The Fair Labor Standards Act (FLSA) defines the employment relationship in a very broad way. The definition of an employer includes “any person acting directly or indirectly in the interest of an employer in relation to an employee.” 29 U.S.C. 203(d). Further, separate organizations may constitute a single “enterprise” where they engage in related activities and have common control and business purpose. 29 U.S.C. 203(r)(1). And separate businesses or individuals may constitute “joint employers” where their actions with respect to employees are not completely disassociated. 29 C.F.R. 791.2. Where defendants in a wage claim act directly or indirectly in each other’s interest with respect to an employee, exercise common control, or share an employee’s services, joint employment may exist.
While these may seem like legal technicalities, they can have great impact on employee rights and remedies.
Some employers try to avoid overtime pay by splitting hours worked between separate work locations. For example, an employee might work 30 hours at one location and 20 at another. If the two employers and work relationships are completely independent, no overtime is due. But if the employment relationships are sufficiently intertwined, the employee is entitled to overtime pay even if the two locations operate under separate corporate names. 2
The prevalence of franchise relationships in various industries contributes to many overtime violations. Convenience stores, gas stations, and fast food restaurants are just a few of the many businesses where franchising is common. Even if separate franchise locations are operated under separate corporate names, intertwined business or employment relationships can result in joint employment. For example, an employee hired by “XYZ Store #1, Inc.” but was also sent to work hours at “XYZ Store #2, Inc.” would be entitled to have hours combined for overtime calculation purposes if the two businesses have overlapping control, management or operations.
JOINT EMPLOYMENT AND INDIVIDUAL LIABILITY
The FLSA’s broad definition of the employment relationship also has a big impact on the available remedies of employees and potential liability of employers. Multiple business entities and/or individuals may be liable for the same violation. Using the above example, both of the corporations would be liable for the wage violations. In addition, individuals who own and/or control a business, or participate in unlawful policies and practices, may be jointly liable – a result which does not occur in many other types of cases. If one of the joint employers is uncollectible, the employee can still recover against the other joint employer. And, an employer who believes the corporate form is a shield to individual liability may suffer a rude awakening when such individual liability is imposed in a wage claim.