Companies that make use of subcontracting, franchising and extended supply chains are now firmly in the sights of Department of Labor Wage and Hour Division enforcement personnel, according to WHD administrator Dr. David Weil.
Under the theory being promoted by unions, DOL and other federal agencies like the National Labor Relations Board, the widespread use of franchises, contractors and suppliers who rely on temp services undermines compliance with labor laws because the agencies lack the resources to go after such a large number of smaller companies individually.
That is why the NLRB is trying to hold larger companies like Walmart and McDonald’s jointly liable for employment claims made against contractors, subcontractors and franchisees. It also explains at least some of the motivation for challenges to independent owner-operators’ contract status at both the federal and state levels (although another motivating factor at the state level is collecting additional payroll tax and unemployment insurance revenues).
In a blog entry last month, Weil revealed that in 2014 his division initiated more than 43% of its wage violation investigations on its own instead of waiting to receive complaints before launching probes. That number is up from 35% just five years ago.
“We’ve directed our resources to where the data and evidence show wage violations are most likely to occur, where emerging business models lend themselves to such violations, and where workers are least likely to exercise their rights,” Weil says. “And the numbers tell us that our strategic enforcement efforts are working. We found workers had been underpaid in 78% of these agency initiated investigations in fiscal year 2014, up from 65% from fiscal year 2009.”
He also said his division recovered over $240 million in back wages for more than 270,000 workers in Fiscal Year 2014. However, this number was actually down from Fiscal Year 2013’s total of $249 million. DOL cites its fissured industry enforcement initiative to justify in large part the $49 million budget increase it is seeking. Since 2009 WHD enforcement efforts have recovered a total of more than $1.3 billion, Weil points out.
For employers to protect themselves, attorney Alexander J. Passantino of the law firm of Seyfarth Shaw LLP advises companies in targeted industries to take another look at whether their payment practices comply with the Fair Labor Standards Act and other wage and hour laws.
“Conducting an audit of these practices before WHD shows up at your door can help keep you out of next year’s enforcement numbers,” he notes. “As Weil’s post makes clear, enforcement in the fissured industries will continue, and less than a quarter of the time do employers make it out unscathed.”
When an investigation into your company begins, realize that requests for information about your contracting, subcontracting, suppliers, or franchisees could be to hold you responsible for their employment law compliance, warns attorney John F. Birmingham, Jr. of Foley & Lardner LLP.
“Additionally, whatever information you provide may end up in the hands of a union,” he says. “Therefore, carefully evaluate your obligation to disclose and the scope of such an obligation, and clearly state from the outset that you are not a joint employer.”
Before an investigator shows up at your door, ensure that your contractors and subcontractors are complying with all applicable labor and employment laws, Birmingham urges. However, he stresses, at the same time make sure that you do so without exercising control over their human resources activities that could support assertions of joint liability.