending nearly all communication regarding Graziadio’s return to work after FMLA leave. Moreover, the HR Director instructed other human resources and payroll employees to refrain from communicating with Graziadio. Based on the totality of the facts, the Second Circuit found that the HR Director was an “employer” and could therefore be held individually liable for violations of the FMLA.

This decision serves as a chilling reminder that HR Directors, especially in the Second Circuit, need to be vigilant in complying with the requirements of the FMLA, mindful of their role in administering FMLA leave and tread cautiously when terminating employees.  Employers should also provide routine and updated training on FMLA leave administration and seek legal counsel prior to terminating employees who take FMLA leave in order to minimize exposure and the likelihood of individual liability.

For more information regarding FMLA procedures and best practices to mitigate liability, please contact Dina M. Mastellone, Esq., Director of the firm’s Human Resources Practice Group, at dmastellone@nullgenovaburns.com or 973-533-0777.

Third Circuit Clarifies Test for Joint Employer Status under FLSA

On June 28 the U.S. Court of Appeals for the Third Circuit refined the standard for deciding whether an organization is a joint employer under the Fair Labor Standards Act (“FLSA”) for purposes of liability for unpaid minimum and overtime wages owed another entity’s employees.

This issue arose in a collective action suit by assistant branch managers at Enterprise Rent-A-Car locations who claimed they were denied overtime pay in violation of the FLSA. Both the subsidiary company Enterprise Rent-A-Car and the parent company Enterprise Holdings, Inc. were named defendants. The District Court granted Enterprise Holdings’ motion for summary judgment on the basis that Enterprise Holdings did not qualify as a joint employer, and the Third Circuit affirmed.

In determining whether a company is a joint employer for purposes of FLSA liability, the Third Circuit articulated a four-prong, “economic reality” test. The Court stated it would require proof of significant control, instead of ultimate control, by one entity over another’s employees and “even indirect control may be sufficient.” The test is as follows:
1) Does the entity have authority to hire and fire?
2) Does the entity have authority to promulgate work rules and assignments, and set conditions of employment, including compensation, benefits and hours?
3) Does the entity conduct day-to-day supervision, including employee discipline?
4) Does the entity control employee records, including payroll, insurance, taxes?

The plaintiffs argued that Enterprise Holdings was a joint employer because it provided its Rent-A-Car branches with human resources best practices guides, employee benefit plans and compensation recommendations, constituting sufficient control under the four prong test for joint employer. The Third Circuit disagreed and found controlling the facts that the subsidiary branch offices were free to choose whether to use any or all of the parent’s suggested guidelines at their own discretion and none of the parent’s guidelines was mandatory. The Court also stressed that the four factors were by no means an exhaustive list and should not be blindly applied. Instead, according to the Court, they should be evaluated in light of other relevant factors that show the first entity is exerting significant control over the other entity’s employees, such as interlocking directorates and the common nature of the businesses each conducted.

Joint employer status under the FLSA continues to require a fact-specific analysis consistent with the Third Circuit’s guidance. If your organization needs assistance in reviewing potential joint employer issues, please contact Jim McGovern, Pat McGovern or Doug Solomon in our Labor Law Practice Group.