Readers will recall that, in 2010, the U.S. Labor Department announced that it would pay particular attention to multi-party business arrangements that it sees as obscuring or diluting responsibility for complying with the federal Fair Labor Standards Act.  USDOL's "fissured industry" enforcement effort seeks to tie together all of the participants, including subcontractors, vendors, suppliers, and the like.

Recent developments underscore that the Wage and Hour Division is indeed looking for opportunities to assert that different entities are sufficiently integrated with one another to make each participating business a joint-employer.  The Division is also making good on its warning that it would "bring pressure to bear" upon brand owners to induce them to insist upon and monitor FLSA compliance by others with whom they share a business relationship.

Joint-Employment Allegations

USDOL recently sued DirecTV, one of DirecTV's service contractors, and the contractor's owner for alleged FLSA violations.  The lawsuit contends that installers compensated on a piece-rate basis received less than the minimum wage, were not paid overtime premium, and were not paid the FLSA-required wages for all hours worked.  USDOL asks for back-wages, an equal amount as liquidated damages, and a court injunction requiring future compliance.

The Wage and Hour Division also claims that these alleged violations were "willful".  It intends to assess civil money penalties (which can be as much as $1,100 for each violation) against the defendants.  A Division official stated that, "[The defendants] were found to be responsible, as joint employers, for underpaying these employees.  The bottom line is that subcontracting labor does not absolve an employer from responsibility for compliance . . .."

Pressure To Oversee Compliance

A different approach is exemplified in connection with USDOL's having recovered more than $200,000 in FLSA back wages for the employees of five vendors and staffing agencies working at Gaylord Hotels' Texan Resort and Convention Center.  While there is no indication that the Wage and Hour Division asserted an FLSA joint-employment as to Gaylord, the Division nevertheless prevailed upon the company to agree to:

♦    Require vendors and suppliers to enter into FLSA compliance agreements,

♦    Provide compliance information to vendors and suppliers, and

♦    Maintain a toll-free complaint hotline.

The Division has earlier expressed its willingness to engage in adverse publicity and to work in conjunction with advocacy or consumer groups if it feels that this is warranted.  Reports do not indicate whether these prospects played a role here.

As these scenarios demonstrate, an employer could find itself embroiled in USDOL enforcement efforts initially undertaken against another participant in a collaborative business activity.  This is especially possible in targeted areas like construction; retailing, services, and manufacturing arrangements involving a variety of contractors or subcontractors; food retailing; and the hospitality industry.

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Fisher & Phillips recently participated in a closed-door meeting with U.S. Wage and Hour Division officials in Washington, D.C. to discuss the Labor Department's "Hotel and Motel Resort Pilot Initiative."  There appears to be no specific strategy or plan as yet for this investigative program, but it is scheduled to begin in the agency's next fiscal year, which commences on October 1, 2010.  It is definite that the Division will target Hospitality employers on two fronts – compliance with both H2B requirements and the Fair Labor Standards Act.

The Division informed us that it considers Hospitality to be a "high risk" industry.  However, when we inquired as to what measures they used to make that determination, the officials had little to share.  They identified principally two industry characteristics they seem to be relying upon: 

•   Hospitality employers hire large numbers of H2B workers and younger employees, both of which groups they believe consist of individuals who are "vulnerable" and are unlikely to complain about violations; and

•   As we said in an earlier post, Hospitality is what the Labor Department calls a "fissured industry", by which it means arrangements it sees as resulting in a dilution of both the employment relationship and the responsibility for compliance.

Officials could not state with any certainty that they have received a statistically-significant higher number of complaints or violations in the industry.  Instead, they indicate that one purpose of the audits will be to find out whether there are large numbers of violations. 

The Division made it clear that it will:

◊   Target H2B users for review;

◊   Likely conduct these inspections in certain geographic areas that are not yet specified;

◊   Investigate all employers on the property – including separately owned and operated restaurants, cafes, and the like;

◊   Audit staffing companies supplying workers to the Hospitality industry; and

◊   Scrutinize whether the employers are in compliance with their H2B certifications (if applicable) and are complying with the Fair Labor Standards Act (including its child-labor limitations).

The time to prepare is NOW – this initiative could begin in just a few months.  You should consider conducting an internal compliance audit immediately, before the Labor Department selects your property for an audit.

Fisher & Phillips participated last week in a Washington, D.C. "Stakeholder Forum" conducted by the U.S. Labor Department's Wage and Hour Division.  A recurring theme during this session was the Division's focus upon industry- and sector-wide compliance initiatives under the federal Fair Labor Standards Act.

The Division is particularly concerned about what it calls "fissured" industries, a term it uses to refer to arrangements it sees as resulting in a dilution of both the employment relationship and the responsibility for FLSA compliance.  Examples the Division gave included:

•   Construction, in which the participants might include the property owner, a general contractor, and multiple subcontractors;

•   Pyramided retailing and manufacturing carried out at different levels by a variety of contractors or subcontractors;

•   Prepared-food retailing conducted through local establishments, some of which are company-owned and others of which are operated by franchises or under similar arrangements; and

•    Branded hotels operated under a host of different business relationships through the brand owner, franchises, or independent companies with or without an ownership interest in the property.

As one representative put it, the Division will be looking for ways to "tie these levels or parts together" for purposes of asserting compliance responsibility under the FLSA.  For instance, Division investigators will be gathering industry- and company-specific "structural information" as a part of their audits.  They are also likely to be looking for opportunities to assert that different entities exercise sufficient control over (or are so operationally integrated with one another with respect to) a group of employees that each component is those workers' joint-employer for purposes of complying with the FLSA.

Even if there is no joint-employment, the Division will be searching for other avenues to "bring pressure to bear" upon brand owners or others at the highest levels of an industry. The goal will be to induce topmost officials to insist upon and monitor FLSA compliance by others with whom they share a business relationship.  Exchanges between presenters and participants suggested that the Division will be open to relying upon adverse publicity and collaboration with consumer groups if it feels that this is necessary.  The Division hopes that those with the power to do so will "care enough about the brand" to work toward causing others in the industry to fall in line.