Employer takes $1.3 million hit for staffing company’s FLSA violations

Employers take note: You may be on the hook for your staffing company’s failure to comply with the minimum wage and overtime requirements of the Fair Labor Standards Act.

The U.S. Department of Labor’s Wage and Hour Division announced on October 27, 2015, that a national snack manufacturer will pay $1.3 million as backpay for wage hour violations to temporary workers placed at its facility by a staffing company.

The Wage and Hour Division’s investigation determined that the temporary workers placed at the manufacturer’s facility were not properly paid overtime by the staffing company. The Wage and Hour Division’s (WHD) investigation did not, however, end with the staffing company. Rather, the WHD went on to determine that the manufacturer itself was a “joint employer” with the staffing company. As a result, the manufacturer was responsible for backpay to 435 temporary workers provided by the staffing company.

The issue of “joint employer” status is at the forefront of the DOL’s enforcement agenda. Investigations into “fissured workplaces,” operations where multiple entities are involved with the same employees, is a priority for WHD Administrator, David Weil. In its recent investigation, the WHD noted that under the FLSA, “joint employment exists where workers have an employment relationship with one employer such as a staffing agency, and the economic realities show that they are economically dependent on – and thus employed by – another entity involved in the work.”

Similarly, the National Labor Relations Board, another DOL agency, issued a controversial opinion in August 2015 that significantly broadens its standard for determining joint employer status under the National Labor Relations Act. Under its newly announced standard, the NLRB will consider joint employer status to exist when an entity controls the employment terms and conditions of another business’s employees, has “indirect” control of such employment terms and conditions, or where the entity has reserved the right to take such control. A joint employer finding can have significant consequences under the NLRA, including requiring that two separate businesses engage together in collective bargaining with the employees’ union.

In terms of FLSA compliance, employers should recognize that depending on their relationship with a staffing company, the potential for joint employer status – and also joint liability for FLSA violations – may exist. As a best practice, an employer should not only understand FLSA compliance, but should also ensure that where that potential for a joint employer relationship exists that it should take steps to ensure that it does not find itself on the hook for another employer’s FLSA mistakes.