Search form

Foreign Parent Company is Joint Employer with Subsidiary for Employment Claims, Court Rules

By Steven D. Baderian, John L. Sander and Maya Atrakchi
  • February 23, 2018

A foreign parent company can be held jointly liable for employment claims against its U.S. subsidiary, a federal district court has held. Middlebrooks v. Teva Pharmaceuticals USA, Inc., No. 17-00412 (E.D. Pa. Feb. 1, 2018).

The employee brought claims against his former employer, Teva USA, and its parent company, Teva Israel, alleging violations of the Age Discrimination in Employment Act, Title VII of the Civil Rights Act, and the Pennsylvania Human Relations Act. The court found that the Israeli parent company “exercises significant control” over their U.S.-based subsidiary’s employees such that it qualifies as a joint employer.

Background

The plaintiff, Stephen Middlebrooks, was hired in 2001 by Teva USA to be the Director of Facilities Engineering at its Pennsylvania location. In 2013, Middlebrooks was promoted to the position of Senior Director of North American Facilities Management, overseeing 70 employees. Shortly thereafter, Middlebrooks began reporting to a supervisor based in Israel, at Teva’s global headquarters, and he worked closely with the Israel-based team, although remaining in his position at the Pennsylvania location.

In February 2016, the Israel-based supervisor terminated Middlebrooks due to performance issues. Middlebrooks then filed suit, alleging that the Teva Israel supervisor and team discriminated against him because of his age and national origin.

Court Analysis

The mere existence of a parent company does not mean the company is subject to liability for employment claims against its subsidiary. In fact, “there is a strong presumption that a parent company is not the employer of a subsidiary’s employees.” Brown v. Fred’s Inc., 494 F. 3d 736, 739 (8th Cir. 2007).

The federal district court in Middlebrooks noted that Teva Israel, a foreign corporation, is not controlled by a U.S. entity. Therefore, it could be considered the plaintiff’s employer only if the single or joint employer exception applied.

The court ruled out the single employer exception because it found Teva Israel and Teva USA are not “operationally or financially entangled” enough for the exception to apply. The two entities maintain separate corporate forms, hold separate board meetings, keep separate books and records, and have separate headquarters. These details, the court said, indicate a traditional parent-subsidiary relationship, and do not establish a separate, single employer entity.

With respect to the “joint employer” exception, however, the court found that Teva Israel exercises “significant control” over the employees of Teva USA, such that the Israeli company qualifies as a joint employer.

Courts consider various factors when assessing whether there is a joint employer relationship, including:

  • Authority to hire and fire employees, promulgate work rules and assignments, and set conditions of employment, including compensation, benefits, and hours
  • Day-to-day supervision of employees, including employee discipline
  • Control of employee records, including payroll, insurance, taxes, and so on

In Middlebrooks, the plaintiff was directly supervised and disciplined by a Teva Israel employee. The Teva Israel employee had the authority to terminate the plaintiff, and he exercised that authority. Although Teva Israel did not pay the plaintiff’s salary, the court emphasized that no one factor of the “joint employer” test was determinative.

Takeaway

The court’s decision is an important reminder to parent companies, both foreign and U.S.-based, that if they exercise “significant control” over their subsidiary’s employees, they can qualify as a “joint employer.”

Please contact your Jackson Lewis attorney to discuss this case.

©2018 Jackson Lewis P.C. This Update is provided for informational purposes only. It is not intended as legal advice nor does it create an attorney/client relationship between Jackson Lewis and any readers or recipients. Readers should consult counsel of their own choosing to discuss how these matters relate to their individual circumstances. Reproduction in whole or in part is prohibited without the express written consent of Jackson Lewis.

This Update may be considered attorney advertising in some states. Furthermore, prior results do not guarantee a similar outcome.

Jackson Lewis P.C. represents management exclusively in workplace law and related litigation. Our attorneys are available to assist employers in their compliance efforts and to represent employers in matters before state and federal courts and administrative agencies. For more information, please contact the attorney(s) listed or the Jackson Lewis attorney with whom you regularly work.

See AllRelated Articles You May Like

September 24, 2018

Time Spent in Security Screening Compensable under Laws of Nevada and Arizona, Federal Court Rules

September 24, 2018

The laws of Nevada and Arizona require employers to pay their workers for time spent going through security screenings at the end of their shifts, the federal appeals court in Cincinnati has ruled. Busk et al. v. Integrity Staffing Solutions et al., Nos. 17-5784 and 17-5785 (6th Cir. Sept. 19, 2018). While the U.S. Supreme Court held... Read More

September 24, 2018

Supreme Court Preview: 2018-2019 Term

September 24, 2018

The U.S. Supreme Court will begin its 2018-2019 Term with a docket full of cases significant to employers and businesses. Cases to watch involve questions on employment discrimination and class arbitration, among other things. Age Discrimination in Employment Act On the first day of the term, October 1, 2018, the Court will hear... Read More

September 14, 2018

New Version of Model FCRA Summary of Rights Released; And You Have One Week to Comply

September 14, 2018

A new model “A Summary of Your Rights Under the Fair Credit Reporting Act” disclosure form document was released on September 12, 2018, by the Consumer Financial Protection Bureau (CFPB). Employers and background check companies should begin using the new form by September 21, 2018. The federal agency responsible for oversight and... Read More