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Employer Liable For Payroll Employee’s Willful FLSA Violation
Employer Solutions Staffing Group (ESSG) is a group of staffing companies that contracts with other companies to recruit employees and place them at jobsites. In 2012, ESSG contracted with Sync Staffing (Sync), which placed the recruited employees at a jobsite run by TBG Logistics (TBG). At TBG, the recruited employees unloaded deliveries for a grocery store. TBG maintained a spreadsheet of the employees’ hours, which it sent to Sync. Sync then forwarded the spreadsheet to ESSG.
Michaela Haluptzok, an ESSG employee, was responsible for processing the TBG payroll. The first time Haluptzok received one of the spreadsheets, she sent a report to Sync showing that employees who had worked more than 40 hours per week would receive overtime pay for those hours. A Sync employee told Haluptzok to pay all of the hours as “regular hours,” instead of overtime. Haluptzok complied, even though it meant she had to dismiss numerous error messages on the payroll software. Haluptzok processed all of the TBG spreadsheets in this same manner until ESSG’s relationship with TBG and Sync ended in July 2014. Haluptzok admitted that she knew the recruited employees were not being paid overtime owed to them.
In August 2016, the U.S. Secretary of Labor sued ESSG, TBG, and Sync for violations of the Fair Labor Standards Act (FLSA). The Secretary reached settlements with TBG and Sync. The Secretary moved for judgment against ESSG on the grounds that ESSG willfully violated the FLSA when Haluptzok failed to pay 1.5 times the FLSA regular rate of pay for hours worked in excess of 40 hours per workweek. The district court granted the Secretary’s motion, and ordered ESSG to pay approximately $78,500 in unpaid overtime plus an equal amount in liquidated damages. ESSG appealed to the U.S. Court of Appeals for the Ninth Circuit.
First, ESSG argued that it could not be liable for the actions of a low-level employee such as Haluptzok. The Ninth Circuit disagreed. ESSG chose Haluptzok as its agent for payroll processing, so it could not disavow her actions merely because she lacked a specific job title or a certain level of seniority. Allowing ESSG to evade liability simply because none of its supervisors or managers processed the payroll would create a loophole that would be inconsistent with the FLSA’s purpose of protecting workers.
Second, ESSG argued that the Secretary’s lawsuit was not timely because its FLSA violations were not willful. Ordinarily, a two-year statute of limitations applies for claims under the FLSA. However, when a violation is willful, a three-year statute of limitations applies. A violation is willful when the employer either knew or showed reckless disregard for whether its conduct was prohibited by the FLSA. The Ninth Circuit concluded that ESSG acted willfully. Haluptzok dismissed the payroll software’s repeated warnings about overtime pay, and she never received any explanation from Sync that justified dismissing the software error messages. The three-year statute of limitations applied for that willful violation, so the Secretary’s lawsuit was timely.
Third, ESSG argued that liquidated damages were inappropriate because it acted in good faith. The FLSA mandates liquidated damages equal to the unpaid overtime compensation unless an employer acts in good faith. But because ESSG’s actions were willful, they were not in good faith.
Finally, ESSG contended that it could seek indemnification or contribution from another employer for the damages the district court awarded. The Ninth Circuit, however, determined that the FLSA did not implicitly permit such indemnification for liable employers, and it declined to make new federal common law recognizing those rights.
Scalia v. Employer Sols. Staffing Grp., LLC, 951 F.3d 1097 (9th Cir. 2020).
The employer in this case tried to avoid liability because a rank and file employee completed the payroll instead of a manager or supervisor. Our FLSA Audit work has shown that the majority of agencies use rank and file employees to process payroll. Agencies can properly pay employees and avoid liability by training payroll employees how to comply with the FLSA.