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An Employer May Be Liable For FLSA Violations of Low Level Employees


Scalia v. Employer Solutions Staffing Group, LLC, et al - Ninth Circuit Court of Appeals


Facts:  Employer Staffing Group and three related companies (hereinafter referred to, jointly, as “ESSG”) contracted with other companies to recruit employees and place them at job sites for which ESSG handled administrative tasks, such as payroll processing.  In 2012, ESSG contracted with Sync Staffing (“Sync”), which placed recruited employees at a job site where the employees unloaded deliveries for a grocery store.  A spreadsheet of employees’ hours was kept, sent to Sync, and then forwarded to ESSG.  Only one of ESSG’s employees was responsible for processing the payroll, Michaela Haluptzok (“Haluptzok”).

The first time Haluptzok received one of the spreadsheets, she prepared and sent a report to Sync that showed employees that worked overtime would receive overtime pay for those hours.  However, a Sync employee called Haluptzok and told her to pay all hours as “regular hours” with no overtime pay applied.  Haluptzok complied.

However, to follow the instructions, Haluptzok had to override number error messages from ESSG’s payroll software.  After processing the first spreadsheet this way, Haluptzok did the same for all spreadsheets thereafter.  By the time ESSG and Sync’s relationship ended in 2014, more than 1,000 violations had occurred in which employees did not receiver their overtime pay.

The Labor Secretary, Eugene Scalia, filed suit against ESSG, Sync, and the grocery store where the work was done.  Consent judgments were reached with all defendants except for ESSG.  The district court granted summary judgment against ESSG on the grounds that ESSG had willfully violated the FLSA.  ESSG subsequently appealed the granting of summary judgment in favor of Scalia and appealed to the Ninth Circuit Court of Appeals.

Holding:  (Note, this case brief only analyzes the liability and willfulness portion of the appeal.)

At the outset, the Court of Appeals pointed out that the facts in the record established that Haluptzok knew that the relevant employees were working more than 40 hours a week yet were not receiving overtime pay.  ESSG had chosen Haluptzok as its agent for payroll processing and therefore could not disavow Haluptzok’s actions simply because she lacked a specific job title or a certain level of seniority.  The Court therefore recognized that allowing ESSG to evade liability for the FLSA violation because none of its “supervisors” or “managers” processed the payroll would result in a loophole in the FLSA being created and would circumvent the FLSA’s purpose of “protect[ing] all covered workers from substandard wages and oppressive working hours.”  Consequently in accordance with the laws of agency, Haluptzok’s actions could be imputed to ESSG.

As for whether a willful violation of the FLSA occurred here, the Court again turned to the facts in the record.  For more than a year, Haluptzok dismissed the payroll software’s repeated warnings that employees might not be receiving overtime pay.  Although Haluptzok initially acted on the instructions not to pay overtime, she never received any explanation that justified dismissing the software’s error messages.  Therefore, through its agent (Haluptzok), ESSG was found to have recklessly “disregarded the very possibility that it was violating the statute.”  

Judgment:  The Ninth Circuit Court of Appeals affirmed the granting of summary judgment in favor of the Labor Department on the grounds that sufficient evidence existed to establish that ESSG was liable for the FLSA violations of its lower level employee, based in part upon the law of agency.

The Takeaway:  I wanted to highlight this case for readers as a reminder that just because it is not the CEO, head supervisor, etc. that calls the shots and violates the FLSA (or potentially other related employment law statutes), that does not mean that an employer gets to skate by because the violation occurred at the hands of a lower level employee.  It would be a good time to use the Ninth Circuit’s ruling here as a reminder to train (or re-train) employees on their job to ensure that a similar incident does not result in the employer being liable for an FLSA (or related employment law statute) violation.

Majority Opinion Judge:  Judge Graber

Date:  March 2, 2020

Opinion:  https://cdn.ca9.uscourts.gov/datastore/opinions/2020/03/02/18-16493.pdf

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