United States 1st Circuit Court of Appeals Reports
ENGELHARDT v. S.P. RICHARDS CO., 06-1232 (1st Cir.
12-22-2006) LEANNE ENGELHARDT, Plaintiff, Appellant, v.
S.P. RICHARDS COMPANY, INC., GENUINE PARTS COMPANY,
Defendants, Appellees. No. 06-1232. United States Court of
Appeals, First Circuit. December 22, 2006.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF NEW HAMPSHIRE [Hon. Paul J. Barbadoro, U.S.
District Judge]
James W.Donchess, with whom Donchess & Notinger, P.C., were
on brief, for appellant.
Lisa M. Szanfranic, with whom Patricia E. Simon, Martenson,
Hasbruck & Simon, LLP, Debra W. Ford, and Devine, Millimet
& Branch, P.A., were on brief, for appellees.
Before TORRUELLA, Circuit Judge, SILER,[fn*] Senior
Circuit Judge, and HOWARD, Circuit Judge.
[fn*] Of the Sixth Circuit, sitting by designation.
SILER, Senior Circuit Judge.
Plaintiff Leanne Engelhardt appeals the dismissal of her
claim for wrongful termination under the Family Medical
Leave Act, 29 U.S.C. § 2601, et seq. (the “FMLA”).
We AFFIRM because defendant S.P Richards Co. (“SPR”)
employed fewer than 50 people within 75 miles of its Nashua
facility, and defendants Genuine Parts Co. (“GPC”) and SPR
(together, “Defendants”) are not integrated entities under
the FMLA. Thus, Engelhardt was not an eligible employee
under 29 C.F.R. § 825.110(a)(3).
I.
SPR, a wholly-owned subsidiary of GPC, is an office
supplies wholesaler headquartered in Smyrna, Georgia. GPC
is a publicly-traded corporation, and operates an auto
parts retailing business under the name Genuine Parts Co.
d/b/a NAPA Auto Parts, based in Atlanta, Georgia.
SPR adopted GPC’s personnel policies on attendance, sexual
harassment, substance abuse, corporate conduct and network
security. Many of SPR’s handbooks, benefits brochures,
information sheets, registration forms and paycheck stubs
carry the GPC logo or letterhead instead of, or in addition
to, SPR’s logo. SPR’s employees are eligible to participate
in GPC-administered employee health insurance, life
insurance, 401(k), and pension plans. GPC also issues SPR’s
payroll checks. SPR pays an administrative fee and
reimburses GPC for all benefits and wages paid to SPR’s
employees.
SPR hired Engelhardt as a customer service representative
at its Nashua distribution facility in February 2000 and
terminated her on December 17, 2002. She had missed work
the previous day and a half without authorization to care
for her daughter who had attempted suicide. This was the
third time that she had missed work for that reason.
Engelhardt filed this lawsuit in the district court
claiming that her termination, among other things, was in
violation of the FMLA. The district court granted summary
judgment on the basis that, pursuant to 29 C.F.R. §
825.110(a)(3), Englehardt was ineligible for FMLA benefits
because SPR did not employ the requisite number of people at
its Nashua facility.[fn1] See Engelhardt v. S.P. Richards
Co., No. 04-CV-120-PB, 2005 U.S. Dist. LEXIS 37118, at *5-9
(D.N.H. Dec. 29, 2005). Engelhardt argued that GPC and SPR
ought to be considered a single, integrated employer under
29 C.F.R. § 825.104(c)(2) because of the overlap in
the substance and administration of their employment
policies, and the implication suggested by SPR’s documents
that GPC controlled SPR’s human resource and labor
practices. The district court rejected the argument, which
otherwise would have counted GPC’s 50-plus Nashua employees
toward FMLA eligibility. See id. Englehardt appeals this
determination.
II.
The only issue before us is whether the district court
erred in granting Defendants’ summary judgment motion on
the basis that SPR and GPC are not integrated employers
within the meaning of 29 C.F.R. § 825.104(c)(2). We
review the grant of summary judgment de novo. See
Velez-Rivera v. Agosto-Alicea, 437 F.3d 145, 150 (1st Cir.
2006). We will affirm the dismissal if, after construing
all reasonable inferences in Engelhardt’s favor, “there is
no genuine issue as to any material fact and . . . [GPC and
SPR are] entitled to judgment as a matter of law.”
Fed.R.Civ.P. 56(c). The parties agreed at oral argument
there were no disputes of material fact. Thus, the question
is strictly a legal one: whether, based upon the record,
SPR and GPC are integrated entities.
A.
The FMLA provides eligible employees of covered employers
up to twelve workweeks of unpaid leave in any twelve-month
period in order to tend to certain familial obligations,
such as caring for a loved one who has a serious health
condition. See 29 U.S.C. §§ 2612, 2615(a)(2).
It is “unlawful for any employer to interfere with,
restrain, or deny the exercise of or the attempt to
exercise, any right provided under [the FMLA],” 29 U.S.C.
§ 2615, and the act provides for a private right of
enforcement, see 29 U.S.C. § 2617(a). The parties
agree, at least arguendo, that Engelhardt’s daughter’s
depression and suicide attempt amount to a serious enough
condition to qualify for FMLA protection.
Pursuant to its authority under the FMLA, see 29 U.S.C.
§ 2654, the Department of Labor (the “DOL”) has
promulgated regulations which set forth the eligibility
requirements for both employers and employees. 29 C.F.R.
§ 825.110(a) defines “eligible employees” and
requires that the employee
(3) [be] employed at a worksite where 50 or more
employees are employed by the employer within 75 miles of
that worksite.
29 C.F.R. 825.104(a) defines “covered employers,” i.e.,
any person engaged in commerce or in any industry or
activity affecting commerce, who employs 50 or more
employees for each working day during each of 20 or more
calendar workweeks in the current or preceding calendar
year.
“Normally the legal entity which employs the employee is the
employer under FMLA. . . . [A] corporation is a single
employer rather than its separate establishments or
divisions.” 29 C.F.R. § 825.104(c). However, a
subsidiary is treated differently, as there is a “strong
presumption that a parent corporation is not the employer
of its subsidiary’s employees.” Lusk v. Foxmeyer Health
Corp., 129 F.3d 773, 778 (5th Cir. 1997) (citation
omitted). Our task is to clarify how to distinguish between
an entity that is a division of, and therefore part of a
corporation, and one that is a subsidiary and therefore a
separate entity. In Radio & Television Broadcast
Technicians Local 1264 v. Broadcast Service of Mobile,
Inc., 380 U.S. 255, 256 (1965) (per curiam), the Supreme
Court articulated the “integrated employer” (also, the
“single employer”) test in the labor relations context to
determine when an entity is sufficiently related to one’s
legal employer to subject it to liability. The DOL
subsequently codified the above general rule and the
exception in its FMLA regulations:
Where one corporation has an ownership interest another
corporation, it is a separate employer unless it meets the
“joint employment” test discussed in § 825.106, the
“integrated employer” test contained in paragraph or
(c)(2) of this section.[fn2]
Separate entities will be deemed to be parts of a single
employer for purposes of FMLA if they meet the “integrated
employer” test. Where this test is met, the employees of
all entities making up the integrated employer will be
counted in determining employer coverage and employee
eligibility. A determination of whether or not separate
entities are an integrated employer is not determined by
the application of any single criterion, but rather the
entire relationship is to be reviewed in its totality.
Factors considered in determining whether two or more
entities are an integrated employer include:
(i) Common Management;
(ii) Interrelation between operations;
(iii) Centralized control of labor relations; and
(iv) Common Ownership.
29 C.F.R. § 825.104(c)(1) and (2) (footnote added).
Engelhardt contends that the integrated employer test is
met because SPR admits having adopted some of GPC’s
employment policies and GPC administers SPR’s employee
benefits programs. She also points to documentary evidence
which are purported to be GPC forms. It includes, for
example, the separation notice she signed before her
termination; the employee attendance policy forms; the code
of corporate conduct form; the sexual harassment policy
form; and the employee benefits packages, along with the
accompanying brochures, information sheets, and election
and acknowledgment forms.[fn3] Many of these documents were
on GPC letterhead or were stamped with the GPC logo and the
cover letter for the benefits forms even addressed
Engelhardt generically as “Dear GPC Employee.” Moreover,
Englehardt’s paychecks were processed through GPC and bore
GPC’s and SPR’s logos.
B.
In Romano v. U-Haul International, 233 F.3d 655, 666 (1st
Cir. 2000), a Title VII case, we determined that a
“flexible approach” which considered all four “integrated
employer” factors was appropriate, with special emphasis on
whether “the parent exerts `an amount of participation
[that] is sufficient and necessary to the total employment
process, even absent total control or ultimate authority
over hiring decisions.'” Id. (citing Armbruster v. Quinn,
711 F.2d 1332, 1338 (6th Cir. 1983)).
While placing emphasis on the centrality of control over
labor relations makes sense for imposing liability on
affiliated entities in an employment discrimination case,
cf. Romano, 233 F.2d at 666, we think that, here, the four
factors merit equal consideration given the plain language
of 29 C.F.R. § 825.104(c)(2). However, our analysis
of the four factors should be informed by certain economic
concerns. This is because the 50-employee exception is an
economic one rooted in protecting small businesses, and the
purpose of the “integrated employer” test is to ensure that
a defendant has not structured itself to avoid labor laws.
See Papa v. Katy Indus., 166 F.3d 937, 942 (7th Cir. 1999).
While we do not doubt that GPC’s relationship with SPR
extends beyond mere absentee ownership, the issue is
whether GPC controls enough facets of SPR’s business and
operations, such that it has not maintained its economic
distinctness.
We find support for our framing of the issue in the FMLA.
The general purpose of the FMLA is to satisfy the “needs of
the American workforce and the development of
high-performance organizations,” 29 C.F.R. §
825.101, by “balanc[ing] the demands of the workplace with
the needs of families. . . in a manner that accommodates
the legitimate interests of employers,” 29 U.S.C. §
2601(b)(1), (3). With that in mind, we view the 50-employee
exception as a threshold protecting smaller businesses from
the onerous requirement of keeping an unproductive employee
on the payroll in the form of redundant or absent
employees, going without an employee for up to twelve
weeks, or both. Cf. Papa, 166 F.3d at 942 (observing that
minimum employee requirements protect small businesses from
the financial costs of compliance with employment
laws).[fn4] Similarly, we note that “[t]he 75-mile distance
is measured by surface miles, using surface transportation
. . . by the shortest route from the facility where the
eligible employee needing leave is employed.” 29 C.F.R.
§ 111(b). Thus, the 75-mile rule protects those
employers (and their employees) whose businesses require
separate worksites from the cumbersome requirement of
relocating or commuting over large distances to cover for
an employee on leave. Moreover, the 75-mile requirement
prevents companies from establishing separate worksites in
order to circumvent obligations under the FMLA and other
labor rules. This is analogous to the determination that a
multi-building or multi-facility campus is a single
worksite if the facilities “are in reasonable proximity,
are used for the same purpose and share the same staff and
equipment.” 29 C.F.R. § 111(a)(1).
Therefore, one purpose of the 50-employee and 75-mile
requirements is to exempt businesses like SPR which choose,
or must, operate at lower costs from the costs of
compliance. For example, in order to stave off disruption
in its operations, SPR would have to maintain a troop of
redundant employees to cover for absent employees. When
combined with the costs of maintaining absent employees on
the payroll for up to twelve weeks, this is a potentially
significant cost in terms of employee non-productivity. The
FMLA excepts smaller companies who would unlikely be able
to shoulder the burden.[fn5] Moreover, a small company that
would otherwise be exempt from the FMLA should not be
deprived of the exception just because it is a subsidiary
of larger company. See Papa, 166 F.3d at 942. It should
have the benefit of the exception if it maintains its
economic identity as a small business. Cf. Hukill v. Auto
Care, Inc., 192 F.3d 437, 442 (4th Cir. 1999) (observing
that parent domination over operations, management, and
employment decisions is a critical factor).
C.
Turning back to Engelhardt’s evidence, the documents fail
to demonstrate that GPC and SPR are an integrated employer,
per the § 825.104(c)(2) test. Going to the first
factor, there is no indication that SPR is under the same
management as GPC. There is no common manager between them
and no SPR manager answers to any GPC employee. The one
person who had been a manager at SPR prior to becoming one
at GPC had to resign his SPR position and apply through
normal channels at GPC. All facets of SPR’s operations,
from corporate to facilities management are entirely
dictated by SPR employees. And unlike in Armbruster, 711
F.2d at 1339, where one person was president of one entity
and a director of the other, here, the two companies share
two independent directors who are not involved in running
either business. Moreover, there is little, if any,
evidence to suggest any interrelation between operations of
the two companies, the integrated employer test’s second
factor. SPR has a separate headquarters, human resource
department, records and record keeping, and separate
worksites which fulfilled wholly distinct functions. The
nature of their businesses is also distinct — GPC is
in the auto-parts retailing business whereas SPR is in the
office-supply wholesaling business. Thus, SPR is not a GPC
“division” whereby upper echelons of control are
centralized and efficiencies are realized through
consolidation of redundant administrative, human resource,
and management functions.
Furthermore, the third factor also weighs against finding
that the two companies are an integrated employer as the
facts reveal that SPR made its own, independent decisions
with respect to labor relations. Only SPR had the power to
determine how many employees it needs, and whether, when
and whom to hire and fire to meet those needs. Cf. Baker v.
Stuart Broadcast. Co., 560 F.2d 389, 392 (8th Cir. 1977).
There is no evidence to suggest that SPR deferred to GPC in
making hiring, firing, assignment, scheduling, or
compensation decisions. See Swallows, 128 F.3d at 995.
Because the evidence does not demonstrate that GPC
controlled SPR’s operations with regard to the deployment
or redeployment of human resources, see Romano, 233 F.3d at
666, there is no basis for the inference that GPC employees
could be asked to cover for SPR employees, even though they
may be less than 75 miles apart. Nor is there evidence that
Engelhardt’s function would be within the sphere of
competency of a GPC customer service representative.
We disagree with Engelhardt’s assertion that SPR’s adoption
of GPC’s employment policies, by use of its employment
documents, forms and payroll services, create an inference
that Defendants centrally determined both companies’
employment policies. As Defendants contend, the above
issues are irrelevant because there is no evidence that GPC
required SPR to adopt the same policies and programs, nor
could it prevent SPR from later adopting different ones.
See Hukill, 192 F.3d at 444.
SPR’s use of GPC’s forms, employee benefits programs and
payroll services are reflective of SPR’s desire to
capitalize on certain economies of scale. That is, it was
cheaper, and therefore economically advantageous, for SPR
to subscribe to GPC’s programs. The courts in Papa and
Hukill rejected arguments similar to Engelhardt’s. They
recognized that whether a subsidiary obtains services at an
arm’s length from its parent, for which it would otherwise
have to go to more expensive outside vendors, is irrelevant
to the goal of imposing liability on affiliated
corporations; moreover, it is antithetical to the purpose
for excepting smaller businesses from liability to impose
liability on the parent. Judge Posner explains in Papa:
Firms too tiny to achieve the realizable economies of
scale or scope in their industry will go under unless they
can integrate some of their operations with those of other
companies, whether by contract or by ownership. The
choice between the two modes of integration is unrelated
to the exception. Take contractual integration first. A
firm too small to have its own pension plan will join in a
multi employer pension plan or will in effect pool with
other employers by buying an insurance policy. . . . It
will hire an accounting firm to do its payroll rather
than having its own payroll department. It may ask the
Small Business Administration for advice on how to
maximize its profits by pruning its least profitable
operations. None of these forms of contractual integration
would subject tiny employers to [liability], because the
integration is not of affiliated firms. Why should it make
a difference if the integration takes the form of common
ownership, so that the tiny employer gets his pension
plan, his legal and financial advice, and his payroll
function from his parent corporation without contractual
formalities, rather than from independent contractors?
Papa, 166 F.3d at 942; see also Hukill, 193 F.3d at 443-44
(noting that the practice of subsidiaries purchasing
certain services from the parent corporation is “not
unusual in today’s marketplace”). Following Papa’s logic,
SPR’s capitalization on cost efficiencies through GPC is
irrelevant because those efficiencies do not come from
common management and common operations. It is the latter
that would collapse the distinct economic identity of each
entity, which is the basis for the exception to FMLA
liability.
Furthermore, it is evident that SPR’s use of GPC’s
administrative services is irrelevant to the type of
operations in question. Compare Swallows, 128 F.3d at 994
(finding no interrelation of operations where there were
separate records, bank accounts, and offices), and Hukill,
192 F.3d at 443 (finding as insignificant the fact that
subsidiary purchased administrative services from parent as
compared with the evidence that each company otherwise
operates distinctly) (citing Papa, 166 F.3d at 942 (same)),
with Armbruster, 711 F.2d at 1338 (finding interrelation of
operations where subsidiary’s management were armed with
parent’s corporate credit cards, and parent managed
subsidiary’s receivables, payroll and cash accounting,
provided administrative support, and coordinated shipping
of subsidiary’s products).
Thus, the evidence Engelhardt presents does not overcome
the presumption that a parent is a “separate employer,” 29
C.F.R. § 825.104(c)(1), and is “not the employer of
[SPR’s] employees,” Lusk, 129 F.3d at 778. Rather,
Defendants conclusively demonstrate that theirs is nothing
less than an “arm’s length relationship [that exists] among
unintegrated companies,” South Prairie Constr. Co. v. Int’l
Union of Operating Engineers, 425 U.S. 800, 803 (1976)
(citation omitted), because SPR paid administrative fees
and reimbursed GPC for all benefits paid to SPR employees.
Cf. McKenzie v. Davenport-Harris Funeral Home, 834 F.2d
930, 933-934 (11th Cir. 1987) (finding common operations
where one entity paid the other entity’s payroll without
compensation for wages). This fact distinguishes this
parent/subsidiary relationship from a corporation/division
relationship which would be treated as a single employer
under 29 C.F.R. § 825.104(c). Therefore, though SPR
is wholly-owned by GPC, that fact alone is insufficient to
overcome the balance of the first three factors in this
case. See Morrison v. Magic Carpet Aviation, 383 F.3d 1253,
1257 (11th Cir. 2004) (“As a matter of law, we do not
believe that common ownership of two corporations is enough
for a jury to conclude that they were integrated into one
operation for FMLA purposes.”).
Affirmed.
[fn1] 29 C.F.R. § 825.110(a)(3) sets forth the
requirement that to be eligible for FMLA benefits, an
employee must work for an employer that employs 50 or more
people within 75 miles of the employee’s worksite.
[fn2] The difference between the “joint employer” and the
“integrated employer” tests turns on whether the plaintiff
seeks to impose liability on her legal employer or another
entity. Compare 29 C.F.R. § 825.106 with §
825.104(c)(2). The former looks to whether there are
sufficient indicia of an employer/employee relationship to
justify imposing liability on the plaintiff’s non-legal
employer. The latter applies where, as here, liability
sought to be imposed on the legal employer by arguing that
anot entity is sufficiently related such that its actions,
or in this case, size, can be attributable to the legal
employer. See Arculeo v. On-Site Sales & Mktg., L.L.C., 425
F.3d 193, 197-98 (2d Cir. 2005) (citing Clinton’s Ditch
Cooperative Co. v. NLRB, 778 F.2d 132 (2d Cir. 1985)).
[fn3] Engelhardt signed a “Genuine Parts Company Applicant
Acknowledgment of Substance Abuse Policy.” She signed an
acknowledgment that she had received and agreed to abide by
the “Genuine Parts Company Code of Corporate Conduct,” and
also one bearing the “S.P. Richards Co.” name and stating
that she had received and agreed to abide by the “Genuine
Parts Company Employee Attendance Policy.”
[fn4] We are, however, equally mindful of the potential for
the requirement to have jurisdictional implications to the
extent that a smaller employer’s business may be too
attenuated to interstate commerce. Cf. Papa, 166 F.3d at
942.
[fn5] SPR already had in place an FMLA compliance system in
case the Nashua worksite exceeded 50 employees. Therefore,
the major cost confronting it would be labor-related.