Jottings By An Employer's Lawyer

Thursday, December 28, 2006

Chicago School of Economic Analysis in 1st Cir. FMLA Case


Deciding that two related entities are not one employer for purposes of the FMLA, the 1st Circuit relied heavily on the type of economic analysis more regularly seen in the 7th Circuit. Engelhardt v. S.P. Richards Co. (1st Cir. 12/22/06) [pdf]. The primary argument for combining the two in order to reach the magic 50 employees within 75 mile radius number needed for coverage, was that S.P. Richards used employment forms and policies of its parent company, Genuine Parts Company.

The Court even quoted the most famous practitioner of the Chicago School, Judge Posner:
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?
The bottom line — no integrated employer, no liability.

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