Company, Parent Company, Staffing Agency: Who Is The Employer and Who Gets Sued?

On October 22, 2013, the United States District Court in Boston issued a decision discussing who is the “employer” in a multi-party employment situation. The case, Blanco v. United Comb and Novelty Corporation, involves allegations that employees were not properly paid overtime and is discussed below.

What You Need To Know.  Obtaining labor through a staffing company or through a separate corporate entity will not shield you from wage and hour violations involving the people who do your company’s work.  Even if a company is not technically responsible for the wage and hour violation as an employer, the company may be held responsible for aiding and abetting if it is aware that workers are not being paid their proper wages. Accordingly, a company should make sure all workers performing services for it are being properly paid under state and federal wage and hour laws.

In the case, Isidoro Blanco worked for United Comb through a staffing agency.   Blanco brought suit against multiple companies alleging violation of state and federal wage laws. United Comb moved to dismiss the case because it was not Blanco’s employer and was not responsible for the wage violations.  United Comb argued that the staffing and recruiting agency was the employer because it handled employee oversight, assignment, hiring and firing,and payroll functions.  The Court found that there was sufficient evidence of an employment relationship between Blanco and United Comb to allow the case to go forward.  The Court cited the following factors in holding that United Comb was the employer:  Blanco worked at United Comb’s factory; United Comb hired, disciplined, terminated, supervised, scheduled, and established rates of pay for Blanco and other employees; United Comb tracked hours worked; United Comb owned or leased all the equipment and tools used by Blanco; Blanco performed work that was instrumental to United Comb’s business; and Blanco was a long-term worker at United Comb’s facility. For these reasons, the Court allowed the case go to forward against United Comb as the employer.

Even if United Comb isn’t the employer, the Court held that it might be responsible for wage and hour violations if:

(1) it knew that Blanco and others were working more than 40 hours a week and were not being paid overtime properly, and

(2) if it gave substantial assistance or encouragement in the scheme to underpay workers.

Since Blanco alleged that United Comb tracked time worked, set wage rates, and knew that Blanco and others worked in excess of 40 hours a week, the Court held that United Comb could be sued for aiding and abetting a scheme to violate wage and hour laws.

This case demonstrates that courts, faced with multiple potential employers, will look to see which party is truly controlling the workforce when it determines who is the “employer” responsible for wage and hour law compliance.  Hiring employees through secondary companies or staffing agencies may not provide protection against wage and hour suits if employees are underpaid for their labors.