Welcome back to the wonderful world of co-employment! Those of you following The Emplawyerologist have already been introduced to Tricia the “temp” and Sensational Staffing. If you are just joining us, you can catch up by clicking here, here and here. (Today, we will give Tricia and Sensational a break — and we won’t even worry about whether their state requires rest periods! )If you use a staffing agency, contractor or work with a parent or subsidiary company, you may not have thought much about whether you could be responsible for properly paying those employees. Now, I am sorry if this comes as a rude awakening (really I am!): In fact you could be on the hook here too. While you may not exactly welcome the idea of having to worry about these issues with respect to people who you don’t always think of as your employees, it beats having to address them in an infinitely more expensive lawsuit. That said, join The Emplawyerologist after the jump, to find out what you really need to know…
First, let’s review the common thread that runs through all co-employment discussions. If you exercise sufficient control over the employee(s) in question then, legally you are most likely a co-employer. Under the FLSA joint employers are jointly and severally liable for wage and hour violations. (See, 29 C.F.R. 791.2(a) for the actual regulation). If an employee files a complaint with the US Department of Labor , the DOL may pursue one or all joint employers. The DOL’s primary concern is that the employee receives all wages to which s/he is entitled from at least one of the responsible parties. It does not have to pursue all responsible parties to do that. In such a scenario the employer could then file a claim against the other joint employers for what is known as contribution, i.e. their share of the wages due the employee(s). Last May, the DOL did exactly that with respect to Lucca Freezer and Cold Storage, a produce company in Vineland, NJ, who ordered temporary workers from Quickstuff, LLC to report to the plant’s production area 15 minutes before the start of their staff, without compensating them. (Click here to review why this is a big no-no under the FLSA). At times, Lucca also had paid the contingent workers $40 for each trailer they unloaded. The only problem is they did not consider that work when calculating overtime. The DOL found that both Quickstuff and Lucca were joint employers and ordered Lucca to pay $498,604 in back wages and liquidation damages to 1,720 employees for wage violations. Patrick Reilly, Director of the Southern New Jersey District Office of the DOL’s Wage and Hour Division, provides some helpful insight into the DOL’s reasoning:
“Temporary employment agencies serve valuable and legitimate business needs in today’s economy, but employers may not use such services to escape their responsibility to pay their workers the minimum wage and overtime pay they are entitled to under the law…”
Even though the staffing agency and the client may contractually agree that the staffing agency is primarily or solely responsible for wage and hour compliance, both the DOL and courts may choose to ignore such provisions. Some contracts may even have indemnification provisions requiring the staffing company to hold its client harmless against such liability (more on that in next week’s post).
In addition to the above case, there are a few cases involving Schneider Logistics, a distribution contractor of Wal-Mart that in turn contracted with staffing agencies in California and Illinois, and are accused of having short-changed these employees on overtime and also violating state meal and rest break requirements. One case, Quezada et al v Schneider Logistics, recently settled, with Schneider Logistics having agreed to pay the class of employees $4.7 million. In another, Carillo v. Schneider Logistics, the court ruled that Wal-Mart could be added as another joint employer, effectively finding Wal-Mart a joint employer of a sub-sub-contractor’s employees. Suppose you have a contingent worker who works for you through three different staffing agencies and altogether works over 40 hours a week for you. Do you still have to pay overtime? Yes, according to the Second Circuit Court of Appeals in Barfield v. NYC Health and Hospitals Corp., Bellevue Hospital Center, 2nd Cir., No. 06-4137, 06-4310 (Aug. 8, 2008).
Moving away from staffing companies, what happens when a parent company uses a subsidiary company’s employees for a project, or vice versa? Can both the parent and subsidiary company be held responsible for wage and hour compliance under the FLSA? The Third Circuit Court of Appeals in In re Enterprise Rent-a-Car Wage & Hour Employment Practices Litigation said “Yes”, and, for good measure listed the following factors for determining joint employment (resulting in joint liability):
1) the alleged employer’s authority to hire and fire the relevant employees; 2) the alleged employer’s authority to promulgate work rules and assignments and to set the employees’ conditions of employment: compensation, benefits, and work schedules, including the rate and method of payment; 3) the alleged employer’s involvement in day-to-day employee supervision, including employee discipline; and 4) the alleged employer’s actual control of employee records, such as payroll, insurance, or taxes.
The court also stated that the above list is “not exhaustive” and should not be “blindly applied as the sole considerations necessary to determine joint employment”. To that end, the court further held that if a court finds “other indicia of “significant control” are present to suggest that a given employer was a joint employer of an employee, that determination may be persuasive, when incorporated with the individual factors we have set forth.”.
So, what does all this mean? Under the FLSA, even if someone is not on your payroll, they may still be your employee, for some purposes, and you will still have employer responsibilities. When in doubt, speak with your friendly in-house counsel — or competent, local employment counsel! Join The Emplawyerologist next week for a discussion on indemnification agreements and joint employment. Meanwhile, enjoy the rest of President’s Week!
Disclaimer: This post’s contents are for informational purposes only, are not legal advice and do not create an attorney-client relationship. Always consult with competent local employment counsel on any issues discussed here.
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