Staffing Firm Caught In Sham-Company Overtime Scheme

Manufacturing employees in Mississippi and Massachusetts will receive more than $1.5 million in back wages, according to a US Department of Labor press release on July 12, 2016.

Workers Win Big In Back Wages Investigation

Over “a three year period,” the workers were “systematically underpaid” for their work at plants in Leominster, Massachusetts and Sardis, Mississippi.

An investigation conducted by the Labor Department’s Wage & Hour Division found that ASI Staffing Group, a staffing agency that provided contract labor to United Plastics, created a series of sham companies to avoid paying workers the overtime pay they were owed. When an employee worked over 40 hours in a week, “the overtime hours were recorded under a separate company name,” the Labor Department writes.

That allowed the companies to continue paying workers at straight time rates, even though they’d worked overtime. United Plastics knew about the staffing firm’s racket but did nothing to stop it.

Overtime Rights Violated

The workers involved included maintenance workers, color mixers, quality control employees, machine operators and molding technicians. The employees routinely worked more than 48 hours per week, bringing them well over the 40-hour threshold for federal overtime requirements.

Both defendants have been ordered to pay a total of $1,433,618, compensating more than 560 employees for their work. The judgment includes an award of $716,809 in back wages, which was then doubled in a common practice known as “liquidated damages” to arrive at the final amount. Penalties of $100,000 were also assessed, and the companies have been ordered to revise their pay and recordkeeping practices to come into compliance with federal law.

Reining In The Fissured Workplace

Mark Watson, Jr., regional administrator for the Wage and Hour Division, points to staffing agencies as an increasingly common tactic for employers who want to shirk their legal duties:

“Employers who use staffing agencies as a cover for short-changing workers of their hard-earned wages are breaking the law, plain and simple. Violations like this not only deprive workers of money they need to meet their living expenses, they also undercut law-abiding employers who pay their workers legally and play by the rules.”

The American workplace is becoming “fissured,” says Michael Felsen, the Labor Department’s lead attorney in New England.

Rather than directly hire their own employees, more and more companies are turning to staffing agencies and contracting out various types of work. None of this is illegal, but it does obscure the legal relationships between workers and the businesses who receive the benefit of their labor. Untangling the thicket of LLCs and S-Corps, two legal structures for companies, can take years and cross national boundaries, with actual workers falling through the gaps.

For more of the Labor Department’s take on the fissured workplace, click here.

When You Have Two Employers

The employment relationship isn’t a one-to-one situation anymore. As we’ve seen in the case of ASI Staffing Group and United Plastics, more than one company can be considered the employer of a single worker – and both can be held responsible for labor violations. This isn’t a new idea, but it is becoming more common.

Figuring out when “joint employment” actually exists, however, can be hard. There’s no rule, and the final decision is still a case-by-case determination made by the Department of Labor and the court system. The Fair Labor Standards Act, though, takes a very broad approach to the concept of “employment.” Courts have repeatedly held that the idea of joint employment, just like normal employment, “should be defined expansively” in the words of a 1997 Ninth Circuit Court of Appeals decision*.

More often than not, that means a situation that looks like joint employment probably is joint employment. Under this broad understanding of employment, we’ve moved away from traditional legal theories on what makes an employee an employee. In the common law tradition, judges will look to how much control a company exerts over a worker. The more control, the more likely it is that the worker is actually an employee.

In Fair Labor Standards Act cases, control doesn’t go out the window, but it’s not given the same emphasis. Instead, courts will take a more holistic approach, considering the entire scope of a worker’s economic relationship to an employer.

*Torres-Lopez v. May, 111 F.3d 633, 639 (9th Cir. 1997)