Matt Hesketh

A staffing company (Company A) got into hot water with the DOL for failing to pay overtime. Scalia v. Employer Solutions Staffing Group, LLC, No. 18-16493 (March 2, 2020). The employees at issue were placed by a second company (Company B). Company B instructed Company A’s payroll employee to pay all time worked as “regular hours” instead of overtime, and this resulted in over 1,000 FLSA violations. The court ordered Company A to make overtime back-payments, and, because the payroll employee knew the pay was violating the FLSA, Company A had to pay an equal amount in liquidated damages.

On appeal, Company A asserted that it should not have to pay the liquidated damages because Company B told Company A’s “low-level” employee to violate the law. Company A also tried to have the court divide the liability between the companies. The Ninth Circuit was not impressed with either argument.

The court held that Company A was liable for its employee’s violation of the FLSA. Allowing an employer to “evade liability simply because none of its ‘supervisors’ or ‘managers’ processed the payroll would create a loophole in the FLSA.” Further, the employee’s conduct was willful (justifying liquidated damages) because the employee repeatedly dismissed the payroll system’s warnings about overtime pay. Finally, the court ruled that the FLSA does not itself imply a right of contribution or indemnification among joint employers.

The court’s ruling serves as a warning and reminder to train and supervise employees. Company A provided FLSA training and implemented the warning system, but it should have exerted more oversight over its payment of wages, the instructions its employees received from outsiders, and the dismissal of the warnings. Also, if Company A was going to accept payroll instructions from Company B, it might have considered assigning the risk through the contract between the two companies.