The Emplawyerologist has posted on co-employment before. (Click here, here, here, here, here, and here for review.) In keeping with our mini-series we can learn lessons from Wal-Mart here as well. If The Emplawyerologist has already posted on this topic six times, could there really be anything new–other than Wal-Mart being a named defendant? Actually, yes! This year a lawsuit involving allegations of co-employment liability — and Wal-Mart–has the potential to add a new wrinkle, to the topic of co-employment and for large companies that use large subcontractors to provide and manage their workforce. What kind of case might do that? Find out by joining The Emplawyerologist after the jump!
OK, I won’t keep you in suspense any longer. The case is Everado Carrillo v. Schneider Logistics et al, filed in 2011 on behalf of workers who load and unload boxes by hand from shipping containers and into trailers for Wal-Mart at Wal-Mart warehouses in Mira Loma, California. Allegedly these workers often worked for substantially less than minimum wage (often by a piece rate later found to be illegal and changed soon after filing of the lawsuit) worked double shifts, seven days a week with no required breaks (per California wage and hour law) or overtime pay. These workers were directly employed by staffing companies, who provided workers to Schneider Logistics, who in turn contracted with Wal-Mart. (I actually mentioned that case in a prior post here, but that was before Wal-Mart was involved.) Schneider Logistics tried to avoid liability by claiming that it did not employ the workers, rather the staffing companies did. Judge Christina Snyder of the United States District Court of Central California disagreed and held Schneider Logistics and the staffing companies to be joint employers.
In January 2013, the U.S. District Court for the Central District of California granted the workers’ motion to file an amended complaint adding Wal-Mart as a defendant. Like Schneider Logistics, Wal-Mart argued that it was not their employer and therefore could not be liable for wage theft. Co-employment cases usually involve a client and a contractor who supplies a group of workers to the client. The client argues that it doesn’t employ the workers, the contractor does. This case is different though, because a) it sought to hold accountable a company that was two contractors removed from the alleged violation; and b) it is the first time that Wal-Mart has faced a lawsuit arising out of work done by its contracted laborers.
How does a business two contractors removed from an alleged violation find itself facing potential liability as a joint employer? The same economic realities test that applies when a company is one contractor away applies when it is two or more contractors away: How much control, direct or indirect, did Wal-Mart exercise over those contracted workers? The more control, the greater the likelihood that Wal-Mart was in fact a joint employer of those workers. Judge Snyder felt that there was at least enough genuine factual dispute on that issue to keep Wal-Mart in the case and require a trial. Wal-Mart owned or leased the warehouses where the workers loaded and unloaded the goods. It also owned the equipment needed to perform the work. The workers claimed that Wal-Mart set productivity standards for them to meet and screening requirements for Schneider to apply when hiring. Allegedly, Schneider had to submit organizational staffing charts to Wal-Mart and receive Wal-Mart’s approval on its operating budget, which in turn determined how it paid its subcontractors. Documents showed that Wal-Mart managers instructed Schneider to pressure workers to perform faster, and that Wal-Mart gave Schneider “improvement plans” that focused on their work hours. In one email, a Wal-Mart manager apparently expressed concern that some workers were being paid a full hourly rate, rather than on a piece work basis, which the workers say was well below minimum wage. Before the lawsuit Schneider managers used walmart.com e-mail addresses. Plaintiffs’ counsel also pointed out that up to a dozen Wal-Mart managers were regularly on site. Assuming these allegations are true, that would certainly show sufficient control by Wal-Mart to make them a joint employer. It would also suggest that Wal-Mart managers were aware of — and therefore liable for — wage and hour violations at the warehouses.
Ultimately the case settled for $21 million in May, 2014, four months after the ruling allowing Wal-Mart to be named as a defendant. Apparently Schneider Logistics will be paying. If so, did Wal-Mart get off scot-free here? As with all cases, Wal-Mart had to pay its legal defense fees. Comparatively speaking that may not be much. The real concern for Wal-Mart and large retailers who use contractors and staffing companies to augment their labor force is that they may have to change some of their practices going forward. They will not be able to insulate themselves from liability by simply adding another layer in the hiring and management of their workforce. They will actually have to think about the economic realities. If not, they risk being a defendant in other costly lawsuits.
The key take-away for employers: If you are controlling the activities and work environment of anyone doing work from which you benefit, you are probably their employer. Even if you have contracted with someone else to provide those employees, and even if you don’t act in every single way as their employer, but that will not insulate you from responsibility—and in some cases liability— as an employer. If you want to be sure that you are properly insulating yourself from co-employment liability —or at least minimizing your liability– speak with competent employment counsel to ensure that your actions are in line with your intentions!
Join The Emplawyerologist next week when we will see what we can learn from Wal-Mart about safety issues
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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