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Joint or single employer liability has gotten a lot of attention in recent years, where a company is held responsible for the employment obligations of a sufficiently interrelated contractor or corporate entity. Our sister blog, the Employment Law Spotlight, has reviewed many of these issues in detail. See, e.g., our January 13, 2020 <a href="https://www.employmentlawspotlight.com/2020/01/what-is-joint-employment-new-dol-rules-take-effect-in-60-days/">blog</a>.

But what happens after an entity is found liable for the wage and hour violations of a different employer? Does it have an implied right of contribution or indemnity?

That was the question posed in <a href="/wp-content/uploads/sites/7/2023/07/FLSA-Contribution-9th-Cir-2020.pdf"><em>Scalia v. Employer Solutions Staffing Group, LLC</em></a>, Case No. 18-16493 (9th Cir. Mar. 2, 2020). As with some other significant cases, we had thought this was an interesting opinion, but with the pandemic hopefully easing we are just now getting to it.

The underlying facts were simple, but we’ll apologize in advance for the number of parties having confusing names. The lead defendant, Employer Solutions Staffing Group (ESSG), recruited employees to be placed with other companies and handled most administrative tasks associated with their employment. It in turn contracted with another staffing company, Sync Staffing, to administer payroll for the employees placed at a customer known as TBG Logistics. For reasons not explained in the opinion, a low-level employee of this second staffing company, Sync, decided to pay only straight-time rates for overtime worked by employees assigned to the TBG account.

The U.S .Department of Labor brought suit against ESSG for more than 1,000 overtime violations. There really wasn’t much to the defense under the circumstances, as the court quickly found under the common rules of agency that Sync and its low-level employee were ESSG’s agents for purposes of handling payroll, as the principal it was liable for their mistake.

That left the question of whether ESSG could seek indemnity or contribution against Sync (which had made the error) or TBG Logistics (the customer for whom the employees had worked). There does not appear to have been any indemnity provision in any of the contracts between the three, so ESSG argued that there was an implied right to indemnity or contribution under the Fair Labor Standards Act (FLSA). After examining the language of the statute, the Ninth Circuit found that there was no express language conferring such a right, and it refused to create one. In doing so, the court reached the same conclusion as the Second Circuit in <em>Herman v. RSR Sec. Servs. Ltd</em>., 172 F.3d 132, 144 (2d Cir. 1999).

While the court found no implied right of contribution or indemnity, the opinion both avoided some potentially messy issues and created something of an unfair result. Certainly, as the party responsible for the arrangement, ESSG might bear some responsibility, but the mistake here was made by Sync and its employees, and Sync escaped the case without legal consequence. Similarly, while the customer, TBG Logistics, was blameless, it would have been responsible for the payment of overtime at least (but not liquidated damages) for the employees. Sorting out the relative responsibilities would have been more fair, but also much more difficult.

Finally, of course, the issue of indemnity or contribution could have been spelled out in the agreements, particularly that between ESSG and Sync. Given the increasing scrutiny of joint employer/single employer/independent contractor relationships, such a provision likely would have helped under other employment legislation as well.

The bottom line: Parties seeking rights of contribution or indemnity against payroll administrators for FLSA violations should include such provisions in their agreements.

Ninth Circuit Finds No Right of Contribution or Indemnity Under the FLSA