The recent opinion in Scalia v. Employer Solutions Staffing Group, LLC (9th Cir., Mar. 2, 2020, No. 18-16493) 2020 WL 992564 (“Scalia”) considered the application of the Fair Labor Standards Act of 1938 (“FLSA”) and addressed the question of whether the FLSA permitted joint employers to seek contribution from one another for a collective failure to pay employees overtime. This was the first time this question has been addressed by the Ninth Circuit.
The circumstances giving rise to this question involved multiple companies failing to pay employees overtime. Employer Solutions Staffing Group (“ESSG”) was a staffing company that contracted with Sync Staffing, which placed the employees in question at a jobsite operated by TBG Logistics. The employees’ hours were maintained in a spreadsheet by TBG, which was sent to Sync, who then forwarded it to ESSG.
One of ESSG’s employees was responsible for processing the TBG payroll. However, she was instructed by Sync not to pay the employees overtime even if they worked more than 40 hours per week. Even though the employee was familiar with the FLSA rules, and even though failing to pay the employees their overtime resulted in multiple error messages on ESSG’s payroll software, the employee did as instructed by Sync, and the employees were not paid their overtime.
ESSG, TBG, and Sync were eventually sued by the Secretary of Labor, who filed a motion for summary judgment against ESSG, which was granted. ESSG appealed, arguing, in part, that the FLSA permits an employer to seek indemnification or contribution from other employers—something that is not explicitly included in the text of the FLSA.
The court noted the FLSA does not expressly contain a right to contribution or indemnification, and it therefore assessed whether such a right could be implied or created. The proper analysis for such a determination is largely governed by the consideration of four factors: “(1) the statute’s text; (2) ‘the underlying purpose and structure of the statutory scheme’; (3) ‘the likelihood that Congress intended to supersede or to supplement existing state remedies’; and (4) the statute’s legislative history.” (Northwest Airlines, Inc. v. Transport Workers Union of America, AFL-CIO (1981) 451 U.S. 77, 91.)
In its appeal, ESSG ignored these factors and primarily argued that the FLSA implicitly permitted indemnification or contribution because it holds joint employers jointly and severally liable for violations. However, the Ninth Circuit, relying on Texas Industries, Inc. v. Radcliff Materials, Inc. (1981) 451 U.S. 630, disagreed with this position, noting that the Supreme Court has rejected the argument that contribution and joint and several liability must always go hand-in-hand.
The court further analyzed the four factors and determined that each weighed against a determination that Congress had intended to create a right to contribution. In particular, the FLSA’s text made no mention of contribution or indemnification. The central purpose of the FLSA was to create minimum wage and maximum work hours to protect employees, not employers. In other words, “ESSG belongs to the class whose conduct Congress intended to control ‘for the protection and benefit of an entirely distinct class.’”
The court also noted that the FLSA already provides comprehensive statutory remedies, and there was no indication Congress intended to allow private remedies, such as contribution and indemnification. Finally, the FLSA’s legislative history is “silent on the right to contribution or indemnification” for employers. The court further rejected the argument that the court should create the right of contribution and indemnification as new federal common law and refused to create new common law, stating that where “‘Congress has enacted a comprehensive legislative scheme’ that includes ‘integrated procedures for enforcement,’ we presume that Congress did not intend for us ‘to supplement the remedies enacted.’”
The Ninth Circuit therefore joins the Second Circuit in holding that the FLSA does not include a right to contribution or indemnification for liable employers. It is worth noting, however, that in California, Labor Code section 2810.3(g) nevertheless permits client employers from “establishing, exercising, or enforcing by contract any otherwise lawful remedies against a labor contractor for liability created by acts of a client employer.”
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