Category Archives: Employer

May 23, 2011 · 7:15 am

M.D.Tenn.: Contract Cleaners Not Joint Employees of the Restaurants Cleaned, Despite Fact They Exclusively Cleaned Defendant’s Restaurants

Politron v. Worldwide Domestic Services, LLC

Plaintiffs filed this action for unpaid wages and overtime pursuant to the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201, et seq. Plaintiffs’  alleged that they were hired by Defendant Worldwide Domestic Services, Inc. (“Worldwide”) during the time period of October 2010 to December 2010 to clean Chili’s restaurants in the Middle Tennessee area.  The case arose from Plaintiffs’ contention that paychecks issued to the Plaintiffs by Worldwide bounced due to insufficient funds.  Plaintiffs alleged that Defendants’ failure to pay Plaintiffs at least minimum wage for each hour worked is a violation of the FLSA and, as discussed here, that Defendants Worldwide, Elite Commercial Cleaning, LLC and Chili’s, Inc. were “joint employers” under the FLSA.

Acknowledging that the Sixth Circuit had yet to formulate a specific test for the application of joint employment under the FLSA, the court instead discussed law from other courts, who have developed such tests.  Applying the various factors other courts have used, the court determined that the restaurant owner Defendant, was not properly alleged to be a joint employer here.

The court reasoned:

“Here, the Court finds that the agreement between Brinker and Worldwide, as alleged in Plaintiffs’ Amended Complaint, was an outsourcing type of relationship. Worldwide contracted with Brinker to have its restaurants cleaned after hours. Plaintiffs admit that they worked at the direction of Worldwide. Plaintiffs’ work was dependent upon Worldwide’s ability to get and keep contracts for cleaning. Plaintiffs agree that no one from Brinker supervised, trained or directed them; no Brinker employees were even present when Plaintiffs worked. Brinker had no control over their wages, no authority to hire, fire or discipline them, and kept no employment records for Plaintiffs. Plaintiffs received their relevant income tax information from Worldwide or from Defendant Elite Commercial Cleaning. There is no allegation that Brinker knew which employees worked or how many hours they worked.

Although Plaintiffs contend that every hour they worked was at Chili’s and they used some equipment from the restaurants (they also used equipment from Worldwide), the Court finds that the factors indicating a joint employer are outweighed by those which indicate no such relationship between Plaintiffs and Brinker.”

Although the case is not groundbreaking, it does demonstrate the flaws in allowing such “outsourcing” to abrogate a company’s responsibilities to those who provide its essential services under the FLSA.

Click Politron v. Worldwide Domestic Services, Inc. to read the entire Memorandum Decision.

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September 17, 2010 · 9:22 am

S.D.Ohio: Inclusion Of Maître D’ In Tip Pool Not Necessarily Illegal; Evidence Demonstrated Maître D’ Lacked Management Duties To Make Him An FLSA Employer, If He Did Not Hire Or Fire

Strange v. Wade

This case was before the court on plaintiff’s motion for summary judgment regarding a variety of issues.  Although the court granted the motion in some respects, as discussed here, it denied the motion with respect to plaintiff’s claim that defendant’s inclusion of the maître d’ in its tip pool was illegal and invalidated the tip pool.  The court held that on the record before it, it was not possible to conclude that the maître d’ was a management employee rather than a properly tipped service employee.

Discussing this issue the court reasoned:

“The FLSA expressly prohibits employers from participating in employee tip pools. “Congress, in crafting the tip credit provision of section 3(m) of the FLSA did not create a middle ground allowing an employer both to take the tip credit and share employees’ tips.” Chung v. New Silver Place Rest., Inc., 246 F.Supp.2d 220, 230 (S.D.N.Y.2002); Wajcman v. Investment Corp. of Palm Beach, No. 07-80912-CIV, 2008 WL 783741, *3 (S.D.Fla. March 20, 2008) (“The theory here is that employees who exercise substantial managerial authority over the day to day operations of the business are functionally the ‘employers’ themselves”). Where employers participate in a tip pool, the pool is invalid. See Ayres v. 127 Restaurant Corp., 12 F.Supp.2d 305 (S.D.N.Y.1998) (tip pool violated FLSA where general manager, who had authority to suspend, hire and fire employees and analyze payroll costs, was allowed to participate in the pool).

Plaintiff argues that Pigall’s tip pool was invalid because Brown was a manager and shared in the pool. (Doc. 22-1.) In support of its argument, Plaintiff points to Brown’s guaranteed compensation, his participation in the opening of the restaurant, his authority to train, schedule and supervise the wait staff, and his authority to hire and fire employees. (Id.) Plaintiff cites to the depositions of Brown and de Cavel, wherein both men testified that Brown was considered part of the restaurant’s management team. (de Cavel Dep. 50:13-14; Brown Dep. 59:17-22.) These facts, Plaintiff argues, unequivocally establish that Brown was an employer for purposes of the FLSA. See Ayres, 12 F.Supp.2d at 307-08 (general manager of restaurant, who had full authority to suspend or terminate employees, supervised wait staff, made hiring decisions, assumed responsibility for budget and received weekly salary of $2000 was not an employee who “customarily and regularly received tips” under the FLSA).

Defendants agree that Brown participated in the tip pool but argue that he was not a manager and, thus, the tip pool was not invalid by virtue of the fact that Brown participated in it. Defendants point to Dole v. Continental Cuisine, Inc., 751 F.Supp. 799 (E.D.Ark.1990), to support their contention that Brown cannot be considered an employer under the Act. In Continental Cuisine, the individual in question was the maître d’ of the restaurant alleged to have violated the FLSA. 751 F.Supp. at 802-03. The maître d’ was responsible for setting up the dining room, seating and greeting customers, serving the first drink to customers, scheduling shifts for the wait staff, interviewing applicants for positions as waiters and waitresses, and recommending that persons be hired or fired. Id. at 800. Because the maître d’ did not have final authority to hire and fire employees, set wages, control restaurant operations, or control payroll, he was not considered an employer for purposes of the FLSA. Id. at 803. Defendants argue that, similar to the maître d’ in Continental Cuisine, Brown did not have the requisite managerial authority to be considered an employer under the Act.

The Court agrees with Defendants that there is a genuine issue of material fact as to whether Brown is an employer under the FLSA. Although the parties appear to agree on many of the duties that Brown performs, there is conflicting testimony regarding whether Brown had full authority to hire and fire workers and how much control Brown exercised at the restaurant. For example, although Brown testified that he made final hiring decisions, he acknowledged that he was “not at liberty to hire someone” without de Cavel first meeting with that person. (Brown dep. 53:3-54:15.) Meanwhile, de Cavel testified that Brown was part of his management team and “fire[d] a few people without [his] agreement” (de Cavel dep. 50:13-14; 20:9-10). Conversely, Brown testified that he had no responsibility “for any decision that involved spending money.” (Brown dep. 51:19-20.) Based on the current record, and construing all facts in favor of Defendants, the Court believes that genuine issues of material fact preclude summary judgment on this issue. Plaintiff’s motion for summary judgment regarding the validity of the restaurant’s tip pool is DENIED.”

To read the entire decision, click here.

EDITOR’S NOTE:  In a recent decision going one step further, a court in the Northern District of Texas held on similar evidence, that as a matter of law, the inclusion of a maître d’ did not render a tip pool illegal.  Rudy v. Consolidated Restaurant Companies, Inc., 2010 WL 3565418 (N.D.Tex. Aug. 18, 2010).

It is clear from both of these decisions that while there is room for the argument that inclusion of a maître d’ may render an otherwise valid tip pool invalid, it is a very fact intensive issue and plaintiff attorneys would be wise to fully develop their factual record on issues of hiring/firing powers if they prosecute these claims.

Click here, to read more about the rules, regulations and laws applicable to Tipped Employees.

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September 10, 2010 · 10:12 am

5th Cir.: As Plaintiffs’ Joint Employer, Staff Leasing Company Qualified As “Motor Carrier” Subject To MCA Exemption From FLSA’s Overtime Pay Requirements, Because “Actual” Employer Was A “Motor Carrier”

Songer v. Dillon Resources, Inc.

This case was before the Fifth Circuit on Plaintiffs’ appeal of an Order granting Defendant, a staff leasing company, summary judgment finding that they were entitled to assert the MCA exemption, because the company they leased Plaintiffs to was a motor carrier entitled to assert the exemption.  The Fifth Circuit affirmed the decision, essentially holding that the staff leasing company Defendant was entitled to assert the exemption of the actual employer. 

Plaintiffs did not dispute that Sunset Ennis and Sunset Logistics (the “actual” employers), two trucking companies, were motor carriers subject to the Secretary’s power. Instead, they argued that Dillon, a staff leasing agency, was not a motor carrier within the meaning of the MCA. Defendants assert that because the Sunset companies are motor carriers and the Sunset companies are joint employers with Dillon, Dillon is also a motor carrier within the meaning of the MCA.

Reasoning that the the staff leasing company was entitled to assert the Motor Carrier Exemption, if the “actual” employer was entitled to assert same, the Fifth Circuit stated:

“While Fifth Circuit precedent is limited on this issue, other courts have held that a staff leasing company who provides employees for a motor carrier and operates as a joint employer with the carrier meets the requirements of 29 C.F.R. § 782.2(a)(1). See, e.g., Moore v. Universal Coordinators, Inc., 423 F.2d 96, 99-100 (3d Cir.1970) (holding that truck drivers were employees of both noncarrier truck driver leasing company and private motor carrier and therefore MCA exemption extended to leasing company). The Moore court analyzed the MCA and the FLSA, and determined that Congress intended to regulate employees of carriers in the interest of safety. Id. at 99. Therefore, the Secretary’s power had to extend to leased drivers and to the leasing company that employed them. Id. at 99-100.

In a more recent case, the district court cited Congressional safety concerns as the rationale for extending the exemption:

The [MCA] exemption, as explained in Moore, safeguards the Secretary['s] authority to regulate the qualifications and maximum hours of employees whose work affects the “safety of operation” of a motor carrier…. Refusing to extend the [MCA] exemption to the staffing agency defendants would therefore facilitate what Congress sought to prohibit-circumvention of the Secretary’s regulatory authority.  Tidd v. Adecco USA, Inc., No. 07-11214-GAO, 2010 WL 996769, at *2 (D.Mass. Mar.16, 2010) (citing Moore, 423 F.2d at 98-99).

Applying Moore and Tidd, the evidence supports a finding that Dillon, as joint employer with Sunset Logistics and Sunset Ennis, is a carrier subject to the Secretary’s jurisdiction. Dillon is a staff leasing company who provides drivers to Sunset Logistics and Sunset Ennis to fulfill interstate work orders from clients for compensation. Our review of the record reflects the following evidence: Dillon hires and trains the drivers and is responsible for their payroll, the Sunset companies are responsible for control of the drivers’ day-to-day operations, and Dillon is reimbursed for wages and benefits paid to the drivers and receives a fee when the drivers are assigned. These facts are similar to Tidd, in which the staffing agency defendants were held as joint employers to FedEx, a motor carrier, and, therefore, subject to the Secretary’s jurisdiction. See Tidd, 2010 WL 996769, at *2-3. Accordingly, we hold that the first requirement for jurisdiction under the MCA-i.e., that Plaintiffs work for carriers engaged in interstate commerce-is met. See Barefoot, 1994 WL 57686, at *2.”

To read the entire opinion, click here.

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August 12, 2010 · 6:50 am

2d. Cir.: Question Of Joint Employer Is Mixed Question Of Law And Fact, Properly Submitted To The Jury

Ling Nan Zheng v. Liberty Apparel Co. Inc.

Plaintiffs-appellees were 25 Chinese garment workers living and working in New York City’s Chinatown. In 1999, they sued Liberty Apparel Company and its principals Albert Nigri and Hagai Laniado (collectively, “the Liberty Defendants”), and others, for violations of the Fair Labor Standards Act (“FLSA”), and the New York Labor Law (“NYLL”). After a lengthy procedural history, the case went to a jury trial, and the principal issue was whether the Liberty Defendants were plaintiffs’ “joint employer” for purposes of the FLSA and New York state law claims.

The Liberty Defendants appealed that judgment.  In this opinion, the Second Circuit considered Defendants’ contention that the district court-rather than the jury-should have determined whether the Liberty Defendants were plaintiffs’ joint employer.  And on that issue, they affirmed.  The substantive law regarding the joint employment issue was discussed in a separate opinion.

After a lengthy procedural history, the defendants removed for summary judgment, and on May 23, 2008, Judge Sullivan denied that motion. Zheng v. Liberty Apparel Co., 556 F.Supp.2d 284, 287 (S.D.N.Y.2008) (“Zheng III ”). The court determined that, while there was no genuine issue of fact that the first, second, and fourth Zheng II factors weighed in the Liberty Defendants’ favor, there was a dispute of fact regarding factors three, five, and six. Id. at 289-95. On February 11, 2009, after a two-and-a-half week trial, the jury found in plaintiffs’ favor. The court denied the Liberty Defendants’ post-verdict motions to set aside the verdict and for a new trial. By final judgment entered October 26, 2009, plaintiffs were awarded $556,566.76 in damages.

Discussing the issues on this appeal, the Court framed them as: Whether “(1) the district court improperly allowed the jury to determine the “ultimate legal question” whether the Liberty Defendants were plaintiffs’ joint employer, whereas instead the court itself should have resolved that issue; (2) the district court refused to charge the jury that, as a matter of law, three of the six Zheng II factors weighed in the Liberty Defendants’ favor (to some degree); and (3) as a matter of law, plaintiffs’ evidence was insufficient to support the jury’s finding of joint employment. As to the § 345-a(1) claim, the Liberty Defendants argue that (1) the statute does not authorize a private right of action, and, alternatively, (2) whether it authorizes a private right of action raises a novel and complex issue of state law such that the district court should have declined to exercise supplemental jurisdiction over that claim, see 28 U.S.C. § 1367(c)(1).”

Holding that the Court below had correctly submitted the issue of joint-employment to the jury, the Court reasoned:

“In the context of a jury trial, the question whether a defendant is a plaintiffs’ joint employer is a mixed question of law and fact. Such questions “involve[ ] the application of a legal standard to a particular set of facts.”   Richardson v. N.Y. State Dep’t of Corr. Serv., 180 F.3d 426, 437 (2d Cir.1999) (internal quotation marks omitted). “FLSA claims typically involve complex mixed questions of fact and law….” Barrentine v. Arkansas-Best Freight Sys., 450 U.S. 728, 743 (1981); cf. Holzapfel v. Town of Newburgh, N.Y., 145 F.3d 516, 521 (2d Cir.1998).

The jury’s role was to apply the facts bearing on the multi-factor joint employment inquiry to the legal definition of joint employer, as that term had been (properly) defined by the district court in the jury charge. “[M]ixed questions [of law and fact] are ‘especially well-suited for jury determination….’ “ Richardson, 180 F.3d at 437 (quoting Mendell v. Greenberg, 927 F.2d 667, 673 (2d Cir.1990)); see also Kirsch v. Fleet St., Ltd., 148 F.3d 149, 171 (2d Cir.1998); Simms v. Vill. of Albion, N.Y., 115 F.3d 1098, 1110 (2d Cir.1997) (“A mixed question of fact and law may be submitted to the jury only if the jury is instructed as to the applicable legal standards.”).

In the Liberty Defendants’ view, the district court should have provided a special verdict form so that the jury could detail its factual findings regarding the various joint employment factors, and so that the district court could then have applied those findings to make the final determination as to joint employment. But such a rule would distort the jury’s proper role, described above, of applying law to fact. Moreover, requiring the use of a special verdict form would be anomalous in the law, cf. Fed.R.Civ.P. 49(a); Kirsch, 148 F.3d at 171; 9B C. Wright & A. Miller, Federal Practice & Procedure § 2505 (“Wright & Miller”); and appellate courts rarely-if ever-vacate for failure to use a special verdict form, see Skidmore v. Balt. & O.R. Co., 167 F.2d 54, 67 (2d Cir.1948) (“[W]e cannot hold that a district judge errs when, as here, for any reason or no reason whatever, he refuses to demand a special verdict, although we deem such verdict usually preferable to the opaque general verdict.”); Wright & Miller § 2505 (“[A]s numerous courts have held, as evidenced by the many cases cited in the note below, the exercise of th[e trial court's discretion in using a general rather than a special verdict form] is not likely to be overturned on appeal.”).

The Liberty Defendants’ reliance on language from Zheng II is misplaced. That decision recognized that the joint employment question is a mixed one of law and fact: “Finally, there is the conclusion of law to be drawn from applying the factors, i.e., whether an entity is a joint employer.”   Zheng II, 355 F.3d at 76 (emphasis added); cf. id. at 76 n.13 (noting “[t]he fact-intensive character of the joint employment inquiry”). Moreover, to the extent Zheng II contemplated de novo review of a joint employment determination, it did so only in the context of summary judgment, not a jury trial. De novo review of a jury’s joint employment determination would necessitate use of a special verdict-which, as we explained above, we do not require-and would cause the appellate court to tease apart the interwoven elements of facts and law, a project that would raise serious Seventh Amendment concerns, cf. Castillo v. Givens, 704 F.2d 181, 199 (5th Cir.1983) (Higginbotham, J., concurring)-if it could even be done.

For the foregoing reasons, we hold that the district court properly submitted the joint employment issue to the jury. The judgment of the district court is affirmed, subject to the partial vacatur and remand required by the companion summary order. The mandate shall issue forthwith.”

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July 29, 2010 · 7:24 am

D.D.C.: High-Profile D.C. Chef Is An “Employer” And Personally Liable For Wage And Hour Violations At His Restaurant

Ventura v. Bebo Foods, Inc.

This case, concerning alleged Wage and Hour violations under the FLSA and the DCWPCL was before the Court on two issues: (1) whether defendant Roberto Donna (“Donna”) was personally liable for minimum wage and overtime violations of the Fair Labor Standards Act (“FLSA”) and the D.C. Wage Payment and Collection Law (“DCWPCL”); and (2) damages, if any, as to the corporate defendants.  The Court held that Donna was personally liable for such violations, but deferred on the remaining issues.

Discussing the personal liability of Donna, the Court reasoned:

“The Court concludes that Donna is personally liable under the FLSA and DCWPCL for minimum wage, overtime, and equal pay violations because he is an employer under both the FLSA and DCWPCL. To be liable for violations of the FLSA, the defendant must be an “employer.” 29 U.S.C. §§ 206-207 (2010). The FLSA defines “employer” to include “any person acting directly or indirectly in the interest of an employer in relation to an employee.” 29 U.S .C. § 203(d). This definition is broadly construed to serve the remedial purposes of the act. Morrison v. Int’l Programs Consortium, Inc., 253 F.3d 5, 10 (D.C.Cir.2001). Thus, courts look to the “economic reality” rather than technical common law concepts of agency to determine whether a defendant is an employer. Id. at 11; see also Donovan v. Agnew, 712 F.2d 1509, 1510 (1st Cir.1983).

In applying the economic reality test, the Court considers “the totality of the circumstances of the relationship between the plaintiff/employee and defendant/employer to determine whether the putative employer has the power to hire and fire, supervise and control work schedules or conditions of employment, determine rate and method of pay, and maintain employment records.” Del Villar v. Flynn Architectural Finishes, 664 F.Supp.2d 94, 96 (D.D.C.2009) (citing Morrison, 253 F.3d at 11). This test may show that more than one “employer” is liable for violations of the FLSA. Dep’t of Labor v. Cole Enterprises, Inc., 62 F.3d 775, 778 (6th Cir.1995). As a result, a corporate officer may qualify as an employer along with the corporation under the FLSA if the officer has operational control of a corporation’s covered enterprise. Agnew, 712 F.2d at 1511. To determine whether a corporate officer has operational control, the Court looks at the factors above plus the ownership interest of the corporate officer. See Cole Enterprises, 62 F.3d at 778 (explaining that an individual has operation control if he or she is a high level executive, has a significant ownership interest, controls significant functions of the business, and determines salaries and makes hiring decisions).

Here, plaintiffs have demonstrated that Donna is an “employer” under the FLSA because he has operational control over the corporate defendants. First, Donna is an executive with significant ownership interest in the corporate defendants. He is the president and sole owner of Bebo Foods and was the president and sole owner of RD Trattoria. (Donna Dep. at 18:3-20:11, 29:16-17.) He also owned eighty percent of Galileo. (Id. at 33:7-8.) Second, Donna had the power to hire and fire, control work schedules and supervise employees, determine pay rates, and maintain employment records. For example, Donna transferred employees from Galileo to Bebo Trattoria when Galileo closed in 2006, and he took part in the hiring of other employees. (Pls.’ Opp’n [12] to Defs.’ Mot. to Dismiss Ex. 2; Donna Dep. 54:5-7.) Moreover, at the evidentiary hearing, several plaintiffs testified that Donna supervised plaintiffs on the floor of his restaurants. He also approved wage payments to plaintiffs, including the issuance of post-dated or unsigned checks, the payment of partial wages, and the withholding of any payment. (See, e.g., Ventura Aff. ¶¶ 7-9; Vuckovic Aff ¶ 4.) Furthermore, when plaintiffs complained about defendants’ payment practices, he informed them that he withheld wage payments-either in full or in part-from plaintiffs in order to pay Bebo Trattoria’s past debts for which he was behind in payment. (See, e.g., Ventura Aff. ¶ 7; Romic Aff. ¶ 10.) Indeed, plaintiffs’ evidence demonstrates that Donna exerted operational control over the corporate defendants.

Accordingly, Donna is an “employer” under the FLSA and is personally liable for the corporate defendants’ wage, overtime, and equal pay violations. Similarly, because the DCWPCL is construed consistently with the FLSA, Donna is an “employer” under the DCWPCL and is liable for the corporate defendants’ violations of its wage and overtime provisions.”

Due to the high volume of claims against restaurants and their chef-owners recently, this case will no-doubt will have wide-reaching reverberations.

To read the entire opinion, click here.

To learn more about laws and regulations applicable to tipped employees, click here.

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June 7, 2010 · 7:17 am

S.D.Fla.: Counterclaim For Indemnity Against FLSA Plaintiff In Her Supervisory Capacity Dismissed; FLSA Does Not Permit Such Claims

Quintana v. Explorer Enterprises, Inc.

This case was before the Court on the Plaintiff’s Motion to Dismiss Defendants’ Counterclaim Against Marcia Martinez.  Martinez had commenced suit against the Defendants alleging violations of the FLSA.  Specifically, Plaintiff sought to dismiss the Defendants’ counterclaims against her alleging that she should indemnify them, as an employer in her supervisory capacity.  Dismissing the counterclaim, the Court reasoned that such a counterclaim was not permissible under the FLSA.

The Court explained:

“The defendants brought the counterclaim under the FSLA alleging that Ms. Martinez is an employer within the meaning of the FLSA. The defendants claim that Ms. Martinez is potentially liable for violating the FLSA as a person who is “acting directly or indirectly in the interest of an employer in relation to an employee .” 29 U.S.C. § 203(d). In their Response (DE # 50, 4/20/10), the defendants claim that they are “unaware of a single case holding that one employer within the meaning of the FLSA is prohibited from seeking indemnification or contribution from a second employer with [sic] the meaning of the FLSA, and Martinez cites none.” (DE # 50 p. 5; 4/20/10) Although the Eleventh Circuit has not addressed the issue, other circuits have. In LeCompte v. Chrysler Credit Corp., 780 F.2d 1260 (5th Cir.1986), which is cited by the plaintiff, the Fifth Circuit found that the district court property dismissed the counterclaim for indemnity against two plaintiffs in their supervisory capacity. The defendants fail to distinguish LeCompte.

Instead, the defendants unsuccessfully attempt to distinguish the Tenth Circuit decision in Martin v. Gingerbread House, Inc., 977 F.2d 1405 (10th Cir.1992), on the basis that it was a third-party complaint rather than a counterclaim. Notably, in Martin, the Tenth Circuit expressly agreed with the Fourth and Fifth Circuits’ holdings that “indemnity actions against employees work against the policy of the FLSA.” Id. at 1408. In Martin, the Tenth Circuit explained that

[c]ompliance with the FLSA will not be furthered if employees must defend against indemnity actions. Such actions are not part of the comprehensive statutory scheme set forth by Congress. The conflict between the purposes of federal law and a state cause of action require the latter to yield. We therefore hold that a third party complaint by an employer seeking indemnity from an employee is preempted.  Id.

In their Response (DE # 50, 4/20/10), the defendants concede that there are very few cases on point. The defendants, however, believe that the lack of case holdings prohibiting such indemnification indicates that defendants may seek such relief. Although the Eleventh Circuit has not addressed this issue, the circuits that have addressed the issue consistently found that indemnification claims against employees or owners are contrary to public policy and the legislative intent of the FLSA. See, e.g., LeCompte v. Chrysler Credit Corp., 780 F.2d 1260, 1264 (5th Cir.1986); Lyle v. Food Lion, Inc., 954 F.2d 984, 987 (4th Cir.1992); Martin v. Gingerbread House, Inc., 977 F.2d 1405, 1407 (10th Cir.1992); Herman v. RSR Sec. Services Ltd., 172 F.3d 132, 144 (2d Cir.1999).

The dispositive issue raised in the plaintiff’s motion to dismiss is whether the indemnification sought by the defendants would be allowed under the FLSA. The Supreme Court addressed a related issue in Northwest Airlines v. Transp. Workers Union, 451 U.S. 77, 94-95 (1981). The Supreme Court analyzed the legislative intent regarding an implied right to contribution under the Equal Pay Act when the Act contains no reference of such contribution. The Court determined that unless the “congressional intent can be inferred from the language of the statute, the statutory structure, or some other source, the essential predicate for implication of a private remedy simply does not exist.” Id. (emphasis added).

Several circuits have applied the reasoning of Northwest Airlines to their analysis of the viability of an indemnity claim under the FLSA. See, e.g., LeCompte v. Chrysler Credit Corp., 780 F.2d 1260, 1264 (5th Cir.1986); Lyle v. Food Lion, Inc., 954 F.2d 984, 987 (4th Cir.1992); Martin v. Gingerbread House, Inc., 977 F.2d 1405, 1408 (10th Cir.1992); Herman v. RSR Sec. Services Ltd., 172 F.3d 132, 144 (2d Cir.1999); Villareal v. El Chile, Inc., 601 F.Supp.2d, 1011, 1015 (N.D.Ill.2009); Spellman v. American Eagle Express, Inc., 680 F.Supp.2d 188, 191 (D.C.Cir.2010). Additionally, the Second, Fourth, Fifth and Tenth Circuits have consistently held that indemnity claims against employees under the FLSA are preempted by the Supremacy Clause of the United States Constitution. See LeCompte, 780 F.2d at 1264. See also Spellman, 680 F.Supp.2d at 191; Villareal, 601 F.Supp.2d at 1015; Lyle, 954 F.2d at 987 (adopting the reasoning of the court in LeCompte ).

The FLSA does not mention a right to seek indemnity. Indemnity against an employee would be contrary to the legislative intent. See LeCompte v. Chrysler Credit Corp., 780 F.2d 1260, 1264 (5th Cir.1986) (noting that such indemnity action would “undermine employers’ incentive to abide by the Act”). In Herman, the Second Circuit noted that the text of the FLSA makes no provision for contribution or indemnification and the Act’s legislative history is silent on a right to contribution or indemnification. Herman, 172 F.3d at 144; see also Lyle, 954 F.2d at 987 (holding that indemnity against an employee “is something the FLSA simply will not allow”). Most recently, in Villareal, 601 F.Supp.2d at 1015, the court affirmed the dismissal of an employer’s cross-claim against its supervisory personnel for indemnity claims under the FLSA (citing LeCompte ).

In LeCompte, the Fifth Circuit acknowledged that the supervisory personnel were partially at fault for the violation that resulted. Nonetheless, the court held that an indemnity claim against such personnel under the FLSA would be inappropriate as it would frustrate Congress’ purpose in enacting the FLSA. Id. at 1264. Similarly, in the case at hand, the defendants’ basis for the counterclaim against Ms. Martinez, as a store manager, is that she was the person most responsible for setting the plaintiffs’ rates of pay and schedule and that she was in the best position to ensure the defendants’ compliance with the FLSA. Applying the reasoning of the court in LeCompte, the counterclaim for indemnity is not viable.”

Thus, the Court granted Plaintiff’s Motion and dismissed Defendants’ counterclaim.

To read the entire order click here.

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May 21, 2010 · 10:21 am

N.D.W.Va.: An FLSA Employer Held Liable For FLSA Violations Has No Right To Contribution Or Indemnification; Allowing Same Would Contravene The Purposes Of The FLSA

McDougal v. G & S Tobacco Dealers, L.L.C.

This case was before the Court on the Defendant/Third-Party Plaintiff’s (and current owner of the employer) and the Third-Party Defendant’s (former employer) cross motions for summary judgment.  In a nutshell, what started as a simple FLSA claim, “expanded into contract claims for indemnification and contribution by the [current] employer [Woodward] against the former owner [Oliverios] of the company that employed Plaintiff.”

Among other issues, the Court discussed whether there was any pleaded theory that could impose a duty of indemnity or contribution on the previous owner [Oliveros] for the current owner’s [Woodward's] non-payment of Plaintiff for the time Plaintiff worked for Defendant, subsequent to the time Woodward took ownership of the company that employed Plaintiff.  Holding that no such duty of indemnity or contribution existed, the Court explained:

“1. With respect to Woodward’s claim for indemnification, contribution and breach of statutory or agency duties, the doctrine of conflict or obstacle preemption is dispositive.

Woodward’s state common law claims of contractual and implied indemnification and contribution against Oliverios for wages and benefits damages not paid to McDougal after July 17, 2007 in violation of FLSA and WPCA are preempted by the doctrine of conflict or obstacle preemption.

On the same date the parties argued the instant cross-motions for summary judgment before this Court, the Fourth Circuit Court of Appeals published its decision in Equal Rights Center, et al v. Archstone Multifamily Series I Trust, et al, 09-1453.

The following facts and claims of Archstone are analogous to the facts and claims of the instant case: Archstone hired architect Bolton to design multi-family apartment buildings which Archstone then had various contractors build. Of the units constructed, Equal Rights Center, et al alleged 71 failed to be constructed so that they were accessible to persons with disabilities in violation of FHA and ADA. Archstone and the Equal Rights Plaintiffs entered into a Consent Decree which required Archstone to retro-fit the 71 units to make them ADA and FHA compliant and to pay 1.4 million in damages and attorneys fees and expenses. Bolton did not join in the settlement but later entered into a separate consent decree with the Equal Rights Plaintiffs which did not include any admission of liability. Archstone cross-claimed against Bolton seeking damages based on state law causes of action: express indemnity; implied indemnity; breach of contract; and professional negligence.  After lengthy discovery and immediately prior to the dispositive motions deadline, Archstone sought leave to amend its cross-claim against Bolton to include a claim for contribution. Bolton objected. The District Court denied leave to amend. Thereafter the District Court granted Bolton summary judgment reasoning that Archstone’s causes of action were indemnity and de facto indemnity claims for violations of the FHA and ADA and, because no right to indemnification exists under the ADA or FHA, the state law claims asserted by Archstone would be antithetical to the purposes of the FHA and ADA and therefore preempted under the doctrine of conflict or obstacle preemption. Archstone appealed. The Court of Appeals affirmed holding:

Obstacle preemption applies “where state law; stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.’ “ …. where a state-law claim “interferes with the methods by which the federal statute was designed to reach [its] goal.” (internal citations omitted).

Obstacle preemption has been extended to state tort claims as well as positive enactments of state law. Id. citing Geier v. Am. Honda Motor Co., 529 U.S. 861, 120 S.Ct. 1913, 146 L.Ed.2d 914 (2000).

Finding Archstone’s indemnification claims were preempted, the Court held:

Here, Archstone sought to allocate the full risk of loss to Niles Bolton for the apartment buildings at issue. Allowing an owner to completely insulate itself from liability for an ADA or FHA violation through contract diminishes its incentive to ensure compliance with discrimination laws. If a developer of apartment housing, who concededly has a non-delegable duty to comply with the ADA and FHA, can be indemnified under state law for its ADA and FHA violations, then the developer will not be accountable for discriminatory practices in building apartment housing. Such a result is antithetical to the purposes of the FHA and ADA.

The Court further held Archstone’s last minute attempt to amend its cross-claim was properly denied as prejudicial to Bolton. Moreover, the Court held: “As presented on appeal, the claim which Archstone presents in its amended complaint is a de facto indemnification claim, and such a claim is preempted under federal law. Therefore, allowing Archstone to amend under these circumstances to include a so-called contribution claim is, in any event, futile.”

A number of cases have addressed the issue of whether there is a right to contribution or indemnification for employers held liable under the FLSA and have held there is none. Herman v. R.S.R. Security Servs. Ltd., 172 F.3d 132, 143 (2nd Cir.1999). Relying on the rationale expressed in Northwest Airlines, Inc. v. Transport Workers Union of America, AFL-CIO, 451 U.S. 77, 101 S.Ct. 1571, 67 L.Ed.2d 750 (1981),  the Herman Court held:

There is no right of contribution or indemnification for employers found liable under the FLSA. The reasons are readily apparent. First, the text of the FLSA makes no provision for contribution or indemnification. Second, the statute was designed to regulate the conduct of employers for the benefit of employees, and it cannot therefore be said that employers are members of the class for whose benefit the FLSA was enacted. Third, the FLSA has a comprehensive remedial scheme as shown by the express provision for private enforcement in certain carefully defined circumstances. Such a comprehensive statute strongly counsels against judicially engrafting additional remedies. Fourth, the Act’s legislative history is silent on the right to contribution or indemnification. Accordingly, we hold that there is no right to contribution or indemnification for employers held liable under the FLSA.

In Herman, Portnoy contended that even if the FLSA did not permit contribution or indemnification, those claims could be prosecuted under New York law in much the same way Woodward contends she should be permitted to prosecute claims for indemnification against Oliverios under West Virginia law. The Herman Court held: “This view of the law is flawed because the FLSA’s remedial scheme is sufficiently comprehensive as to preempt state law in this respect.” Herman v. R.S.R. Security Servs. Ltd., supra at 144.

The Fourth Circuit held in the 1992 case of Lyle v. Food Lion, Inc. 954 F.2d 984, 987: “In effect, Food Lion sought to indemnify itself against Tew for its own violation of the FLSA, which the district court found, and we agree, is something the FLSA simply will not allow. As the fifth Circuit has noted, ‘[t]o engraft an indemnity action upon this otherwise comprehensive federal statute would run afoul of the Supremacy Clause of the Constitution’ and ‘would undermine employers’ incentives to abide by the Act. LeCompt v. Chrysler Credit Corp., 780 S.2d 1260, 1264 (5th Cir.1986).’ “

In the instant suit, Oliverios were the employers of McDougal prior to July 17, 2007 and therefore responsible for any FLSA and WPCA claims arising for work performed by McDougal up to July 17th. However, Woodward uses the warranty and indemnification clauses of the 2007 contract in an attempt to hold Oliverios liable for Woodward’s failure to pay McDougal FLSA wages after July 17, 2007. In the alternative to the contract indemnification claim, Woodward attempts to shift ultimate responsibility for payment of post July 17, 2007 FLSA wages to Oliverios using equitable principles. In every event, Woodward seeks to delegate her duty to comply with the FLSA to Oliverio for all wages and damages owed including those starting with the contract closing on July 17, 2007. This she cannot do. The FLSA does not contain language that provides for such indemnification or contribution. Woodward is not a member of the class protected by the FLSA. The FLSA is a comprehensive remedial statute designed to give employees the right to sue their employers for violations of the act. This is precisely what McDougal did in bringing his action against Woodward. Herman, supra at 144. This court cannot and will not engraft an indemnity clause on the FLSA where there is none. LeCompt, supra at 1264.

Accordingly, the Court concludes that Woodward’s Third Party Plaintiff claims against Oliverios for indemnification or contribution to McDougal’s FLSA claims arising post July 17, 2007 whether the same are based on contractual or equitable contribution, indemnification, breach of contract, breach of warranty, agency, or another state contract or equity claim, are preempted by the provisions of the FLSA; are antithetical to the purpose of the FLSA; undermine the public policy established by the FLSA; and are barred by the doctrines of Conflict and Obstacle Preemption.

Even if Woodward, in light of the absence of the availability of contribution and/or indemnification for the FLSA claims of McDougal, contends that she is entitled to contribution from Oliverios solely for WVPA damages claimed by McDougal, that contention also fails. The federal court only recognizes a right to contribution under state law “in cases in which state law supplie[s] the appropriate rule of decision.” Northwest Airlines, Inc. v. Transport Workers Union of America, AFL-CIO, supra at 97. The West Virginia’s Wage Payment and Collection Act (W.Va.Code, § 21-5-1 et seq.) provides a comprehensive method for employees forcing their immediate or ultimate employer to timely pay them in accord with law. It does not provide authorization or a method or a rule of decision for allocating claims of contribution toward the liability of the employer to timely pay his employee’s wages. Nor does it provide or recognize any method, contractual or equitable, for shifting the burden of paying wages in accord with law from the employer to a third person.”

Not discussed here, the Court held that language from the contract of sale of the employer from Oliverios to Woodward was binding, to the extent that Oliverios was required to pay the cost of Woodward’s legal defense arising from the lawsuit.

To read the entire decision, click here.

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April 29, 2010 · 6:55 am

9th Cir.: Complaint That Failed To Allege Entity Exercised Control Over Nature And Structure Of The Employment Relationship Did Not Properly Allege Defendant Was “Employer”

Dianda v. PDEI, Inc.

Plaintiff-appellant Joseph Dianda worked for two days as a “best boy” in the production of a television commercial, but was allegedly paid three days late. Dianda sued the production company and PDEI, Inc. (“PDEI”) for various violations under the Fair Labor Standards Act (“FLSA”) and California law.  In the case below, all defendants moved to dismiss the action. The district court denied the motion as to the production company, but granted the motion as to PDEI after determining that PDEI was not Dianda’s “employer” under the FLSA or California law.  Dianda appealed and the 9th Circuit affirmed, discussing the requirements for an “employer” under both the FLSA and California law.  Here, because the Complaint failed to adequately allege that PDEI exercised control over the nature and structure of the Plaintiff’s employment, the Court affirmed the dismissal as to PDEI.

“I. ‘Employer’ Status Under California’s Labor Code and FLSA

The essence of the test for “employer” status under the California Labor Code is “whether the principal has the right to control the manner and means by which the worker accomplishes the work.” Estrada v. FedEx Ground Package Sys., Inc., 64 Cal.Rptr.3d 327, 335 (Cal.Ct.App.2007). FLSA’s test is broader, asking whether the “individual [here, PDEI] exercises control over the nature and structure of the employment relationship.” Boucher v. Shaw, 572 F.3d 1087, 1090-91 (9th Cir.2009) (quotation marks omitted).

Dianda has not shown that PDEI had the right to control the details of his work or that PDEI exercised control over his employment relationship. In his deposition, Dianda admitted that PDEI did not tell him how to do his job, PDEI did not hire him, PDEI did not terminate him, PDEI never communicated with him in any way, and Dianda never took instructions or directions from PDEI concerning the commercial. Nonetheless, Dianda argues that his pay stub and W-2 form identify PDEI as the “employer.” However, “[t]he parties’ label is not dispositive and will be ignored if their actual conduct establishes a different relationship.” Estrada, 64 Cal.Rptr.3d at 335-36. See also Real v. Driscoll Strawberry Assocs., Inc., 603 F.2d 748, 755 (9th Cir.1979) (“Economic realities, not contractual labels, determine employment status for the remedial purposes of the FLSA.”). Furthermore, PDEI’s alleged use of its own account to pay wages and PDEI’s maintenance of payroll records are explainable as part of the service it provides as a payroll company. See, e.g., Moreau v. Air France, 356 F.3d 942, 950-52 (9th Cir.2004) (determining that Air France was not a joint employer of contracted service workers where Air France’s involvement was to ensure compliance with regulatory requirements).”

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April 14, 2010 · 7:36 am

E.D.Va.: Applicant For A Job May Not Assert An Action For FLSA Retaliation, Because Not A Covered “Employee” Of The Potential Employer

Dellinger v. Science Applications Intern. Corp.

This case was before the Court on a Motion to Dismiss filed by Defendant.  Plaintiff alleged that Defendant violated the anti-retaliation provision of the Fair Labor Standards Act (“FLSA”) codified at 29 U.S.C. § 215(a)(3), by refusing to hire her after they received notice that she had filed a separate FLSA action against a former employer.  Defendant moved to dismiss on the basis that Plaintiff was never an “employee” of Defendant, and the Court granted Defendant’s Motion on this basis.

The Court reasoned:

“In a statutory construction case, the beginning point must be the language of the statute, and when a statute speaks with clarity to an issue [,] judicial inquiry into the statute’s meaning, in all but the most extraordinary circumstance, is finished.” Ramey v. Director, office of Workers’ Compensation Program, 326 F.3d 474, 476 (4th Cir.2003)(citing Estate of Cowart v. Nicklos Drilling Co. ., 505 U.S. 469, 475, 112 S.Ct. 2589, 120 L.Ed.2d 379 (1992)). The statute at issue here, 29 U.S.C. § 215 states, in pertinent part:

(a) [I]t shall be unlawful for any person …

(3) to discharge or in any other manner discriminate against any employee because such employee has filed any complaint or instituted or caused to be instituted any proceeding under or related to this chapter …

29 U.S.C. § 215 (emphasis added). Congress chose to define “employee” as “any individual employed by an employer.” 29 U.S.C. § 203(e)(1). For an individual to be “employed” by an “employer” they must be “suffer[ed] or permitt[ed] to work.” 29 U.S.C. § 203(g). Here, Plaintiff was never “permitted” to work for SAIC, in fact, her main allegation is that the offer of employment was withdrawn. (See Compl. ¶ 34.).

The two district courts that have addressed this issue have found that a job applicant should not be considered an “employee” for purposes of the anti-retaliation provision of the FLSA. In Harper v. San Luis Valley Regional Medical Center, an applicant for a nursing position at defendant hospital was involved in an unrelated federal wage claim suit against several municipalities. Harper, 848 F.Supp. 911 (D.Colo.1994). The hospital hired several allegedly less qualified individuals over plaintiff Harper and Harper filed suit alleging FLSA retaliation. In reaching its decision the Court specifically relied on the plain language of the statute, noting that “where a statute names parties who come within its provisions, other unnamed parties are excluded.” Id. at 913-914 (D.Colo.1994) (citing Foxgord v. Hischemoeller, 820 F.2d 1030, 1035, cert. denied, 484 U.S. 986, 108 S.Ct. 503, 98 L.Ed.2d 502, (9th Cir.1987); See Contract Courier Services, Inc. v. Research and Special Programs Admin. of U.S. Depart. of Transp., 924 F.2d 112, 114 (7th Cir.1991)(holding “statutory words mean nothing unless they distinguish one situation from another; line-drawing is the business of language”). The Court in Harper held that § 215(a)(3) “specifically identifies those individuals who come within its provisions i.e. employees. Therefore, other unnamed parties such as non-employee job applicants are excluded from its protection.” Harper, 848 F.Supp. at 914.

In the similar case of Glover v. City of North Charleston, plaintiff was also the lead plaintiff in a separate FLSA wage and hour suit against the North Charleston (Fire Dept.) District. Glover, 42 F.Supp. 243 (D.S.C.1996). After Glover brought suit against the District, the District Fire Department was disbanded and the City of North Charleston Fire Department was formed; however, the City had discretion to determine which of the District Department’s employees would be hired. Id. at 245. In his suit against the City, Glover alleged a violation of § 215(a)(3) claiming the City’s decision not to hire Glover was retaliation for his earlier FLSA claims. In dismissing the case, the Glover court found that plaintiffs were job applicants and thus not yet “employees” within the meaning of the Act. Id. at 246.

In so doing, the Court drew a careful distinction between § 215‘s initial language holding that it “shall be unlawful for any person ” to commit certain acts (§ 215(a)), and more limited language of the provision at issue here, protecting “any employee ” from the person’s misconduct (§ 215(a)(3)). Id. at 245-246 (emphasis added). The court found that the statute’s application to “any person” did not bar suit against the “non-employer” City, however, the plain language of the statue restricting its protections to “any employee” did mean that a mere job “applicant” did not have standing to bring a § 215 action. Id. As the Glover court found, the first sentence of the statute applies to “any person,” if “Congress wanted to cover non-employees, it could have written § 215(a)(3) to prevent discrimination [or retaliation] against “any person” instead of “any employee.” Id. at 246-247. Based on the plain language of the statute, the courts that have considered the issue have found that § 215(a)(3) does not cover job applicants.

Plaintiff attempts to distinguish these cases as outliers and non-binding on this Court. As decisions from other Districts they are clearly not binding precedent, however, their reasoning is, contrary to Plaintiff’s argument, applicable here. Both opinions rest on the plain language of the statute and both were unwilling to read the term “employee” to mean an individual who was never employed the Defendant.

Defendant points to the leading Fourth case regarding the sufficiency of an anti-retaliation claim under FLSA, Darveau v. Detecon, Inc., 515 F.3d 334 (4th Cir.2008.) In the Fourth Circuit, to assert a prima facie claim of retaliation under the FLSA a plaintiff must show: “that (1) he engaged in an activity protected by the FLSA; (2) he suffered adverse action by the employer subsequent to or contemporaneous with such protected activity; and (3) a causal connection exists between the employee’s activity and the employer’s adverse action.” Darveau v. Detecon, Inc., 515 F.3d 334, 340 (4th Cir.2008) (citing Wolf v. Coca-Cola Co., 200 F.3d 1337, 1342-43 (11th Cir.2000); Conner v. Schnuck Mkts., Inc., 121 F.3d 1390, 1394 (10th Cir.1997)). Similarly, Defendant argues that as the Fourth Circuit standard requires a “casual connection” between the “employee’s activity” and the “employer’s” action, Plaintiff has no standing to bring suit as she was never an “employee.” (Mem. in Supp. Mot. to Dismiss at 4.) Without reading beyond the plain language of the statute, a job applicant cannot be considered an ‘employee.’ “

Although not highlighted here, the Court also rejected several alternative arguments put forth by Plaintiff, that the Court should look beyond the FLSA, to statutory definitions and construction of Title VII and the NLRA statutes.

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August 14, 2009 · 10:35 am

9th Cir.: Walmart Not Joint Employer Of Its Suppliers’ Employees Under FLSA; Employees Not Third-party Beneficiaries Of Standards Contained In Supply Contracts Between Walmart And Plaintiff’s Employers

Doe I v. Wal-Mart Stores, Inc.

The appellants were employees of foreign companies that sell goods to Wal-Mart. They brought claims against Wal-Mart based on the working conditions in each of their employers’ factories. These claims relied primarily on a code of conduct included in Wal-Mart’s supply contracts, specifying basic labor standards that suppliers must meet. The district court dismissed the complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). The Ninth Circuit affirmed the dismissal on appeal.

For its analysis the Court assumed the following facts to be true:

“In 1992, Wal-Mart developed a code of conduct for its suppliers, entitled “Standards for Suppliers” (“Standards”). These Standards were incorporated into its supply contracts with foreign suppliers. The Standards require foreign suppliers to adhere to local laws and local industry standards regarding working conditions like pay, hours, forced labor, child labor, and discrimination. The Standards also include a paragraph entitled “RIGHT OF INSPECTION”:

To further assure proper implementation of and compliance with the standards set forth herein, Wal-Mart or a third party designated by Wal-Mart will undertake affirmative measures, such as on-site inspection of production facilities, to implement and monitor said standards. Any supplier which fails or refuses to comply with these standards or does not allow inspection of production facilities is subject to immediate cancellation of any and all outstanding orders, refuse [sic] or return [sic] any shipment, and otherwise cease doing business [sic] with Wal-Mart.

Thus, each supplier must acknowledge that its failure to comply with the Standards could result in cancellation of orders and termination of its business relationship with Wal-Mart.

Wal-Mart represents to the public that it improves the lives of its suppliers’ employees and that it does not condone any violation of the Standards. However, Plaintiffs allege that Wal-Mart does not adequately monitor its suppliers and that Wal-Mart knows its suppliers often violate the Standards. Specifically, Plaintiffs claim that in 2004, only eight percent of audits were unannounced, and that workers are often coached on how to respond to auditors. Additionally, Plaintiffs allege that Wal-Mart’s inspectors were pressured to produce positive reports of factories that were not in compliance with the Standards. Finally, Plaintiffs allege that the short deadlines and low prices in Wal-Mart’s supply contracts force suppliers to violate the Standards in order to satisfy the terms of the contracts.”

Initially, the Court found that Plaintiffs’ Complaint could not support a third-party beneficiary claim on behalf of the employees under the contract their employer had with Walmart.

Next, the Court addressed the “Plaintiffs’ theory that Wal-Mart was Plaintiffs’ joint employer, such that they can “sue Wal-Mart directly for any breach of contract or violation of labor laws.” Again, the Court concluded, to the contrary, that Wal-Mart could be considered Plaintiffs’ employer on the facts alleged. “The key factor to consider in analyzing whether an entity is an employer is “the right to control and direct the activities of the person rendering service, or the manner and method in which the work is performed.” Serv. Employees Int’l Union v. County of L.A., 225 Cal.App.3d 761, 275 Cal.Rptr. 508, 513 (1990) (internal quotations and citation omitted). “A finding of the right to control employment requires … a comprehensive and immediate level of ‘day-to-day’ authority over employment decisions.” Vernon v. State, 116 Cal.App.4th 114, 10 Cal.Rptr.3d 121, 132 (2004).”

The Court then addressed “Plaintiffs’ negligence claims, which Plaintiffs bring under four distinct theories: third-party beneficiary negligence, negligent retention of control, negligent undertaking, and common law negligence. Whichever theory is invoked, however, we conclude that Wal-Mart did not owe Plaintiffs a common-law duty to monitor Wal-Mart’s suppliers or to prevent the alleged intentional mistreatment of Plaintiffs by the suppliers. Without such a duty, Plaintiffs’ negligence theories do not state a claim. See *684 Paz v. State, 22 Cal.4th 550, 93 Cal.Rptr.2d 703, 994 P.2d 975, 980-81 (2000) (“The threshold element of a cause of action for negligence is the existence of a duty …”).

Plaintiffs’ “third-party beneficiary” negligence theory relies on the assumption that Wal-Mart owes Plaintiffs a duty under Wal-Mart’s supply contracts. Because we have already determined that no legal obligation flows from Wal-Mart to Plaintiffs under Wal-Mart’s supply contracts, Plaintiffs do not state a claim for third-party beneficiary negligence.

In order to state a claim for “negligent retention of control and supervision,” Plaintiffs must allege facts that, if proven, would show that Wal-Mart exercised significant control over Plaintiffs and that “exercise of retained control affirmatively contributed to the employee’s injuries.” Hooker v. Dep’t of Transp., 27 Cal.4th 198, 115 Cal.Rptr.2d 853, 38 P.3d 1081, 1083 (2002) (emphasis in original). We have already determined that Wal-Mart is not Plaintiffs’ employer because Wal-Mart exercised minimal or no control over the day-to-day work of Plaintiffs in the suppliers’ foreign factories. Accordingly, we hold that Wal-Mart did not owe Plaintiffs a special duty to protect Plaintiffs from the suppliers’ alleged intentional misconduct.

Plaintiffs’ “negligent undertaking” theory relies on the assumption that Wal-Mart undertook to protect Plaintiffs, and therefore Wal-Mart had to exercise reasonable care in monitoring the suppliers. See Delgado v. Trax Bar & Grill, 36 Cal.4th 224, 30 Cal.Rptr.3d 145, 113 P.3d 1159, 1175 (2005) (stating that one who “undertakes to provide protective services to another” must exercise a duty of care). This theory fails because, as we have already concluded, Wal-Mart did not undertake any obligation to protect Plaintiffs. “[T]he scope of any duty assumed depends upon the nature of the undertaking,” id., and here Wal-Mart merely reserved the right to cancel its supply contracts if inspections revealed contractual breaches by the suppliers. Any inspections actually performed by Wal-Mart were therefore gratuitous, and do not independently impose a duty on Wal-Mart to protect Plaintiffs. Id.

Plaintiffs’ “common law negligence” claim provides no additional ground for finding a duty on the part of Wal-Mart. Wal-Mart had no duty to monitor the suppliers or to protect Plaintiffs from the intentional acts the suppliers allegedly committed. Thus, Plaintiffs’ theories sounding in negligence do not state a claim. See Paz, 93 Cal.Rptr.2d 703, 994 P.2d at 980-81.”

Lastly, the Court addressed Plaintiffs’ claim of unjust enrichment. “Plaintiffs allege that Wal-Mart was unjustly enriched at Plaintiffs’ expense by profiting from relationships with suppliers that Wal-Mart knew were engaged in substandard labor practices. Unjust enrichment is commonly understood as a theory upon which the remedy of restitution may be granted. See 1 George E. Palmer, Law of Restitution § 1.1 (1st ed. 1978 & Supp. 2009); Restatement of Restitution § 1 (1937) (“A person who has been unjustly enriched at the expense of another is required to make restitution to the other.”). California’s approach to unjust enrichment is consistent with this general understanding: “The fact that one person benefits another is not, by itself, sufficient to require restitution. The person receiving the benefit is required to make restitution only if the circumstances are such that, as between the two individuals, it is unjust for the person to retain it.” First Nationwide Sav. v. Perry, 11 Cal.App.4th 1657, 15 Cal.Rptr.2d 173, 176 (1992) (emphasis in original).

The lack of any prior relationship between Plaintiffs and Wal-Mart precludes the application of an unjust enrichment theory here. See Smith v. Pac. Props. & Dev. Corp., 358 F.3d 1097, 1106 (9th Cir.2004) (noting that a party generally may not seek to disgorge another’s profits unless “a prior relationship between the parties subject to and benefiting from disgorgement originally resulted in unjust enrichment”). Plaintiffs essentially seek to disgorge profits allegedly earned by Wal-Mart at Plaintiffs’ expense; however, we have already determined that Wal-Mart is not Plaintiffs’ employer, and we see no other plausible basis upon which the employee of a manufacturer, without more, may obtain restitution from one who purchases goods from that manufacturer. That is, the connection between Plaintiffs and Wal-Mart here is simply too attenuated to support an unjust enrichment claim. See, e.g., Sperry v. Crompton Corp., 8 N.Y.3d 204, 831 N.Y.S.2d 760, 863 N.E.2d 1012, 1018 (2007) (holding that “the connection between the purchaser of tires and the producers of chemicals used in the rubbermaking process is simply too attenuated to support” the purchaser’s claim of unjust enrichment).

In sum, we conclude that Plaintiffs have not stated a claim against Wal-Mart. Wal-Mart had no legal duty under the Standards or common law negligence principles to monitor its suppliers or to protect Plaintiffs from the suppliers’ alleged substandard labor practices. Wal-Mart is not Plaintiffs’ employer, and the relationship between Wal-Mart and Plaintiffs is too attenuated to support restitution under an unjust enrichment theory.”

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