Court Opinion

ID: 2976433
Source: CourtListenerOpinion
Date Created: 2015-09-22 17:51:54.038386+00
Date Added: 2024-06-11T11:44:00.491855
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                                Pursuant to Sixth Circuit Rule 206
                                      File Name: 08a0127p.06

                    UNITED STATES COURT OF APPEALS
                                  FOR THE SIXTH CIRCUIT
                                    _________________

                                             X
                        Plaintiff-Appellant, -
 ROSALYN GRACE,
                                              -
                                              -
                                              -
                                                               No. 06-2509
         v.
                                              ,
                                               >
 USCAR and BARTECH TECHNICAL SERVICES, -
                                              -
                      Defendants-Appellees. -
 LLC,

                                              -
                                             N

                         Appeal from the United States District Court
                        for the Eastern District of Michigan at Detroit.
                      No. 05-72847—Nancy G. Edmunds, District Judge.
                                   Argued: January 31, 2008
                              Decided and Filed: March 26, 2008
                  Before: MERRITT, GILMAN, and COOK, Circuit Judges.
                                      _________________
                                          COUNSEL
ARGUED: Darcie R. Brault, DIB, FAGAN AND BRAULT, P.C., Royal Oak, Michigan, for
Appellant. Thomas G. Kienbaum, KIENBAUM, OPPERWALL, HARDY & PELTON,
Birmingham, Michigan, Melanie T. LaFave, JAFFE, RAITT, HEUER & WEISS, P.C., Southfield,
Michigan, for Appellees. ON BRIEF: Darcie R. Brault, DIB, FAGAN AND BRAULT, P.C.,
Royal Oak, Michigan, for Appellant. Jay C. Boger, KIENBAUM, OPPERWALL, HARDY &
PELTON, Birmingham, Michigan, Melanie T. LaFave, JAFFE, RAITT, HEUER & WEISS, P.C.,
Southfield, Michigan, for Appellees. Gary A. Reeve, KENNEDY, REEVE & KNOLL, Columbus,
Ohio, for Amicus Curiae.
                                      _________________
                                          OPINION
                                      _________________
                                                I.
        MERRITT, Circuit Judge. The plaintiff, Rosalyn Grace, appeals the district court’s order
of summary judgment resulting in the dismissal of her Family Medical Leave Act (FMLA) and
federal and state gender discrimination claims against defendants USCAR and Bartech Technical
Services, LLC (Bartech). First, she argues that Bartech and USCAR are joint employers and thus
both liable for violations of her rights under the FMLA. In support of this argument, she contends

                                                1
No. 06-2509                 Grace v. USCAR, et al                                                             Page 2

that the district court misinterpreted existing case law regarding successor-in-interest liability under
the FMLA and that she was eligible for unpaid medical leave. Second, she contends that the district
court erred by granting the defendants’ motion for summary judgment on her Title VII gender
discrimination claim. Specifically, Grace argues that Bartech had sufficient notice of USCAR’s
violations to be held liable as a joint employer. And finally, the plaintiff argues that her related
state-law claims should have been dismissed without prejudice, instead of with prejudice.
        We hold that Bartech and USCAR are joint employers for FMLA purposes and that Grace
was eligible for unpaid leave. Grace has raised a genuine issue of material fact as to whether the
defendants violated her rights under the FMLA; consequently, the district court’s grant of summary
judgment is reversed as to the plaintiff’s FMLA claims. We agree, however, with the district court
that the defendants are entitled to summary judgment on the merits of her gender discrimination
claims under Title VII. Finally, the plaintiff is mistaken in stating that her state-law gender
discrimination claim was dismissed with prejudice; it was not.
                                                           II.
       The plaintiff, Rosalyn Grace, held several information technology (“IT”) positions for
defendant USCAR for eight years, beginning in 1996. USCAR is a general partnership formed
between Ford Motor Company, DaimlerChrysler Corporation and General Motors Corporation,
which was created to1facilitate research and development (“R&D”) programs that benefit the U.S.
automotive industry. All  of USCAR’s employees are either contractors, like Grace, who are hired
from staffing agencies2 or full-time employees of one of the partner companies on loan to USCAR.
       At all times during her service to USCAR, Grace was a contract employee employed by
agencies providing workers for USCAR. During the course of her       employment, USCAR used
various contracting houses, but most importantly DGE and Bartech.3 In December 2003, DGE filed
for bankruptcy reorganization, at which time USCAR interviewed four companies about assuming
the DGE contracts for USCAR’s administrative employees, including Grace. Bartech was selected
and began to service the USCAR account in January 2004. The plaintiff was employed continuously
since 1996 and her duties stayed the same throughout her move from one placement agency to
another. Joint Appendix (“JA”) 674.
         During the time period in question, USCAR’s Executive Director was Patricia Flaherty.
Grace reported directly to Flaherty and to USCAR’s Director of Operations, Michael Martin.
Jennifer Shimon, with whom Grace communicated frequently, was the Bartech Account Manager
for the USCAR account. Grace developed a respiratory disability (asthma) during the fall of 2004
that eventually resulted in her hospitalization from November 17-26, 2004. As a result, she was
unable to continue her IT work at USCAR, and took leave from her position, with an expected return
date of January 3, 2005. Grace contacted Bartech with regard to her request for FMLA leave. JA
171. On December 30, 2004, Bartech informed Grace that USCAR had decided to outsource its IT
duties and that, as a result, her position was terminated. The plaintiff’s recovery took longer than
initially expected, and upon notifying the defendants that she was cleared to return to work in
February 2005, the defendants again told Grace that her position had been eliminated and that no
position remained for her.

         1
          The 1984 Cooperative Research Act allows competitors, subject to regulations, to work collaboratively on pre-
competitive research and development.
         2
             In this opinion we refer to Bartech as both a “placement” agency and a “staffing” agency.
         3
        In her deposition, the plaintiff indicates that she was first employed by a group “RST,” which then merged
with “ASG.” Thereafter, she was given the opportunity to switch to DGE, which she did. JA 933.
No. 06-2509               Grace v. USCAR, et al                                                                 Page 3

        The defendants assert that USCAR management decided in the fall of 2004 to restructure its
IT division. As part of this process, USCAR’s management team considered switching from using
full-time contractors from agencies such as Bartech to contracting directly with individual providers
of services on an as-needed basis. JA 90. One such position allegedly targeted for change was the
IT Manager position held by Grace. On December 13, 2004, Flaherty recommended, and USCAR
approved, the elimination of the plaintiff’s full-time position in favor of hiring an ostensibly
part-time consultant. JA 93-94. Also in December 2004, USCAR decided to use the services of
another Bartech contractor, Brian Spolarich, to handle the regular IT maintenance issues due to
Grace’s absence. JA 93. In May 2005, Martin decided to contract directly with Spolarich        – for a
20 hour per week job – to permanently fill the new IT position at USCAR. JA 733-35.4
        The plaintiff contends that the reorganization was merely a pretext for USCAR’s unlawful
behavior towards her. The plaintiff also asserts that Spolarich was working an additional ten to
fifteen hours per week developing a database application for an affiliate of USCAR. Furthermore,
USCAR was paying Spolarich either $ 62 or $ 75 per hour, while the billing rate USCAR paid to
Bartech for the plaintiff’s services was $ 58.66. JA 685. Grace argues that when the additional
hours and the higher rates paid to Spolarich are included, the defendants would not be saving money
compared to her full-time position; according to the plaintiff, therefore, the two positions should be
considered as equivalent.
        The plaintiff brought suit in federal district court, alleging: (1) violations of the FMLA for
failing to return the plaintiff to her pre-leave (or comparable) position and for retaliation,5
(2) unlawful gender discrimination under Title VII of the Civil Rights Act for replacing her with a
lesser qualified male employee and for creating a hostile work environment, and (3) unlawful gender
discrimination under Michigan’s Elliot-Larsen Civil Rights Act (ELCRA) for the same reasons. The
gender discrimination claims were rooted in a joint employment theory, which would make Bartech
liable for the actions of the co-employer, USCAR.
        Both defendants filed motions for summary judgment on June 1, 2006, which the district
court granted. Grace argues that the district court made four mistakes: (1) that it misinterpreted this
Court’s holding in Cobb v. Contract Transport, Inc, 452 F.3d 543 (6th Cir. 2006) when it found that
Bartech was not a successor in interest to DGE; (2) that it mistakenly determined that USCAR was
not an “employer” under FMLA or Title VII; (3) that the district court erred by requiring the
plaintiff to point to specific language putting Bartech on notice of the gender discrimination; and
(4) that, in declining to exercise supplemental jurisdiction, the district court should have dismissed
Grace’s state law claim without prejudice. The effect of the district court’s decision is to deny
FMLA coverage to an individual who worked as a loaned employee for the same employer
(USCAR) for eight years.
                                                          III.
       This Court reviews de novo a district court’s grant of summary judgment for a party. Nat’l
Solid Wastes Mgm’t Ass’n v. Daviess County, 434 F.3d 898, 902 (6th Cir. 2006). Summary
judgment is appropriate where the pleadings and evidence show that there is no genuine issue as to
any material fact and that the moving party is entitled to a judgment as a matter of law. FED. R. CIV.

         4
          By this time, Flaherty had left her position with USCAR; thus, she did not participate in the final decision to
hire Spolarich on a permanent basis. JA 95.
         5
           The plaintiff originally pled FMLA retaliation. However, at the summary judgment stage, she admitted she
was not claiming retaliation, but instead that the defendants interfered with her FMLA rights by failing to restore her
position following leave (i.e. an entitlement claim). JA 1223. We therefore address only the entitlement claim.
No. 06-2509              Grace v. USCAR, et al                                                              Page 4

P. 56(c). In evaluating the motion, we view all facts and inferences in the light most favorable to
the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986).
                                                        IV.
        The FMLA was enacted, in part, “to balance 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). An “eligible” employee may take up to 12 weeks of unpaid leave for certain situations,
including a serious medical condition such as asthma. See 29 U.S.C. § 2612(a)(1). In order to
qualify as an eligible employee, an individual must have worked for at least 12 months – and at least
1,250 hours during the previous 12-month period – for a covered employer. 29 U.S.C. § 2611(2).
A covered “employer,” in turn, comprises “any person engaged in commerce or in any industry or
activity affecting commerce who employs 50 or more employees [within 75 miles of the worksite]
for each working day during each of6 20 or more calendar workweeks in the current or preceding
calendar year.” 29 U.S.C. § 2611(4). The term “employer” also includes “any successor in interest
of an employer.” 29 U.S.C. § 2611(2)(A)(ii)(II) (emphasis added). The act forbids a covered
employer from interfering with the exercise of the right to unpaid leave and furthermore provides
that, upon return from leave, an employee must be restored to the same or similar position unless
the employer offers sufficient economic justification for the elimination of the position. See 29
U.S.C. § 2614.
         Grace contends that USCAR and Bartech are joint employers and that both are liable for
violating her FMLA rights by failing to restore her to her pre-leave, or equivalent, position. The
district court granted summary judgment for both defendants. Grace v. USCAR, No. 05-72847,
2006 U.S. Dist. LEXIS 72311 (E.D. Mich. Oct 4, 2006). It first determined that USCAR was not
an employer for FMLA purposes because it did not have any employees on its books, thereby
precluding a finding that the entity satisfied the numerosity requirement. Id. at *21. Furthermore,
it held that USCAR’s liability as a secondary employer under the statute was derivative of Bartech.
Id. at *20. In addressing Bartech’s potential liability, the district court concluded that even though
Bartech employed 50 or more employees, Grace was ineligible for FMLA leave because she failed
to satisfy the requisite 12-month qualification period (in fact, Bartech had been her employer for 11
months). Id. at *18-19. In reaching the conclusion that Grace did not qualify as an eligible
employee vis-à-vis Bartech, the district court rejected the plaintiff’s argument that Bartech should
be considered a successor in interest to Grace’s prior placement agency employer, DGE. Under a
successor-in-interest theory, the time Grace was employed by DGE would be tacked on to her 11
months with Bartech, thereby satisfying the 12-month qualification period. See generally Cobb v.
Contract Transp., Inc., 452 F.3d 543 (6th Cir. 2006).
        This case does not present a simple scenario where an easily identifiable employer-employee
relationship exists. In such a case, it is usually just an issue of crunching the numbers – Does the
employer have more than 50 employees within 75 miles of its worksite? Has the employee worked
for more than 12 months and for 1,250 hours during that time? – to determine whether the individual
employee is entitled to FMLA unpaid medical leave. Rather, the case presents the increasingly
common and often complex situation where two entities – a staffing      agency and client employer –
exercise some level of joint control over a common employee.7 Correctly describing the nature of

        6
         As discussed infra, a secondary employer in a joint employment relationship need not satisfy the numerosity
requirement (i.e. 50 or more employees).
        7
          The United States Bureau of Labor Statistics periodically compiles statistics of contingent and alternative
employment arrangements. In February 2005, there were 10.3 million independent contractors (7.4 percent of total
employment), 2.5 million on-call workers (1.8 percent of total employment), 1.2 million temporary help agency workers
(0.9 percent of total employment), and 813,000 workers provided by contract firms (0.6 percent of total employment).
No. 06-2509              Grace v. USCAR, et al                                                                 Page 5

Bartech’s and USCAR’s relationship with Grace, and the attendant ramifications under the FMLA,
presents an important first step in resolving this case, one for which little precedent exists.
        The FMLA itself is silent about the issue of joint employment. See, e.g., Moreau v. Air
France, 343 F.3d 1179, 1182 (9th Cir. 2003) (noting that the FMLA “does not contain any language
specifically addressing the joint employment concept”). But in the FMLA, Congress specifically
instructs the Department of Labor to “prescribe such regulations as are necessary to carry out” the
statute’s intent. 29 U.S.C. § 2654; see also Chevron v. Natural Resources Defense Council, 467
U.S. 837 (1984) (describing how judicial deference to an agency interpretation is appropriate where
the statute is silent or ambiguous and the interpretation is reasonable). The resulting regulations
contemplate two possibilities for framing employment relationships such as the one that exists
between USCAR and Bartech: (1)8the “integrated employer test,” and (2) the “joint employment”
test. 29 C.F.R. § 825.104(c)(1). Courts have consistently applied the Department of Labor
regulations when addressing questions about FMLA leave. See, e.g., Cobb, 452 F.3d at 551 (6th Cir.
2006) (deferring to the Department of Labor’s regulations addressing the issue of successor in
interest, discussed infra); Engelhardt v. S.P. Richards Co., 472 F.3d 1 (1st Cir. 2006); Stierl v. Ryan
Alternative Staffing, Inc., No. 4:06CV1751, 2007 U.S. Dist. LEXIS 32710, *13 (N.D. Ohio May 3,
2007) (“Furthermore, the Court finds that 29 C.F.R. § 825.106 [addressing joint employment] is
entitled to deference, given that it is consistent with the FMLA and necessary to carry out its
purposes.”); Schubert v. Bethesda Health Care Group, Inc., 319 F. Supp. 2d 963, 969 (E.D. Mo.
2004) (“What defendants fail to recognize is that the regulations require consideration of all four
[integrated employment test] factors . . . [which are] entitled to deference”); but see Harbert v.
Healthcare Servs. Group, Inc., 391 F.3d 1140 (10th Cir. 2004) (refusing to give deference to a
regulation concerning what locality constituted the “worksite” where the agency’s interpretation was
manifestly contrary to the FMLA). Giving deference to an agency’s reasonable interpretation of a
statute accords with Congress’ intent to delegate rulemaking to agencies and also promotes
“uniformity in . . . administrative and judicial understandings of what a national law requires.”
Aeroquip-Vickers, Inc. v. Comm’r, 347 F.3d 173, 180 (6th Cir. 2003) (citing United States v. Mead
Corp., 533 U.S. 218, 226-27, 234 (2001)).
            We discuss in turn the integrated employers test and the joint employer test.
                                    (A) The “integrated employers” test
       According to the integrated employment theory elaborated by the Department of Labor,
“[s]eparate entities will be deemed to be parts of a single employer for purposes of FMLA.”
29 C.F.R. § 825.104(c)(2). The regulations provide the following four factors for helping to
determine if two entities should be treated as an integrated employer: (1) common management,

According to the definition provided by the Bureau of Labor Statistics, Grace would be included as a worker provided
by a contract firm: “Workers who are employed by a company that provides them or their services to others under
contract and who are usually assigned to only one customer and usually work at the customer’s worksite.” See Press
Release, Bureau of Labor Statics, Contingent and Alternative Employment Arrangements, February 2005 (July 27,
2005), available at http://www.bls.gov/news.release/conemp.nr0.htm.
        8
         The Second Circuit described the fundamental difference between the two tests as follows:
                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 [i.e. secondary] employer. The latter applies where . . . liability is sought
                to be imposed on the legal employer by arguing that another entity is sufficiently related such
                that its actions, or in this case, size, can be attributable to the legal employer.
        Engelhardt v. S.P. Richards Co., 472 F.3d 1, 4 n.2 (2d Cir. 2006) (citations omitted) (emphasis added).
No. 06-2509           Grace v. USCAR, et al                                                    Page 6

(2) interrelation between operations, (3) centralized control of labor relations, and (4) degree of
common ownership/financial control. 29 C.F.R. § 825.104(c)(2)(i-iv). Accordingly, the factors seek
to illuminate whether two putatively distinct businesses should be viewed as one corporate entity.
“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.” 29 C.F.R. § 825.104(c)(2).
Thus, the integrated employer test is a mechanism to ensure that the appropriate employees are
aggregated for the numerosity test of the FMLA. As the First Circuit describes, the test appreciates
that small businesses – i.e. those with less than 50 employees – are not subject to the FMLA’s
“onerous requirement of keeping an unproductive employee on the payroll,” while simultaneously
preventing companies from structuring their business to avoid labor laws. Engelhardt, 472 F.3d at 6.
        Limited case law applying the integrated employer test exists, but other circuits that have
addressed the issue have generally found that the test was not met. See, e.g., Engelhardt, 472 F.3d 1
(finding that a wholly-owned subsidiary and the parent were not integrated employers); 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 there were
integrated into one operation for FMLA purposes.”); see also Arculeo v. On-Site Sales & Mktg.,
L.L.C., 425 F.3d 193, 196 (2d Cir. 2005) (finding no integrated employment for the purposes of Title
VII); but see Schubert, 319 F. Supp. 2d 963 (finding sufficient evidence of integrated employment
where two putatively distinct health care companies had the same officers, nearly identical officers,
similar corporate purpose, and principal place of business at the same address). The First Circuit’s
Engelhardt decision is particularly instructive.
        In Engelhardt, an individual appealed the district court’s determination that she was not an
employee under the FMLA because her employer did not satisfy FMLA’s numerosity requirement.
The plaintiff worked for S.P. Richards Co. (SPR), a wholly-owned subsidiary of Genuine Parts Co.
(GPC). On appeal, the plaintiff argued that SPR and GPC were integrated employers and that,
together, they satisfied the FMLA numerosity requirement. In support of her claim, the plaintiff
offered, inter alia, the following evidence: that SPR adopted many of GPC’s personnel policies, that
many of SPR’s personnel-related documents carried the GPC letterhead or logo, and that GPC issued
SPR’s payroll checks. Engelhardt, 472 F.3d at 2-3. In concluding that this “arm’s length”
relationship did not constitute integrated employment for purposes of the FMLA, the Engelhardt
Court focused on the fact that none of the four enumerated factors supported the plaintiff’s
argument. Id. at 8. First, the court noted that there was no evidence suggesting that the two
companies were under the same management. Id. at 6. Second, the operations of the two entities
were not interrelated, for the two maintained separate headquarters, human resource departments,
records, and worksites; additionally, the court noted that the nature of the businesses (office-supply
vs. car parts) was different. Id. at 7. Applying the third factor – centralized control of labor
relations – the court found that the two entities each made independent decisions with respect to
labor relation (e.g. only SPR had the power to determine the number of employees it needed). Id.
And finally, the opinion reasoned that the overlap in administrative services was irrelevant to the
fourth factor, the degree of common ownership and financial control. Id. at 7-8.
         In the instant case the integrated employer framework is similarly inapposite. Under the first
factor, there is no evidence of common management – at least insofar as the core responsibilities and
operations of each business – between USCAR and Bartech. Although the two companies certainly
had a shared relationship with Grace, USCAR did not oversee any of Bartech’s corporate decision
or facilities, or vice versa. But see Armbruster v. Quinn, 711 F.2d 1332, 1339 (6th Cir. 1983)
(finding at least some evidence of common management where one person was the president of one
entity and the director of another in a Title VII integrated employer case). The second prong,
whether the entities have interrelated operations, militates even more strongly against a finding of
integrated employment in this case. USCAR and Bartech maintain separate offices; moreover, the
nature of the work is completely different: one is dedicated to research and design for the car
No. 06-2509           Grace v. USCAR, et al                                                     Page 7

industry while the other is a staffing agency. At first blush, the third factor – centralized control of
labor relations – appears more favorable to a finding that USCAR and Bartech are integrated
employers. For example, Grace reported directly to Flaherty (at USCAR), but also maintained a
close relationship with Shimon at Bartech. But the mere fact that two entities both communicated
with a single employee does not mean that their employment relations, as a whole, are interrelated,
as the regulations contemplate. Indeed, USCAR made its own decisions with regards to securing
an additional employee to replace Grace and to restructuring its IT department. The fact that it
asked Bartech to provide an additional employee does not indicate that Bartech exercised any
control over this employment decision. Nor, obviously, did USCAR have any influence on
Bartech’s decision to loan employees to other client employers. And finally, no evidence exists that
the two entities were subject to common ownership or financial control. Because none of the four
factors are met, the interrelated employer test is inapplicable.
                                   (B) The “joint employers” test
        The regulations promulgated by the Department of Labor interpreting the FMLA also
elaborate a test for joint employment under the Act. At its core, joint employment encompasses
situations where “two or more businesses exercise some control over the work or working conditions
of the employee.” 29 C.F.R. § 825.106(a). “In a joint employer relationship the analysis assumes
separate legal entities exist but that they have chosen to handle certain aspects of their
employer-employee relationships jointly.” Schubert v. Bethesda Health Group, Inc., 319 F. Supp.
2d 963, 970 (E.D. Mo. 2004) (citing NLRB v. Browning-Ferris Indus. of Penn., Inc., 691 F.2d 1117,
1122 (3d Cir. 1982). Unlike integrated employers, which are treated as a single legal entity, joint
employers “may be separate and distinct entities with separate owners, managers, and facilities.”
29 C.F.R. § 825.106(a). The regulations describe three employment relationships where joint
employment will “generally . . . be considered to exist”:
       (1) Where there is an arrangement between employers to share an employee’s
       services or to interchange employees;
       (2) Where one employer acts directly or indirectly in the interest of the other
       employer in relation to the employee; or,
       (3) Where the employers are not completely disassociated with respect to the
       employee’s employment and may be deemed to share control of the employee,
       directly or indirectly, because one employer controls, is controlled by, or is under
       common control with the other employer.
 29 C.F.R. § 825.106(a) (emphasis added). The second situation – in which one employer acts in
the interest of another – describes the situation in the instant case: Bartech, a staffing agency
responsible for providing specialized technical staff, is acting in USCAR’s interests by managing
Grace and ensuring that USCAR’s staffing needs for its IT division are met. Furthermore, the
regulations specifically state that “joint employment will ordinarily be found to exist when a
temporary or leasing agency supplies employees to a second employer.” 29 C.F.R. § 825.106(b)
(emphasis added). Thus, the language from the Department of Labor’s regulations indicates that
Bartech and USCAR are joint employers. The district court agreed, finding that Bartech and
USCAR were joint employers under the FMLA: “[T]he FMLA regulations state that USCAR
qualifies as a secondary employer because it contracted for Plaintiff’s services through Bartech
. . . .” Grace, 2006 U.S. Dist. LEXIS 72311 at *20-21.
No. 06-2509                Grace v. USCAR, et al                                                            Page 8

         Limited case law addressing the issue of joint employment under the FMLA exists.9 See,
e.g., Moreau v. Air France, 356 F.3d 942 (9th Cir. 2004); Mahoney v. Nokia, 444 F. Supp. 2d 1246
(N.D. Fla. 2006), aff’d 236 Fed. Appx. 574 (11th Cir. 2007). In Moreau, Air France contracted with
a number of companies, including an agreement with Dynair to provide ground handling services
such as ramp and towing assistance, to service its planes at San Francisco International Airport. 356
F.3d at 948. The plaintiff argued that these relationships constituted joint employment for purposes
of FMLA. In rejecting the plaintiff’s argument and finding that no joint employment existed, the
Ninth Circuit focused on the fact that Air France did not have the “authority to ‘control’ any of the
workers” of the companies providing the services. Id. at 950. Air France did not, for example, have
the ability to hire or fire Dynair employees or even to determine the salaries of their employees;
instead, Air France merely verified that Dynair’s work complied with applicable airline regulations.
Id. at 950-51. Conversely, in Mahoney, Nokia hired an employee from Spherion Atlantic Workforce
to work at its Florida facility. Spherion managed the plaintiff’s benefits and performed all payroll
functions for the employees it leased to Nokia; moreover, the plaintiff specifically acknowledged
that Spherion was his employer. Mahoney, F. Supp. 2d at 1248. However, Nokia also exercised
considerable control over the employee: it supervised his day-to-day work, fixed his salary, and
determined the number of hours that it needed the employee’s services. Id. at 1249. In analyzing
the situation as joint employment, the court noted, “Nokia does not appear to contest the fact that
joint employment existed” and that the parties had essentially agreed that “a joint employment
relationship is assumed by the applicable regulation [29 C.F.R. § 825.106].” Id. at 1254.
        We believe that the instant case mirrors that in Mahoney. First, as in Mahoney but unlike
in Moreau, USCAR and Bartech both exercised significant control over Grace. Bartech          performs
essentially the same roll as Spherion: it has loaned an employee to a client employer10 (i.e. USCAR
vs. Nokia) and manages her payroll and benefits. Moreover, Grace specifically acknowledges that
Bartech is her employer. JA 47. Also, as in Mahoney, the client employer in the instant case,
USCAR, maintained significant control over Grace and did so for eight years, including supervising
her day-to-day work and determining her salary and hours. It is undisputed, for example, that
Flaherty, USCAR’s Executive Director since January 2003, supervised Grace’s everyday work
responsibilities. See JA 933-34. Consequently, both employers exercise some control over 11    Grace.
And second, while both parties contest that they are “employers” under the FMLA definition, they
effectively concede that a joint employment would otherwise exist. See Br. of Defendant (USCAR)
at 34 (discussing how it is not a secondary employer because Grace was not an eligible employee);
Br. of Defendant (Bartech) at 2-3 (noting that it employed Grace and assigned her to USCAR).
Hence, the joint employment definition elaborated by the Department of Labor provides the
appropriate standard for analyzing the plaintiff’s claims in the instant case.
                        (C) Bartech’s and USCAR’s obligations as joint employers
       In order to promote administrative efficiency and to ensure accountability under the FMLA,
the Department of Labor regulations addressing joint employment distinguish between the “primary”
and “secondary” employer. For example, “[i]n joint employment relationships, only the primary
employer is responsible for giving required notices to its employees, providing FMLA leave, and

        9
          It may be that in most staffing agency cases the employers have stipulated to the existence of a joint
employment relationship. See, e.g., Stierl v. Ryan Alt. Staffing, No. 4:06CV1751, 2007 U.S. Dist. LEXIS 32710, *8 (D.
Ohio 2007) (the defendant agreed that it had a “joint employment” relationship with the staffing agency as defined by
29 C.F.R. § 825.106).
        10
           While Grace’s work with USCAR predates her status as a Bartech employee, this does not change the fact
that Bartech has loaned her to USCAR.
        11
             The defendants’ arguments are considered, and rejected, in Parts V and VI, infra.
No. 06-2509               Grace v. USCAR, et al                                                                Page 9

maintenance of health benefits.” 29 C.F.R. § 825.106(c). But when an eligible employee takes
leave, the regulations ensure that both the primary and secondary employers honor the decision and
do not engage in retributory action:
         Job restoration is the primary responsibility of the primary employer. The secondary
         employer is responsible for accepting the employee returning from FMLA leave in
         place of the replacement employee if the secondary employer continues to utilize an
         employee from the temporary or leasing agency, and the agency chooses to place the
         employee with the secondary employer. A secondary employer is also responsible
         for compliance with the prohibited acts provisions with respect to its
         temporary/leased employees, whether or not the secondary employer is covered by
         FMLA. The prohibited acts include prohibitions against interfering with an
         employee's attempt to exercise rights under the Act, or discharging or discriminating
         against an employee for opposing a practice which is unlawful under FMLA.
29 C.F.R. § 825.106(e) (emphasis added). Grace alleges that she requested her leave from Bartech,
and that both Bartech and USCAR violated the FMLA by failing to reinstate her at the end of her
unpaid leave.
        In order to determine which employer qualifies as the primary employer, the Department of
Labor regulations prescribe the following factors: (1) the authority/responsibility to hire and fire,
(2) the ability to assign/place the employee, (3) the employer making payroll, and (4) the employer
responsible for providing employment benefits. 29 C.F.R. § 825.106(c). Additionally, the
regulations offer a default rule for the majority of cases involving a staffing agency and a client
employer: “For employees of temporary help or leasing agencies [such as Bartech]      the placement
agency most commonly would be the primary employer.” Id. (emphasis added).12
        The application of these factors leads us to conclude that Bartech is the primary employer.
First, as to the question of the ability to hire and fire, both USCAR and Bartech exercise
considerable control over Grace. USCAR’s decision to restructure its IT department, for example,
helped lead to her termination. However, Bartech alone has the ultimate ability to hire and fire
Grace. Even after USCAR made the decision to terminate her position, Grace was still an employee
of Bartech; indeed, the record indicates that Bartech sought to lease her to another client employer.
Conversely, had Bartech chosen to terminate Grace, her employment at USCAR would likely have
also ceased immediately; in such a situation, USCAR would then need to ask for a replacement from
another staffing agency or contract with a replacement directly. Under the second factor, USCAR
undoubtedly controlled Grace’s day-to-day activities. Again, however, Bartech had the sole ability
to assign her to another employer. For example, had CanadaCar offered to pay Bartech more for
Grace’s services, then Bartech could have reassigned her accordingly. And under the final two
factors, Bartech is the employer responsible for making Grace’s payroll and for managing her
benefits. Though it is ultimately USCAR that is providing the resources to pay Grace, Bartech
occupies the important legal position of being the entity in charge of her payroll and benefits. Thus,

         12
            A brief hypothetical reveals the policy considerations underpinning this default designation between primary
and secondary employers. Suppose that Jane Smith was hired by Temp Agency in 1998. Over the next ten years, Temp
Agency leased Smith to five client companies – A, B, C, D, and E – for two years each. Assume that Smith worked the
requisite number of hours at the client companies to qualify as an eligible employee and that all of the employers meet
the FMLA numerosity requirement. If a court found that the Temp Agency was the secondary employer – and that each
client was the primary employer – Smith would only have FMLA coverage for five of the ten years she was employed
by Temp Agency. This is because each time she switched jobs, her FMLA eligibility would reset and would not be
restored until 12 months had elapsed (unless a client was a successor in interest to a previous client). By designating
the leasing agency as the primary employer, the regulations ensure that Smith is covered for nine of the ten years; that
is, she qualifies for FMLA leave after her initial 12-month period and preserves her eligibility regardless of how many
times she switches between client employers.
No. 06-2509             Grace v. USCAR, et al                                                                 Page 10

we believe that the default rule, which designates the staffing agency (i.e. Bartech) as the primary
employer, is applicable in the instant situation. See Mahoney, 444 F. Supp. 2d at 1255-56 (applying
the § 825.106 factors and determining that the staffing agency was the primary employer in its
relationship with its client, Nokia, the secondary employer).
         The specific facts of the case reinforce our conclusion that Bartech is the primary employer
and that USCAR is the secondary employer. When Grace became ill, she informed Bartech and not
USCAR of her intention to take FMLA leave. JA 171. According to the regulations interpreting
joint employment under the FMLA, this action was sufficient to trigger potential liability for both
because she need only inform her primary employer of her intention to take leave (“only the primary
employer is responsible . . . for providing FMLA leave”). 29 C.F.R. § 825.106(c); see also
29 U.S.C. § 2611(2)(A)(i) (“an eligible employee means an employee who has been employed – for
at least 12 months by the employer with respect to whom leave is requested”) (emphasis added).
Where an employee is eligible for leave, the primary employer is liable for any violations under the
FMLA. In addition, the secondary employer is directly liable for both complying with the
“prohibited acts provisions” of the FMLA (e.g. discriminating against an employer who takes FMLA
leave, 29 U.S.C. § 2615(a)(2)) and “accepting the employee returning from FMLA leave in place
of the replacement employee if the secondary employer continues to utilize an employee from the
temporary or leasing agency.” 29 C.F.R. § 825.106(e). As discussed infra, USCAR did continue
to utilize an employee from the leasing agency; in fact, it specifically requested that Bartech provide
a replacement employee to take over Grace’s IT responsibilities. Consequently, for purposes of
analyzing Grace’s FMLA claim, Bartech is the primary employer and USCAR is the secondary
employer.
       (D) Plaintiff has raised a cognizable claim that her FLMA rights were violated
        It is unlawful for employers to “interfere with, restrain or deny the exercise of or attempt to
exercise, any [FMLA] right provided.” 29 U.S.C. § 2615(a)(1); Hoge v. Honda of Am. Mfg., 384
F.3d 238, 244 (6th Cir. 2004). Qualifying employees who return to work within the 12-week period
of their unpaid medical leave are entitled to be restored to “the position of employment held by the
employee when the leave commenced,” or “to an equivalent position with equivalent employment
benefits, pay, and other terms and conditions of employment.” 29 U.S.C. § 2614(a)(1).13 Grace’s
allegation of a violation of this right, which we have previously described as the “entitlement” or
“interference” theory arising from 29 U.S.C. § 2615(a)(1), is different from a “retaliation” or
“discriminatory” theory arising from 29 U.S.C. § 2615(a)(2). See Hoge, 384 F.3d at 244. As
discussed supra, a secondary employer who interferes with an employee’s effort to return to her
position is also liable under the Act.
        To prevail on the entitlement theory claim (i.e. failure to reinstate), an employee must prove
that: (1) she was an eligible employee, (2) the defendant was an employer as defined under the
FMLA, (3) she was entitled to leave under the FMLA, (4) she gave the employer notice of her
intention to take leave, and (5) the employer denied the employee FMLA benefits to which she was
entitled. Edgar v. JAC Prods., 443 F.3d 501, 507 (6th Cir. 2006). However, “[a]n employee
returning from FMLA leave is not entitled to restoration unless he would have continued to be
employed if he had not taken FMLA leave.” Hoge, 384 F.3d at 245.

       13
         An “equivalent position” under 29 U.S.C. § 2614(a)(1)(B) is:
               [O]ne that is virtually identical to the employee's former position in terms of pay, benefits
               and working conditions, including privileges, perquisites and status. It must involve the same
               or substantially similar duties and responsibilities, which must entail substantially equivalent
               skill, effort, responsibility, and authority.
       29 C.F.R. § 825.215(a); Hoge, 384 F.3d at 245.
No. 06-2509           Grace v. USCAR, et al                                                    Page 11

        As discussed infra, the plaintiff has satisfied the first and third prongs and is an eligible
employee vis-à-vis Bartech. Additionally, it is undisputed that Bartech employs more than 50
individuals within 75 miles of Grace’s worksite and is thus an employer under FMLA. Grace
provided sufficient notice to the defendants of her intention to take leave. See JA 171 (noting that
she informed Bartech of her intent); Brenneman v. MedCentral Health Sys., 366 F.3d 412, 421 (6th
Cir. 2004) (notice must be “reasonably adequate to apprise the employer of the employee’s
request”). However, Bartech and USCAR contend that the decision to terminate the plaintiff
resulted from a legitimate economic decision, thereby precluding the plaintiff from satisfying the
fifth prong.
         An employer’s intent is not directly relevant to the entitlement inquiry. Edgar, 443 F.3d at
507. However, “interference with an employee’s FMLA rights does not constitute a violation if the
employer has a legitimate reason unrelated to the exercise of FMLA rights for engaging in the
challenged conduct.” Id. at 508 (citing Arban v. West Publ’g Corp., 345 F.3d 390, 401 (6th Cir.
2003) (“An employee lawfully may be dismissed, preventing him from exercising his statutory rights
to FMLA leave or reinstatement, but only if the dismissal would have occurred regardless of the
employee’s request for or taking of FMLA leave.”). If the defendant proffers such a justification,
then the plaintiff may seek to rebut it by a preponderance of the evidence. See Arban, 345 F.3d at
401. Specifically, a plaintiff can “refute the legitimate, nondiscriminatory reason that an employer
offers to justify an adverse employment action ‘by showing that the proffered reason (1) has no basis
in fact, (2) did not actually motivate the defendant’s challenged conduct, or (3) was insufficient to
warrant the challenged conduct.’” Wexler v White’s Fine Furniture, 317 F.3d 564, 576 (6th Cir.
2003) (quoting Dews v. A.B. Dick Co., 231 F.3d 1016, 1021 (6th Cir. 2000)).
        Here, the defendants claim that Grace’s termination was the result of USCAR’s decision to
restructure its IT division, which would have occurred regardless of her having taken leave. See,
e.g., JA 226, 254, 261, 346-47 (discussing operational efficiencies and outsourcing). Additionally,
the defendants claim that Spolarich, who was hired after Grace left, had different duties and
responsibilities, thereby precluding the plaintiff from alleging the requisite harm (i.e. that a
comparable position existed for Grace to return to). In response, the plaintiff argues that the
defendants’ argument is pretextual and belied by the facts. As to the issue of restructuring, the
plaintiff points to the notes and deposition of Martin (the USCAR Director of Operations) from the
meeting in which the decision to terminate Grace was made. After being apprised of the need to
have a “legitimate business reason” to avoid the risk of being “sued by Roz [Grace] . . . [who was]
out on disability,” the following question was raised: “Can lawyers construct a way to make it
[Grace’s termination] doable?” See JA 1314 (notes), JA 849 (deposition) (emphasis added). This
statement alone is a smoking gun and raises a genuine issue of material fact, subject to a jury
determination, as to whether the restructuring would have occurred had she not taken leave due to
her disability. Cf. Arban, 345 F.3d at 401. Moreover, the plaintiff argues that Spolarich, who was
ostensibly part-time, performed sufficiently comparable work to constitute a full-time position
“equivalent to” the one she held prior to taking leave. See Br. of Plaintiff at 21 (citing JA 749-750,
729-735); 29 U.S.C. § 2614(a)(1). It is not disputed that Spolarich was compensated at a higher rate
than Grace, which would support her theory that his was an equivalent position, at least in terms of
the cost to USCAR. Br. of Plaintiff at 21 (citing JA 729-735); see also JA 1314 (Martin’s notes
describing how they could replace plaintiff with a part-time position). Together, these facts raise
a genuine issue of material fact. See also JA 1226 (where the district court, in the trial record, noted
that there appeared to be genuine “factual disputes” in the record). Grace may thus pursue her
FMLA entitlement claim.
                                                  V.
       Bartech contends that even if it is the primary employer in a joint employment relationship,
Grace is not eligible for unpaid leave. Specifically, the company argues that Grace did not satisfy
No. 06-2509               Grace v. USCAR, et al                                                                Page 12

the 12-month qualification period under 29 U.S.C. § 2611(2)(A)(i). While Grace had worked for
USCAR for eight years, Bartech had only served as Grace’s placement agency for 11 months before
she took leave to recover from asthma. The district court agreed with the defendant’s argument and
dismissed the plaintiff’s claim after finding that Grace was not an eligible employee. Grace, 2006
U.S. Dist. LEXIS at *18-19. On appeal, the plaintiff argues that the district court erred as a matter
of law by finding that Bartech was not a “successor in interest” to DGE14and that a contrary holding
would enable her to qualify as an eligible employee under the FMLA.
         An employee becomes eligible under the FMLA after working for a covered employer for
at least 12 months. 29 U.S.C. § 2611(2)(A)(i). The term “employer” includes not only someone who
“acts, directly or indirectly, in the interest of the employer to any of the employees of such
employer” but also any “successor in interest of an employer.” 29 U.S.C. § 2611(4)(A)(ii). To
determine whether an employer qualifies as a successor in interest to a previous employer, FMLA’s
implementing regulations adopt the framework from Title VII of the Civil Rights Act and the
Vietnam Era Veterans’ Adjustment Act (VEVAA). 29 C.F.R. § 825.107; Cobb v. Contract Transp.,
Inc., 452 F.3d 543, 551 (6th Cir. 2006). The regulations instruct courts to consider the following
eight factors in determining whether an employer is a successor in interest:
         (1) Substantial continuity of the same business operations;
         (2) Use of the same plant;
         (3) Continuity of work force;
         (4) Similarity of jobs and working conditions;
         (5) Similarity of supervisory personnel;
         (6) Similarity in machinery, equipment, and production methods;
         (7) Similarity of products and services; and
         (8) The ability of the predecessor to provide relief.
Cobb, 452 F.3d at 551 (quoting 29 C.F.R. § 825.107). “[W]hether or not a ‘successor in interest’
exists is not determined by the application of any single criterion, but rather the entire circumstances
are to be viewed in their totality.” Id.
        But the eight factors are “not in themselves the test for successor liability.” Id. at 555.
Rather, they are factors in an overarching, three-part test considering the equities of imposing a
particular legal obligation on a successor: (1) the interests of the plaintiff-employee, (2) the interests
of the defendant-employer, and (3) the federal policy goals of the statute. Id.15
        We previously analyzed a similar question of successor liability under FMLA in a decision
that carefully traced the Supreme Court’s decisions regarding successor liability in the labor law

         14
            DGE merged with Grace’s original staffing agency employer AST. Although the exact date is unclear, it is
not disputed that Grace would meet the eligibility requirement if Bartech were a successor in interest to DGE. The
defendants do, however, appear to argue that the record fails to establish that DGE employed 50 employees, a necessary
precondition to being an “employer” for FMLA purposes. This argument would preclude a finding that Bartech is a
successor in interest “of an employer.” 29 U.S.C. § 2611(4)(A)(ii) (emphasis added). The plaintiff contends that this
issue cannot be raised on appeal. However, the record does establish that DGE employed at least 50 employees and thus
qualifies as an “employer” for FMLA purposes. See JA 991 (DGE had at least 97 employees).
         15
             As we recognized in Cobb, balancing the equities may result in different conclusions as to whether successor
liability may exist for different legal obligations. 452 F.3d at 555. The relevant factual inquiries may also differ
depending on the legal duty at issue. Id. (comparing Howard Johnson Co. v. Detroit Local Joint Exec. Bd., Hotel & Rest.
Employees Int’l Union, 417 U.S. 249 (1974) (finding that the single most important factor when imposing the duty to
arbitrate is whether the new employer employs the same employees), with Golden State Bottling Co. v. NLRB, 414 U.S.
168 (1973) (extending successor liability to unfair labor practices, but focusing the inquiry on whether there was a
transfer of assets and substantial continuity of the business enterprise)).
No. 06-2509               Grace v. USCAR, et al                                                                 Page 13

context. See generally Cobb, 452 F.3d 543. In Cobb, the plaintiff, a truck driver employed by
Contract Transport (a staffing agency) for a United States Postal Service contract route, was
terminated from his position after he had gallbladder surgery. He then filed suit, alleging that the
company had violated the FMLA by terminating him for taking his unpaid leave. The federal
district court granted the defendant’s motion for summary judgment after finding that the defendant
was not an “eligible employee” under FMLA because he had worked for the defendant for less than
12 months. Id. at 547. In reaching its conclusion, the district court refused to apply successor
liability based on the plaintiff’s previous employer, for whom he had worked for three years
performing the same duties. We reversed, noting that the plaintiff’s employment was continuous,
that the responsibilities and duties were the same, and that “only the management, not the job, [had]
changed.” Id. at 557.
         Here, the district court began its analysis by rejecting Bartech’s argument that the plaintiff
had failed to meet the “threshold inquiry” of  demonstrating that there was a substantial continuation
between DGE’s and Bartech’s operations.16 Grace v. USCAR, 2006 U.S. Dist. LEXIS at *14 (citing
3750 Orange Place Ltd. P’ship v. NLRB, 333 F.3d 646, 655 (6th Cir. 2003)). It then initiated a
discussion of the three-pronged equity test, beginning with the observation that Grace’s case was
“quite similar to Cobb,” particularly the fact that the “plaintiff’s job responsibilities, location,
working conditions and manager did not change in any fashion. . . .” Id. at *17 (emphasis added).
But the district court distinguished Cobb based on what it perceived to be one critical factual
difference – in Cobb, the contract at issue was subject to automatic re-bidding every two years. Id.
at *18. According to the district court, this automatic re-bidding put employees “at a disadvantage
by having their FMLA rights eliminated every two years once a new company won the bid.” Id.
The court also noted that the change in management in the instant case was not the result of a
“tactical maneuver,” but rather DGE’s pending bankruptcy. Id. at *19. The district court thus
concluded that the equities at play in Grace’s situation – which   did not include what it perceived to
be the critical element of the automatic re-bid provision17 – weighed against imposing successor
liability on Bartech. For the following reasons, we disagree with the district court’s analysis and
find that Bartech is a successor in interest to DGE. Grace, in turn, was eligible for up to 12 weeks
of unpaid leave under the FMLA.
       The first prong of the equitable analysis – the employee’s interest – supports a finding that
Bartech is a successor in interest to DGE. As the district court noted, the regulatory factors
enumerated in 29 C.F.R. § 825.107 weigh in the plaintiff’s favor. With respect to the USCAR
account at issue in the case, the operations did not change after Bartech took over from DGE:
Bartech inherited the same work site and substantially the same workforce (five of seven
employees). Similarly, the job and working conditions, supervisory personnel, and IT services
provided all remained the same. In effect, only the staffing agency’s management changed after
Bartech choose to take over DGE’s former employers.

         16
            Bartech urged the district court, in an argument it raises again on appeal, to focus on the total percentage of
employees it hired from DGE, which comprised less than 2% of Bartech’s total workforce. Br. of Defendant (Bartech)
at 32. The district court correctly focused its analysis on the fact that Bartech employed five of the seven former DGE
employees who were involved in USCAR. See Grace, 2006 U.S. Dist. LEXIS at *15 (“If Bartech’s reasoning were
adopted, then any large entity that absorbed a much smaller company in any fashion would never be considered to be
a substantial continuation of the small company. . .”). In addition, when DGE filed for bankruptcy, Bartech received
an additional 30 of their contract laborers assigned to DaimlerChrysler. JA 58.
         17
          While the USCAR contract was not subject to any automatic re-bidding, it is worth noting that Grace’s
employer (i.e. contract house) changed three times – that is, twice prior to Bartech – during her eight years of
employment. Hence, the same problem of her eligibility for leave resetting exists.
No. 06-2509                Grace v. USCAR, et al                                                                 Page 14

        While the district court recognized that the regulations supported the plaintiff under the first
prong, it purported to distinguish the case from Cobb by seizing upon our use of the language
“equally important” to describe the relevance of the re-bid contract in Cobb. See Cobb 452 F.3d at
557 (“Equally important, however, declining to apply successor liability to companies competing
for government contracts circumvents implementation of the FMLA.”); Grace, 2006 U.S. Dist.
LEXIS at *17-18 (“[T]he Sixth Circuit also noted that an ‘equally important’ factor was that the
USPS contract at issue was automatically put up for re-bid every two years.” ) (emphasis added).
The district court thus treated the language “equally important” to mean that the re-bid provision
was literally equally important to each of the other eight factors in the first prong of the analysis.
A better reading – one that does not result in an amendment to the applicable Department of Labor
regulations – is that the language in Cobb reinforced the factors favorable to the plaintiff under the
first prong and, more importantly, referred to the fact that a finding of successor liability also
vindicated the third prong of the test, i.e. the policy underlying FMLA (discussed infra). That is,
the Cobb Court’s use of “equally important” did not indicate that the presence or absence of the re-
bid contract was an equally important factor – or even necessarily relevant – to the first prong (such
that the elaborated factors could be outweighed), but rather that a finding of successor liability also
vindicated the equally important policy goals underpinning the FMLA. Thus, prong one of the
analysis favors a finding that Bartech is a successor in interest to DGE.
         In evaluating the equities affecting the employer – the second prong – the district court
focused on the fact that the change in employers was neither tactical nor likely to recur in reaching
its conclusion that there is “no corresponding need to impose upon Bartech the burden of absorbing
DGE’s existing FMLA liabilities.” Grace, 2006 U.S. Dist. LEXIS at *19. But the following
language from Cobb shows that Bartech’s motivations have little bearing on the issue: “Successor
liability under the 18
                     FMLA . . . derives from labor law, not corporate law.” 452 F.3d at 551-552
(emphasis added). The defendant also points to several other factors that it urges this Court to
consider. Bartech argues that a contrary finding on the successor-in-interest issue may discourage
employers from taking over the contracts of failing companies. See Final Br. of Defendant (Bartech)
at 33-34 (citing, inter alia, Steinbach v. Hubbard, 51 F.3d 843, 847 (9th Cir. 1995) (discussing risk
of imposing “statutory liabilities” on suitor companies)). But the burdens imposed by FMLA do not
appear as significant as those discussed in Hubbard, where the Ninth Circuit expressed concern
about numerous “meretricious claims” rooted in employment discrimination that were brought as
the company approached bankruptcy. Hubbard, 51 F.3d at 846-47 (quoting Musikiwamba v. ESSI,
Inc., 760 F.2d 740, 750-51 (7th Cir. 1985)). Moreover, this Court implicitly rejected the defendant’s
argument in Cobb, when we found a successor in interest in a similar factual scenario.
        The defendant also contends that a decision refusing to apply successor liability leaves the
plaintiff in no worse a position than if DGE had gone out of business without Bartech taking over
the contract. Grace, 2006 U.S. Dist. LEXIS at *19 n.7 (stating that her “qualifying time for FMLA
would most certainly have reset under that scenario”). It is unclear, however, how this observation
is relevant, for Bartech did take over the contract, thus implicating the successor-in-interest inquiry.
Additionally, the defendant contends that unlike other labor law contexts where successor liability
has been found, there is no concern here that the new company might “benefit” from the policies of
the prior employer (e.g. unfair labor practices such a prior employer’s discrimination). See Br. of
Defendant (Bartech) at 34-35 (citing Golden State Bottling Co., Inc. v. NLRB, 414 U.S. 168 (1973)).
According to the defendant, an adverse holding on the successor-in-interest issue will compel the

         18
           Judge Clay, writing for this Court in Cobb, discussed in great detail the history of successor liability in the
labor law context. See Cobb, 452 F.3d at 551-55. In one case that Cobb cited, a unanimous Supreme Court writing in
1973 stated that while “the general rule of corporate liability” required a transfer of assets or merger, the “perimeters of
the labor-law doctrine of successorship [] have not been so narrowly confined.” Golden State Bottling Company v.
NLRB, 414 U.S. 168, 182 n.5 (1973) (emphasis added). The Supreme Court noted, moreover, that the “public policies
underlying the [successorship] doctrine will be served by its broad application.” Id.
No. 06-2509            Grace v. USCAR, et al                                                     Page 15

company to hire outside workers in the future instead of taking over existing contract workers such
as Grace. But we believe that the National Employment Lawyers Association provide an
appropriate response to these concerns in their amicus curiae brief (supporting the plaintiff), noting
that Bartech has “benefitted from the stability and continuity created by the retention of long-term
employees of its predecessor,” a loaned employee who had worked for the same employer for eight
years. Br. of Amicus Curiae. In pursuing the opportunity to take over the contract workers
employed by DGE, Bartech benefitted from the existing employees’ experience. Had Bartech
instead chosen to service the account with its own employees (and USCAR agreed), many would
have been eligible for FMLA leave (i.e. by meeting the 12 month qualification period); and had
Bartech resorted to hiring new contract workers to replace Grace and her colleagues, thus delaying
the process, USCAR may very well have rejected the company’s bid to service the account.
          Finally, the defendant urges us to overturn Cobb, or at the very least, to take into
consideration the fact that there was no merger or transfer of assets in the instant case. However,
we expressly addressed and rejected the defendant’s argument in Cobb that a merger or transfer of
assets was a precondition to successor liability, noting that the duty to grant reasonable medical
leave is unrelated to the issue of whether the liability can be reflected in a company’s purchase price
(i.e. at the time of the merger or transfer). Cobb, 452 F.3d at 556. Moreover, this case does not
implicate the type of situation where a merger or transfer might nevertheless be relevant to the
analysis. See id. (noting that, as in EEOC v. Vucitech, 842 F.2d 936, 945 (7th Cir. 1988), the manner
of the purchase might be relevant to whether “substantial continuity” existed).
        Notably, the district court failed to discuss the third factor relevant to the equitable balancing
– namely, the federal policy underlying the FMLA. The basic goals of the FMLA are “to entitle
employees to take reasonable leave for medical reasons,” 29 U.S.C. § 2601(b)(2), and to “balance
the demands of the workplace with the needs of the family.” 29 U.S.C. § 2601(b)(1). As the Cobb
court noted, the requirement that the employee have worked for at least twelve months and for 1,250
hours during that time sought “to exclude temporary and seasonal workers from coverage.” Cobb,
452 F.3d at 557 (citing H.R. Rep. No. 103-8(I), at 35 (1993)). Here, Grace satisfies the full-time
requirement that underpins employee eligibility for FMLA leave. The FMLA’s focus on the
individual employee appears to warrant emphasis on the first prong of the equity analysis;
conversely, other labor law issues implicating successor liability (e.g. collective bargaining
obligations) more obviously implicate employees as a collective vis-à-vis their employer’s interests,
and, by extension, the second prong of the analysis.
         Congress also sought to ensure that only large employers are subject to the FMLA’s
potentially “onerous requirement of keeping an unproductive employee on the payroll.” Engelhardt,
472 F.3d at 6. Consequently, the legislation created a so-called “small employer” exception to the
FMLA by limiting coverage to those employers with more than 50 employees. See Douglas v. E.G.
Baldwin & Assocs., 150 F.3d 604, 608 (6th Cir. 1998). According to the House Committee Report,
the provision “recognizes the difficulties an employer may have in reassigning workers to
geographically separate facilities.” Harbert v. HealthCare Servs. Group, Inc., 391 F.3d 1140, 1148
(10th Cir. 2004) (citing H.R. Rep. No. 102-135(I), at 37 (1991)). But in this case, Bartech clearly
satisfies the numerosity prong and, by extension, Congress’ concern that only large employers be
required to provide FMLA leave. Therefore, the third prong of the equitable balancing – which the
district court failed to consider – supports a finding that Bartech is a successor in interest to DGE.
       In conclusion, we believe that the equities at issue in this case compel us to adhere to our
well-reasoned decision in Cobb and find that Bartech is a successor in interest to DGE.
Accordingly, Grace was an employee entitled to take 12 weeks of unpaid leave.
No. 06-2509              Grace v. USCAR, et al                                                             Page 16

                                                        VI.
         USCAR is a partnership of Ford, DaimlerChrysler and General Motors, each with thousands
of employees, some of whom were loaned to USCAR from time to time, but USCAR contends that
it is not an “employer” under any definition of FMLA because it has no employees on its payroll,
and that it therefore cannot be liable for violating Grace’s FMLA right to reinstatement. This
argument appears to misinterpret the very definition of an “employer” for labor law purposes.
         USCAR urges us to apply the “payroll method,” in which a court examines how many
employees are on a putative employer’s payroll, to find that USCAR has no employees and thus
cannot be an employer. See Walters v. Metro Educ. Enters., 519 U.S. 202, 206-07 (1997)
(describing the payroll method in the Title VII context); Farmiloe v. Ford Motor Co., 277 F. Supp.
2d 778, 790 (N.D. Ohio 2001) (examining the defendant’s payroll and finding that the employer
failed to employ the requisite number of employees for Title VII purposes). However, the Walters
Court proceeded to state that “the ultimate touchstone” for determining the number of employees
was “whether an employer has employment relationships” with individuals. 519 U.S. at 211
(emphasis added). As discussed, supra, USCAR supervised Grace’s day-to-day work, determined
her salary and hours, and benefitted from her work. Thus, USCAR has an employment relationship
with, at the very least, the five employees under contract with     Bartech that it supervised and
controlled as well as the managers and staff of USCAR.19 See 29 C.F.R. § 825.106(d)
(“[e]mployees jointly employed by two employers must be counted by both employers”) (emphasis
added); cf. Magnusson v. Peak Tech. Servs., Inc., 808 F. Supp. 500, 510 (E.D. Va. 1992) (finding
that in joint employment under Title VII, the greatest emphasis should be placed on the “extent of
the employer’s right to control the manner and means of the worker’s performance”).
        Furthermore, the Department of Labor’s regulations are clear that “a secondary employer is
also responsible for compliance with the prohibited acts provisions with respect to its
temporary/leased employees, whether or not the secondary employer is covered by FMLA.”
29 C.F.R. § 825.106 (emphasis added). The agency has issued a clarification letter indicating that
a secondary employer like USCAR is liable for violations of the FMLA “regardless of the number
of employees employed.” Br. of Plaintiff at 46 (quoting 60 Fed. Reg. 2180, 2183). Thus, regardless
of the number of employees under its control, USCAR is a secondary employer under the FMLA.
                                                       VII.
        The plaintiff alleges in her complaint that the defendants violated Title VII’s prohibition
against gender discrimination by (1) taking adverse action against the plaintiff, and (2) creating a
hostile working environment towards women. The district court found that USCAR was not an
“employer” under Title VII and thus limited its analysis to whether Bartech, as a joint employer, had
sufficient notice of USCAR’s allegedly discriminatory conduct. See Grace, 2006 U.S. Dist. LEXIS
at *25-26. Even assuming, arguendo, that both defendants are “employers” under the statute and
that Bartech had sufficient notice of Grace’s complaint, we find that the defendants are entitled to
summary judgment on the merits of the Title VII claims.

        19
           Because we hold that USCAR is liable under the FMLA as a secondary employer, we pretermit the question
of whether USCAR employs more than 50 employees and is directly liable under the FMLA. However, the fact that
USCAR’s annual budget is over $200 million and oversees hundreds of engineers involved in its projects suggests that
it would meet this numerosity requirement. And this does not take into account the thousands of employees each of the
three corporate partners in this joint venture themselves employ.
No. 06-2509           Grace v. USCAR, et al                                                   Page 17

                                  (A) Gender discrimination claim
        The plaintiff first argues that the defendants violated Title VII by firing her and replacing
her with a less qualified male employee. JA 15. To make out a prima facie case of gender
discrimination Grace must show that: (1) she is a member of a protected group; (2) she was
subjected to an adverse employment decision; (3) she was qualified for the position; and (4) she was
replaced by a person outside the protected class, or similarly situated non-protected employees were
treated more favorably. Peltier v. United States, 388 F.3d 984, 987 (6th Cir. 2004). Notably, “a
court may not consider the employer’s alleged nondiscriminatory reason for taking an adverse
employment action when analyzing the prima facie case.” Wexler v. White’s Fine Furniture, 317
F.3d 564, 574 (6th Cir. 2003). If the plaintiff meets this initial burden of establishing a prima facie
case, then the burden of production shifts to the defendant to articulate a legitimate,
nondiscriminatory reason for the plaintiff’s discharge. McDonnell Douglas Corp. v. Green, 411
U.S. 792, 802 (1973). Once the defendant has done so, the burden reverts to the plaintiff to show
that the defendant’s alleged reason is a mere pretext for discrimination. Tex. Dep’t of Cmty. Affairs
v. Burdine, 450 U.S. 248, 253 (1981). At all times, the burden of persuasion remains with the
plaintiff. Id.
        Grace has alleged a prima facie case of gender discrimination. She is a member of a
protected group and an employer’s decision to discharge an employee is a classic example of
adverse employment action. See Kleiber v. Honda of Am. Mfg., Inc., 485 F.3d 862, 868 n.2 (6th Cir.
2007). It is undisputed that she was also qualified for her position. Although the defendants claim
that Spolarich did not “replace” her because he was a part-time employee, we believe, as discussed
supra, that Grace has met this element by furnishing evidence indicating that Spolarich performed
essentially the same duties as Grace and also was compensated at a total rate similar to Grace prior
to her leave.
        Even assuming that Grace made out a prima facie case, however, the defendants argue that
the decision to terminate Grace resulted from USCAR’s decision to restructure its business and to
outsource its IT positions. A plaintiff can “refute the legitimate, nondiscriminatory reason that an
employer offers to justify an adverse employment action ‘by showing that the proffered reason
(1) has no basis in fact, (2) did not actually motivate the defendant’s challenged conduct, or (3) was
insufficient to warrant the challenged conduct.’” Wexler, 317 F.3d at 576 (quoting Dews v. A.B.
Dick Co., 231 F.3d 1016, 1021 (6th Cir. 2000). In order to prove pretext, therefore, the plaintiff
must “introduce admissible evidence to show ‘that the proffered reason was not the true reason for
the employment decision’ and that [discriminatory] animus was the true motivation driving the
employer’s determination.” Barnes v. United Parcel Serv., 366 F. Supp. 2d 612, 616 (W.D. Tenn.
2005) (quoting St. Mary’s Honor Ctr. v. Hicks, 509 U.S. 502, 508 (1993)) (emphasis added).
        An examination of whether the plaintiff has fulfilled her burden and established that the
defendant’s justification was pretextual requires us to distinguish the FMLA and Title VII claims.
In support of her FMLA claim, discussed supra, the plaintiff offers considerable evidence that her
pending return to her job prompted the defendants to restructure the IT business; that is, that the
restructuring was merely a pretext for not restoring her to her former position. As to the claim of
gender discrimination, the plaintiff simply alleges she was replaced “by a male that [sic] was less
qualified.” JA 949-50. This fact goes to her ability to make a prima facie gender discrimination
claim, but it does not help her overcome her burden of showing that “discriminatory animus”
motivated the defendants decision to replace her with a male employee. Unlike the FMLA claim,
where Grace need only demonstrate that her prior position – or equivalent – still existed at the time
she returned from unpaid leave, the Title VII claim requires her to make some showing that gender
informed the decision to hire a male to replace her. Grace is unable to do so. She does not allege,
for example, that USCAR specifically requested a male employee or that either USCAR or Bartech
had a policy of replacing female employees with male employees. Rather, the facts suggest that
No. 06-2509           Grace v. USCAR, et al                                                   Page 18

USCAR merely requested a replacement employee, regardless of gender. Because Grace does not
offer any evidence that gender played a role in USCAR and Bartech’s decision to replace her with
a male employee, her claim cannot survive either defendant’s motion for summary judgment on the
merits of her gender discrimination claim.
                                (B) Hostile work environment claim
         Grace also alleges a hostile work environment claim under Title VII. To survive a motion
for summary judgment, Grace must establish that (1) she is a member of a protected class (female),
(2) she was subjected to harassment, either through words or actions, based on sex, (3) the
harassment had the effect of unreasonably interfering with her work performance and creating an
objectively intimidating, hostile, or offensive work environment; and (4) there exists some basis for
liability on the part of the employer. See Fleenor v. Hewitt Soap Co., 81 F.3d 48, 49 (6th Cir. 1996).
The harassment must meet both an objective and a subjective test, “in other words, the conduct must
be so severe or pervasive as to constitute a hostile or abusive working environment both to the
reasonable person and the actual victim.” Randolph v. Ohio Dep’t of Youth Svcs., 453 F.3d 724, 733
(6th Cir. 2006). For the following reasons, we find that Grace has failed to establish the third prong
of a prima facie case – namely, the inference of a hostile or offensive work environment.
         The Supreme Court has provided a non-exhaustive list of factors to consider when deciding
whether a hostile work environment exists including: “the frequency of the discriminatory conduct;
its severity; whether it is physically threatening or humiliating, or a mere offensive utterance; and
whether it unreasonably interferes with an employee’s work performance.” Harris v. Forklift Sys.,
Inc., 510 U.S. 17, 23 (1993) (emphasis added). Further, courts must determine whether the
“workplace is permeated with ‘discriminatory intimidation, ridicule, and insult,’ that is ‘sufficiently
severe or pervasive to alter the conditions of the victim’s employment and create an abusive working
environment .’” Id. at 21 (internal citations omitted).
        The plaintiff attempts to support her hostile work environment claim with the following
evidence of Flaherty’s behavior: (1) according to a colleague, she referred to Grace as a “dancing
girl” or a “call girl,” JA 803 (Cunningham deposition), (2) that Flaherty ignored Grace, except to
comment on her appearance, JA 962 (Grace deposition), (3) that Shimon, upon hearing the
complaints, stated “Let’s just try to make it through the next few months [until Flaherty’s known
end date at USCAR],” JA 1122, 1131, and (4) caused another employee, Jennie Sweet, to quit. JA
720. It is unclear whether the incidents listed in (2)-(4) demonstrate that the alleged abuse resulted
from Grace’s status as a female. See Bowman v. Shawnee State Univ., 220 F.3d 456, 464 (6th Cir.
2000) (“[M]any of the alleged harassing acts cannot be considered in the hostile environment
analysis because [the plaintiff] has not shown that the alleged harassment was based upon his status
as a male.”).
        Assuming, arguendo, that the evidence is permissible, these allegations suggest that
Flaherty’s actions – at least on occasion – made Grace and other women in the office feel
uncomfortable, even to the point that they spoke with Shimon about the possibility of leaving their
jobs. But “the work environment as a whole must be considered rather than a focus on individual
acts of alleged hostility.” Bowman, 220 F.3d at 463. In Williams v. GMC, for example, we found
that the plaintiff had raised a genuine issue of material fact as to the existence of a hostile work
environment where a male employee repeatedly uttered phrases such as “Hey, slut” and “I’m sick
and tired of these [expletive] women” and also made inappropriate physical advances. Williams v.
GMC, 187 F.3d 553, 563 (6th Cir. 1999). In the instant case, however, the occasional comments,
which may have been “offensive utterances,” do not rise to the level required by the Supreme
Court’s definition of a hostile work environment in Harris (i.e. “physically threatening or
humiliating”). 510 U.S. at 23. To hold otherwise would risk changing Title VII into a “code of
workplace civility,” a result we have previously rejected. See, e.g., EEOC v. Harbert-Yeargin, Inc.,
No. 06-2509           Grace v. USCAR, et al                                                    Page 19

266 F.3d 498, 507 (6th Cir. 2001) (citing Holman v. Indiana, 211 F.3d 399, 404 (7th Cir. 2000)).
Consequently, the defendants are entitled to summary judgment on the merits of the Title VII hostile
work environment claim.
                                                 VIII.
        Because the district court dismissed all of the plaintiff’s federal claims, it concluded that it
did not have subject matter jurisdiction over the related state-law claim. Grace, 2006 U.S. Dist.
LEXIS at *27 (“[Subject matter jurisdiction no longer exists for the state-law claim, and it must also
be dismissed as a matter of law.”). The district court was incorrect in saying that the state-law claim
had to be dismissed as a matter of law. Musson Theatrical v. Federal Express Corp., 89 F.3d 1244,
1254 (6th Cir. 1996) (There is no “categorical rule that the pretrial dismissal of a federal claim bars
a court from deciding remaining state law claims.”). But it is likely that the court would have
nevertheless declined to exercise supplemental jurisdiction, a decision we review for an abuse of
discretion. Clemens Trust v. Morgan Stanley DW, Inc., 485 F.3d 840, 853 (6th Cir. 2007).
        The court did not indicate that the claim was dismissed with prejudice on the merits such that
the plaintiff could not re-file her complaint in state court. She is free to do so. Furthermore, because
we reverse and remand the plaintiff’s FMLA claim, the district court may choose to exercise
supplemental jurisdiction over the ELCRA claim.
                                                  IX.
        For the foregoing reasons, we AFFIRM the judgment of the district court with respect to the
plaintiff’s Title VII claims, REVERSE with respect to the plaintiff’s FMLA claim, and REMAND
the case for further proceedings consistent with this opinion.