Staffing Company Liable for Low Level Employee’s FLSA Violations

In a warning to employers about their responsibility for the actions of low level employees under the FLSA, the U.S. Court of Appeals for the Ninth Circuit found that a staffing company was liable for the actions of its low level employee and, further, that there was no right to indemnification or contribution under the FLSA.

In Scalia v. Employer Solutions Staffing Group, LLC, the company contracted with middlemen companies to recruit employees and place them at jobsites for which the company handled administrative tasks. The company’s employee was placed at a jobsite, and was responsible for processing their payroll. She was told by the middleman company to pay all hours worked over 40 at straight time, without an overtime premium. She did this for over one and a half years, dismissing the error messages that the software produced. The Secretary of Labor then sued the company, the middleman company, and the jobsite company for more than 1000 overtime violations. The company brought cross-claims against the others for contribution or indemnification.

The company argued that it could only be held liable for the actions of its supervisor or manager, and not low-level employees. The Ninth Circuit rejected the argument, noting that the company had chosen the employee as its agent for payroll processing and she was therefore its agent, rendering the company liable for her actions. In addition, because the employee dismissed the software’s repeated warnings about unpaid overtime for more than a year, without seeking any explanation that would justify such dismissal, the Ninth Circuit found that the company, through its agent, recklessly disregarded the possibility that it was violating the FLSA. Thus its violations were willful, extending the statute of limitations from two years to three, and mandating the award of liquidated damages.

The Ninth Circuit also found no basis in the FLSA or under common law to support a right of indemnification or contribution for liable employers. Therefore they will be fully responsible for damages under the law.