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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News that some of the nation's preeminent homebuilders have received information demands from the U.S. Labor Department under the federal Fair Labor Standards Act has drawn a variety of unhappy reactions.  But whatever one thinks about the wisdom, appropriateness, timing, or manner of DOL's move, the fact is that the administration has had the construction industry in its FLSA sights for some time now.

As we reported in May 2010, even then DOL had identified construction as being among what it calls "fissured" industries.  Officials use this term to refer to business arrangements that in DOL's view cloud the realities of the employment relationship so as to dilute the responsibility for FLSA compliance.

It is therefore likely that one important purpose of DOL's homebuilder initiative is to develop a baseline of industry- and company-specific structural information that is relevant to FLSA compliance.  For instance, investigators will no doubt be looking into whether ostensibly-separate corporations, partnerships, sole-proprietorships, and the like serving as different components in or layers of construction projects are truly independent businesses, or whether they are instead so integrated with one another as to be a single, overall enterprise.

DOL will also be delving into the extent to which even truly distinct and separate entities nevertheless collaborate about or exercise control over the workers on construction projects.  It will be doing this to judge whether each such entity is a "joint employer" of some or all of those workers so as to share individual and collective responsibility for complying with the FLSA where those workers are concerned.  This can be the case if, for example, a worker's efforts simultaneously benefit those entities under circumstances in which:

◊   There is an arrangement between or among the entities to share or interchange the worker's services;

◊   One entity is acting directly or indirectly in the interests of one or more others in relation to the worker; or

◊   The entities "are not completely disassociated with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with" one or more others.

See 29 C.F.R. Part 791.  Courts tend to evaluate the joint-employment question under factors that mostly boil down to variations on these themes.

Obviously, DOL will also be investigating whether the targeted employers have been following the FLSA's minimum-wage, overtime, recordkeeping, and child-labor requirements and restrictions.  This will include evaluations of whether these employers have erroneously treated some employees as being exempt or have misclassified employees as being "independent contractors".

Construction contractors subject to federal prevailing-wage and fringe-benefits requirements should also assume that investigators will be alert for any non-compliance with the Davis-Bacon Act or the Contract Work Hours And Safety Standards Act.

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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.