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My subcontracting business is an LLC, I am immune from suit, right?


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Fisher

By Chase Fisher

The lawsuit at issue was filed by employees of a drywall subcontractor, who named the drywall company and its two owners, who were brothers, as defendants.  While there were several other parties and issues in the lawsuit, the issues before the court were based upon the employees’ summary judgment filed against the drywall company and the owners.  The employees sought summary judgment on the basis that the company failed to pay them overtime and that the owners were joint employers who would be individually liable for the employees’ alleged damages.

Overtime: knowledge is power, or ignorance is bliss?

Overtime claims require that the employer actually know that the employee was working uncompensated overtime hours.  In this case, the court found that it was not clear whether the company was aware the plaintiffs were working overtime.  Notably, the time tracking methods used by the employer were rather questionable – as there was evidence that time sheets did not track hours worked and supervisors were often not present on jobsites; however, the employees did not complain to their supervisors or to the company’s office regarding payment issues.  Thus, the court concluded that questions remained whether the company had the requisite knowledge regarding the alleged overtime pay violations; thereby denying summary judgment to the plaintiffs.

More than an LLC?

The employees also alleged that the company owners were, in fact, joint employers.  As joint employers, the owners would be jointly and severally liable for any damages.  This would mean that the employees could recover all damages from the company and/or the owners regardless of their individual share of liability.  Since such a result is obviously a large benefit to plaintiffs, courts consider certain factors to determine if a person or entity is a joint employer (See my prior post here regarding a Sixth Circuit case on joint employer status).  

To determine if the owners could be held liable as joint employers, and thus be “employers” under the Fair Labor Standards Act, the District Court for the District of Nevada followed the ‘economic reality’ test.  Under the test, the court considered ‘whether the alleged employer (1) had the power to hire and fire employees, (2) supervised and controlled employee work schedules or conditions of payment, (3) determined the rate and method of payment, and (4) maintained employment records.’


The court found that the first and third factors weighed in favor of finding a joint employer relationship.  The owners hired some employees (even though they did not hire the plaintiffs in this case), had the power to hire and fire supervisors, and they exercised significant control over the company’s day-to-day operations.  In addition, the evidence showed that the owners were responsible for determining the rate and method of payment to the employees.  Specifically, the owners paid the employees on a piece rate system.  One of the owners even noted the decision to use such a system was that it encouraged employees to work more steadily with less supervision.


The court, however, found that the company’s supervisors, not the owners, were in charge of assigning the employees to specific project sites and overseeing their work.  Thus, the second factor cut against finding a joint employer relationship.  Lastly, the court found that the fourth factor, regarding who maintained employment records, was a draw because there was little evidence regarding who maintained the records, and, of that little evidence, none specifically showed that the owners maintained the records.  After analyzing the four factors in the economic reality test, the court denied the employees’ motion for summary judgment related to the joint employer status.

Takeaway

This case contains numerous allegations that one would hope, if true, are not common in the construction industry (such as the failure to keep up with time worked, the inability to track records, paychecks distributed to employees were pooled amounts that were drafted to someone else, etc.).  Companies should take note that courts will look beyond titles and business organizational structures in certain situations.  Simply being an LLC or some other form of corporate entity is not a bulletproof defense.  The best approach is to get your organization in order before trouble comes knocking.



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