Tag Archives: Test for Joint Employer

N.D.Ill.: Former Attorney and Accountant Improper Third-Party Defendants in FLSA Case; Non-Employers Not Subject to Liability

Strauss v. Italian Village Restaurant, Inc.

This case was before the court on the third-party defendants’ motion to dismiss. The defendant, sued for FLSA violations, sought to implead its former attorneys and accountant, on the basis that the faulty legal/accounting advice they rendered resulted in the potential liability at issue in this wage and hour case. While indemnification by the professionals who rendered allegedly bad advice which led to the liability would seem to be a legitimate claim, the court dismissed the claim, because neither of the third-party defendants were alleged to be the plaintiffs’ employer (or joint employers), a prerequisite for the imposition of liability under the FLSA.

Reasoning that the professional consultants at issue were not subject to liability under the FLSA, Illinois state wage and hour laws, or similar counts derived from such statutes, the court explained:

Multiple employers may be held liable under the FLSA when “the facts establish that the employee is employed jointly by two or more employers.” The Supreme Court has held that the determination of whether a party is an employer is based on the “economic reality” of the situation. Courts have considered a variety of factors when making this determination, including the ability to hire or fire the employees, supervision of the employees’ schedules, determination of wages, and the maintenance of employment records. The Seventh Circuit has held that an “employer must exercise control over the working conditions of the employee.”

As these third-party defendants accurately point out, there is nothing in the Italian Villages’s conclusory allegations in these counts that suggests that these defendants could ever be considered “employers” within the meaning of the FLSA. There are no allegations that these third-party defendants had any control over these plaintiffs’ working conditions as the case law require; that they could hire, fire or manage them. Nor could there be. These firms were hired by the Italian Village to negotiate the employment contracts and to manage employee payroll. Their work in this respect was controlled by the Italian Village. Regardless of how much The Italian Village chose to rely on the advice and counsel of their third-party contractors with respect to these issues, there is no authority that the Court could find that supports the argument that the Italian Village’s reliance on these firms’ transforms these into “employers” under the FLSA.

Essentially the Italian Village is asking the Court to by-pass the statutory scheme set forth in the FLSA and shift responsibility for compliance with the FLSA from itself, the employer, to third-party consultants which it paid for services rendered. But nothing in the FLSA suggests that the Italian Village’s alleged “reasonable reliance” on its consultants can shift compliance with the law on to them as well. Moreover, there is ample authority that holds that the FLSA precludes all such potential blame-shifting and bars third-party actions for contribution and indemnity using any tort theories.

The Italian Village’s response to this raft of authority is that it is directed only at attempts by employers to shift liability to certain key employees, not to third parties like the accountants and attorneys sued here. Actually this is not correct. In Chao v. St. Louis Internal Medicine, the court held that an accounting firm could not be sued as a third-party defendant in an FSLA case under a tort theory. But even if this case did not so hold, this Court can see no real distinction between efforts to shift liability to employees, which is prohibited by the case law, and the Italian Village’s efforts to shift liability to their third-party consultants. Either scenario is barred by the FLSA’s express language that liability for compliance rests with the employer and the employer only so that the statute’s mandates are not diluted.

Click Strauss v. Italian Village Restaurant, Inc. to read the entire Memorandum Opinion and Order.

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W.D.Mo.: Court Has Subject Matter Jurisdiction Over Claims That Could Be Brought By Members of Putative Class, But Could Not Be Brought By Named Plaintiffs

Nobles v. State Farm Mut. Auto Ins. Co.

This case concered off-the-clock claims that were brought as a so-called hybrid case, so named because the claims asserted were a hybrid of several state wage and hour laws, as well as under the FLSA.  As discussed here, the plaintiffs, employees of one State Farm entity (State Farm Fire) sued both their employer, and another State Farm entity (State Farm Mutual), alleging identical wage and hour violations were committed by both against similarly situated employees.  By Motion to Dismiss, State Farm Mutual challenged the named-plaintiffs’ standing to assert claims against it, asserting that the named plaintiffs lacked standing to do so, because it was not their employer.  The court rejected these arguments, in granting plaintiffs’ motions for conditional and class certification.

Addressing this issue the court explained:

“In its pending Motion to Dismiss, State Farm Mutual contends that because Plaintiffs lack standing to assert joint employer status, the Court lacks subject matter jurisdiction, and therefore that claim should be dismissed under Federal Rule of Civil Procedure 12(b)(1). Alternatively, State Farm Mutual contends that Plaintiffs have failed to state a claim for joint employer status and therefore it should be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(6).

State Farm Mutual argues that “[o]nly State Farm Fire employees could possibly have standing to assert joint employment claims under Plaintiffs’ … theory, and there are no such plaintiffs in this case.” [Doc. # 111, at 13]. Neither Nobles nor Atchison are employees of State Farm Fire. However, standing issues “must be assessed with reference to the class as a whole, not simply with reference to the individual named plaintiffs.” Payton v. County of Kane, 308 F.3d 673, 680 (7th Cir.2002). Here, unnamed class members of the certified classes and collective include State Farm Fire employees who would have standing to bring claims under State Farm Mutual’s status as a joint employer with State Farm Fire. Thus, the Plaintiffs in this litigation have standing to assert joint employment status for members of the class.

Two recently decided cases in this district, Gilmor v. Preferred Credit Corp., No. 10–0189–CV–W–ODS, 2011 WL 111238 (W.D. Mo. Jan 13, 2011), and Wong v. Bann–Cor Mortgage, No. 10–1038–CV–W–FJG, 2011 WL 2314198 (W.D. Mo. June 9, 2011), also concluded that the court had subject matter jurisdiction over claims that could be brought by members of the certified class, but could not have been brought by any of the named plaintiffs. However, as a practical matter, it may be prudent to have a specific named Plaintiff whose named employer is State Farm Fire. See Gilmor, 2011 WL 111238, at *7. Therefore, Plaintiffs shall file an appropriate motion to designate such an employee prior to the close of discovery on the merits.”

Addressing (and rejecting) the defendants’ contention that plaintiffs had failed to sufficiently plead joint employment, the court reasoned:

“To determine whether an individual or entity is an employer, courts analyze the economic reality of the relationship between the parties.” Loyd v. Ace Logistics, LLC, No. 08–CV–00188–W–HFS, 2008 WL 5211022, at *3 (citation omitted). Although the Eighth Circuit has not yet stated a test to determine joint employer status, four factors are typically examined by courts to make this determination. They are: “whether the alleged employer: (1) had the power to hire and fire the plaintiff; (2) supervised and controlled plaintiff’s work schedules or conditions of employment; (3) determined the rate and method of payment; and (4) maintained plaintiff’s employment records.” Id. at * 3 (citing Schubert v. BethesdaHealth Grp., Inc., 319 F.Supp.2d 963, 971 (E.D.Mo.2004)).

State Farm Mutual asserts that Plaintiffs have failed to allege the elements of joint employer status or single enterprise status. This argument rests on the contention that because all of the named plaintiffs in the litigation are not employees of State Farm Fire, none of their allegations concern State Farm Mutual’s power to hire or fire any plaintiff who is an employee of State Farm Fire. [Doc. # 111, at 7].

The Court finds that this argument is a re-characterization of State Farm Mutual’s standing argument. As previously stated, Plaintiffs in this case include the certified classes. See Gilmor, 2011 WL 111238, at *6 (citing Sosna v. Iowa, 419 U.S. 393, 399 (1975)). Plaintiffs in this case include State Farm Fire employees who were subject to State Farm Mutual’s policies; and the Second Amended Complaint alleges that State Farm Mutual had the power to hire or fire them.

Second, State Farm Mutual asserts that even if the Court finds that Plaintiffs have alleged the elements of joint employment status, Plaintiffs’ factual allegations are “broad, unsupported statements” that do not provide the required factual support for Plaintiffs’ joint employment claim. [Doc. # 111, at 9]. The Court disagrees with State Farm Mutual’s characterization of Plaintiffs’ allegations. The Plaintiffs allege in their Second Amended Complaint that (1) the human resources department in State Farm Mutual retains the power to promote, retain, and discipline State Farm Fire employees, (2) State Farm Fire employees’ work and compensation are subject to State Farm Mutual’s written pay and timekeeping policy, and (3) State Farm Mutual’s and State Farm Fire’s timekeeping records are housed together, which the Court liberally construes to imply that State Farm Mutual maintains State Farm Fire’s timekeeping records. 

For these reasons, the Court finds that Plaintiffs have sufficiently stated a joint employer claim.”

Click Nobles v. State Farm Mutual Automobile Insurance Company to read the entire Order.

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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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