Jeffrey H. Ruzal is a co-editor of Epstein Becker Green’s Hospitality Labor and Employment Law Blog and its award-winning Wage & Hour Defense Blog, as well as an Editorial Advisory Board Member of Hospitality Law Magazine. He is also a contributing author to Lexis Practice Advisor on wage and hour topics. In addition, Mr. Ruzal represents Epstein Becker Green on The Cornell Institute for Hospitality Labor and Employment Relations Advisory Board.
Hotel owners, beware. You may now be held responsible for the actions of your vendors or their employees. Under a legal standard known as “joint employer liability,” the U.S. Department of Labor (DOL) and the National Labor Relations Board (NLRB) have stated that employers (or owners) that utilize employees or independent contractors of third-party employers, i.e. vendors, may be considered “joint employers” of those workers for purposes- of compliance with the Fair Labor Standards Act (FLSA), as well as other employment laws, rules, and regulations.Approximately one year ago, the DOL issued an Administrator’s Interpretation (AI), essentially a white paper, explaining the scope of joint employment liability and its practical application.
The DOL can hold the larger company, in addition to a relatively smaller vendor, responsible for FLSA violations, even if the worker is an employee of the vendor.
In the AI, the DOL explains that joint employment often involves a “larger and more established” employer “with a greater ability to implement policy or systemic changes to ensure compliance.” What this means is that the DOL can hold the larger company, in addition to a relatively smaller vendor, responsible for FLSA violations, even if the worker is an employee of the vendor. Liability can include back wages, liquidated damages, as well as other types of damages. The larger company’s financial resources are of primary importance to the DOL because joint employers are jointly and severally liable for violations. Therefore, if the smaller vendor is unable to pay its employees whatever back wages may have been assessed by the DOL, then the larger joint employer will be responsible for paying all of the back wages owed.
Hospitality industry employers, including hotels, motels, resorts, cruise lines, and franchisors, will be a likely target as potential joint employers where they contract out work to third-parties in areas of work, such as janitorial services, linen cleaning, housekeeping, and IT, among others. The risk of joint employment liability will increase where employers have the ability to exercise control over the third-party workers and where those workers are regularly engaged for sustained periods of time.
To minimize the risk of joint employer liability, hospitality industry employers should maintain a transparent relationship with vendors and third-party labor suppliers.
The AI was issued under President Obama’s Labor Secretary, Thomas Perez, who was recently elected Chairman of the Democratic National Committee. The DOL issued the AI in advance of rolling out its then-expected joint employment enforcement initiative. While there is no current expectation that the Trump Administration’s DOL will actively pursue joint employer liability through investigative efforts or enforcement, there will likely be an uptick in the number of wage and hour lawsuits involving joint employment liability that will be filed by the private plaintiff’s bar.
To minimize the risk of joint employer liability, hospitality industry employers should maintain a transparent relationship with vendors and third-party labor suppliers. To that end, employers should consider taking the following precautionary steps:
(1) require their vendors to warrant that they are classifying their workers as employees and not independent contractors;
(2) obtain the right to review vendor’s employment records to confirm FLSA compliance;
(3) engage only reputable vendors with significant financial resources; and
(4) obtain indemnification from vendors for any liability arising from joint employer liability.
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