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Liability for Overtime Found Against Company for Contractor’s Employees

Although the federal Fair Labor Standards Act (FLSA) provides legal protection and ensures certain rights to hourly, non-exempt workers throughout America, the laws are not so clear when it comes to outsourcing.

As companies continue to downsize their workforce, the work that needs to be done either needs to be covered by the employees who remain on the payroll or outsourced. But when contractors develop close business relationships with their subcontractors, the line between contractor and employer can get blurry.

In a recent collective action against Commercial Interiors Inc. and J.I. General Contractors, the Fourth Circuit Court wrote its own plan for determining when a contractor bears responsibility for the employees of its subcontractor.

The collective action wage and hour lawsuit was filed by a group of employees who installed drywall for J.I. and Commercial. They were legally considered employees of J.I. because J.I. was the one that signed and distributed their paychecks, but they did a lot of work for Commercial.

The workers, having already won an award of more than $18,000 in damages for overtime work for which J.I. had refused to pay them, are now claiming Commercial should also be held liable for the hours the employees spent working for Commercial and J.I.

According to the complaint, Commercial supervisors allegedly collected timesheets from the drywall installers and had been known to threaten to fire J.I. employees. Commercial even allegedly helped enroll certain employees in its insurance plan.

The lower court dismissed the employees’ claims, having come up with a test to determine whether the two companies could be considered joint employers of the drywall installers. But when that decision was appealed to the Fourth Circuit Court, the appellate court said the lower court’s test relied too much on employer status and not enough on the relationship between the contractor and the subcontractor.

In its decisions, the Fourth Circuit Court said a test to determine joint employer status should focus on the relationship between the contractor and the subcontractor, without putting too much emphasis on the relationship between the contractor and the employees.

The appellate court said its test focused on things like how much control one company has over the other, if one company acts in the best interests of the other, or whether they have an agreement to share employees.

In its examination of the relationship between Commercial and J.I., the appellate court found that Commercial had significant control over J.I., as it was by far J.I.’s biggest client. J.I. worked for only one other contractor and that was only when Commercial did not have work for J.I.

In addition to the direct control Commercial allegedly exercised over J.I.’s employees, J.I.’s dependence on Commercial’s business was enough to designate the two companies joint employers, according to the Fourth Circuit Court.

Under the new ruling, Commercial can now be held liable for pay periods in which the employees worked less than 40 hours a week for Commercial and J.I. individually, but their total hours working for both companies combined to exceed 40 hours per week.

In an economy in which outsourcing is quickly becoming the new normal, the recent decision by the Fourth Circuit Court could have far-reaching and long-lasting consequences for employers all over the country. Assuming the Fourth Circuit’s test holds up and other courts begin adopting the same or similar tests for joint employer status, contractors might want to start taking the initiative in making sure all their employees (and the employees of their subcontractors) are properly compensated.

The Chicago non-compete agreement and employment law attorneys at the Chicago Overtime Law Center have three decades of experience fighting to help employees who are victims of wage, overtime and tip theft by their employers. We have a team of Chicago unpaid overtime lawyers who concentrate on prosecuting state and nationwide class action lawsuits. Our attorneys work out of Chicago and Oak Brook offices and pursue claims for workers all over the Chicago area including Hoffman Estates and Schaumburg We protect unpaid workers who haven’t received overtime throughout the Chicago area including in DuPage, Kendall, Lake, McHenry, Kane and Cook Counties.

Our Schaumburg and Naperville overtime and employment lawyers are intimately familiar with the issues that arise during wage claim litigation, and we know the laws that govern overtime cases well. Many employers mis-classify employees as being exempt from overtime laws and pay workers salaries instead of hourly wages in order to avoid paying them overtime. Some employers mistakenly classify employees as exempt and others intentionally do so in order to circumvent the law. In either case, workers do not receive the wages they should, and a lawsuit may be the only way to recover their earned wages.

The Chicago Overtime Law Center is based in Chicago and Oak Brook, and represents clients throughout the country who have unpaid overtime and other employment right claims.