Whether workers are complaining or not, over the next few years, the Wage and Hour Division (WHD) of the U.S. Department of Labor will continue to investigate businesses up and down supply chains, bringing to account all those it deems to be employers with respect to the workers who produce their goods or perform their services. Though this article contemplates executive branch enforcement up to and including litigation, we must be mindful that spillover private litigation will also result as the parties fully explore where responsibilities lie for minimum wage and overtime payments.
The WHD’s current enforcement priorities have been a long time in coming and based on their plans, as I see them, they are ambitious. As background, in May of 2010, a professor at Boston University, Dr. David Weil, published a report for WHD that was four years in the making, entitled “Improving Workplace Conditions through Strategic Enforcement.” Several points were made in a set of recommendations to WHD. They included the importance of “clarifying the boundaries of employment responsibility” and “industry-focused deterrence” (p. 3).
Fast forward four years to May 2014, when Dr. Weil was appointed to the long vacant Wage and Hour Administrator’s seat; this only months after publication of his book, The Fissured Workplace: Why Work Became So Bad for So Many and What Can Be Done to Improve It.
Dr. Weil has in-depth knowledge of the employer/employee relationship and an expansive view of FLSA enforcement that matches big conceptual statutory and regulatory definitions of “employer” and “employee” that are by no means new. Though there are probably more new investigators than seasoned at this point, the WHD has had a robust directed investigation agenda in the past that will provide guidance in its goal to hold the top of the supply chains responsible for what happens below them.
In the 2010 report, Weil acknowledges WHD’s experience in the garment industry, especially in the mid-1990s. Many, like me, who were heavily involved in enforcement throughout the garment industry’s supply chain, are no longer with WHD, most having retired. Still, there is plenty of institutional knowledge in the WHD that can be brought to bear in an economy that has increasingly loosened employment relationships in almost all industries by now. Every industry should take heed, whether or not the “priority industry” list appears to include it.
In his role as Administrator, Dr. Weil blogged last October:
In its 2016 Congressional Budget Justification (click here for pdf), the WHD line-itemed a request for increased funding specifically for “addressing the fissured workplace”, opining that:
- In recent years, the employment relationship between workers and businesses receiving the benefit of their labor has fissured apart as companies have contracted out or otherwise shed activities to be performed by other businesses. Often those secondary companies deepen the fissures, breaking those activities apart and shifting work even further out from the primary business. As a result, employees may be unaware for whom they actually work. WHD has, by necessity, begun to adapt and respond to this new paradigm by introducing new enforcement strategies and applying new technologies to educate workers, employers, and the public (p. 12).
In its budget request, as elsewhere, the WHD uses the term “priority industries” to call out which companies can expect to be subject to scrutiny through direct enforcement (no complaint needed):
- Priority industries are those industries where the relationship between the workers and the beneficiaries of the labor are more and more attenuated and fissured. Rather than add workers to their permanent payrolls and assume the obligations associated with employment relationships, companies are relying on various contingent workforce solutions to produce goods and services (p. 26).
In the Department of Labor’s FY2014-2018 Strategic Plan (click here for pdf), Secretary Perez footnotes Dr. Weil’s aforementioned 2010 report, a report which specifies eating and drinking establishments, hotels/motels, and other retail services, residential construction, janitorial services, moving and logistics companies, health care and agriculture, as the “priority industries” (p. 2).
Employers in these industries have always had the attention of WHD. The “priority industries” listed are mostly the same ones that have previously been called “targeted industries”; they have also been called “low-wage” industries. The more interesting point, again citing Dr. Weil’s 2010 report, made in the Strategic Plan is the fact that “[m]any workers are employed in industries with structures that contribute to the likelihood of labor standards violations. These business models are characterized by the use of subcontracting, franchising, temporary employment, labor suppliers, independent contracting, and a contingent workforce” (p. 52).
Most certainly, the business models that Secretary Perez notes are utilized by all industries to one extent or another.
Employment and Joint Employment
The statutory definitions of “employer” and “employee” are simple, broad, and circular! From the Act itself: “Employer” includes any person acting directly or indirectly in the interest of an employer in relation to an employee…”, and “….the term “employee” means any individual employed by an employer.”
Surprisingly few employers are familiar with the WHD’s short interpretative bulletin on joint employment. Businesses that engage in any outsourcing at all must carefully consider potential applicability of the very broad language of Code of Federal Regulations, Title 29, Part 791, which I have paraphrased here, in part:
- (b) Where the employee performs work which simultaneously benefits two or more employers, or works for two or more employers at different times during the workweek, a joint employment relationship generally will be considered to exist in situations such as:
- (1) Where there is an arrangement between the employers to share the employee’s services, as, for example, to interchange employees; or
- (2) Where one employer is acting directly or indirectly in the interest of the other employer (or employers) in relation to the employee; or
- (3) Where the employers 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 the other employer.
The full text, footnotes, and citations may be viewed here.
The complex business relationships of franchisor to franchisee to employee, prime contractor to subcontractor to independent contractor, client to staffing company to temporary worker have proliferated and are really de rigueur. Customers, vendors, investors, and even employers and employees themselves may not think about who works for whom if the economy is good and the money is flowing. Employers up and down the supply chains comply with labor laws. They know the rules and follow them. Some workers even enjoy more freedom and flexibility in the workplace as a result of looser work relationships.
But what happens when the economy goes sour? Business is bad. A contract is lost. Workers are displaced. Or maybe the economy is good but the pressure of investors for profits or the threat of global competition pushes businesses to make cuts or control their labor supply relationships in ways that ultimately result in workers they neither know nor directly engage to suffer from overwork and underpay? What happens when a smaller employer can’t make payroll?
Risk-averse employers need to take pause! Primary businesses that aren’t normally responsible for paying wages may ultimately be held accountable for unlawful pay practices, even if they don’t cut the checks themselves. Even if a business isn’t actually a primary employer of the workers who provide its services or make its products, the rules of joint employment may be determined to apply. Whether they are or not, bad press, enforcement proceedings, and litigation can take a toll on any business when workers aren’t paid as the law requires. A hands-off approach to wage and hour compliance is simply a risky position. The take-away is that it’s better to evaluate upfront and consider a contingency plan from the beginning when contracting for workers at any level.
All companies should assess their role as employers or joint employers, keep abreast of wage and hour compliance in their industries, and have a compliance plan that considers all the workers who make or provide their company’s products or services.