Reich v. Baystate Alternative Staffing, Inc., 94-FLS-22 (ALJ June
3, 1996)
DATE: June 3, 1996
CASE NO. 94-FLS-22
ROBERT B. REICH,
Secretary of Labor,
United States Department of Labor,
Complainant
v.
BAYSTATE ALTERNATIVE STAFFING, INC.,
ABLE TEMPS REFERRALS, INC., ANN F. WOODS,
HAROLD WOODS, WILLIAM BILL WOODS AND MARLENE
WOODS, ALL d/b/a ALTERNATIVE STAFFING,
Respondents
APPEARANCES:
John S. Casler, Esq.
Deputy Solicitor/Counsel for ESA
Susan G. Salzberg, Esq.
For the Plaintiff
Edward DeFranceschi, Esq.
For the Respondents
DECISION AND ORDER
This is a proceeding under the Fair Labor Standards Act of
1938, as amended, 29 U.S.C. 201, et seq. (hereinafter the
Act or FLSA wherein the Plaintiff seeks the imposition of civil
money penalties in the amount of $150,000.00 for willful violations
of Section 7 of the Act. Hearings were held before this
Administrative Law Judge on January 22 and 23, 1996 in Worcester,
Massachusetts and the parties were given the opportunity to offer
arguments, testimony and documentary evidence in support of their
respective positions. Post-hearing briefs were filed by Plaintiff
(PX 22) and the Respondents (RX 7) and the record was closed on
April 29, 1996. The following references will be used herein.
ALJ EX for an exhibit offered by this Administrative Law Judge,
PX for a Plaintiff s exhibit, RX for a Respondents exhibit and TR
for the official hearing transcript.
PROCEDURAL HISTORY
This proceeding began with an ORDER OF REFERENCE, dated
June 16, 1994 and docketed with the Chief Judge on June 20, 1994,
in which the Regional Administrator, Wage and Hour Division, as the
duly delegated representative of the Secretary of Labor, herein
jointly referred to as the Plaintiff, has assessed a civil money
penalty in the amount of $150,000.00 against the corporations and
the individuals identified in the above-captioned matter, pursuant
to Section 16(e) of the Fair Labor Standards Act, as amended, 29
U.S.C. 216(e), (herein FLSA or the Act ), and in accordance with
29 C.F.R. Part 578, as a result of alleged willful violations of
the overtime provisions of the Act. This matter was transferred to
the Office of Administrative Law Judges for a final determination
of the alleged violations for which the civil money penalty was
imposed, as provided in 29 CFR Part 580, and the appropriateness
and reasonableness of said penalty, as provided by 29 CFR Part 578.
(ALJ EX 1)
The matter was assigned to this Administrative Law Judge and
on December 16, 1994 I issued a Notice of Hearing and Pre-
Hearing Order and the hearing was scheduled for the week of
June 5, 1995 due to the anticipated discovery herein. (ALJ EX 2)
Counsel for Plaintiff, by motion filed on February 6, 1995 (ALJ
EX 3), moved to amend the ORDER OF REFERENCE to add Marlene
Woods and William Bill Woods as (f)urther investigation has
revealed facts that lead to the conclusion that the two named
additional individuals had substantial supervisory control of
affected employees of the named corporations, as well as control of
the business affairs and operations of those corporations. (ALJ
EX 4)
Plaintiff, by motion dated on February 3, 1995, filed a
Motion For Postponement of Hearing for a period of five
months to permit additional discovery by the parties to enable
them to further narrow the issues in conflict in this case. (ALJ
EX 6) The postponement was granted on February 9, 1995 as
Respondents interposed no objection thereto. (ALJ EX 7)
Thereafter, Plaintiff, by motion dated May 15, 1995, filed a
Motion To Amend Order Of Reference To Enlarge Period Covered
by the ORDER OF REFERENCE from April of 1993 to June 30,
1994. The assessed civil money penalty was not increased. (ALJ EX
9) The motion was granted as Respondents did not object thereto.
On July 17, 1995 I issued a NOTICE OF RESCHEDULED HEARING AND
AMENDED PRE-HEARING ORDER directing that pre-hearing exchanges
be filed on or before December 29, 1995 and scheduling the hearing
to begin on January 22, 1996. (ALJ EX 10, ALJ EX 13)
Respondents MOTION FOR CONTINUANCE, filed on December
21, 1995 (ALJ EX 15), was DENIED but, due to the partial
government shutdown, the pre-hearing exchange (was) extended to
January 8, 1996. (ALJ EX 16) The Plaintiff s Pre-Hearing exchange
was filed on January 8, 1996 (ALJ EX 17) and Respondents initial
exchange was also filed on the same date. (ALJ EX 20) The
[Page 2]
Plaintiff also filed a brief in support of the imposition of the
civil money penalty assessed against Respondents. (ALJ EX 19)
Respondents filed a supplemental exchange on January 18, 1996 (ALJ
EX 21), as well as a brief in opposition to the imposition of the
civil money penalty assessed herein. (ALJ EX 22)
EVIDENTIARY ISSUE
Plaintiff has offered the December 19, 1995 AFFIDAVIT OF
ROBERT LaBERGE (PX 13) and Respondents vigorously object to its
admission into evidence as they have been deprived of the
opportunity of cross-examining Mr. LaBerge either at the hearing or
at a pre-hearing deposition. Mr. LaBerge served from 1962 until
1995 as Manager of Employee Relations of Personnel at Tucker
Housewares, Inc., a manufacturer of various plastic products, a
wholly-owned subsidiary of Mobil Corporation, located in
Leominster, Massachusetts. Mr. LaBerge suffered a serious heart
attack in November of 1995" and he was unable to testify at the
hearing before me. (TR 8, 11-16, 340-344)
The parties were given thirty (30) days to arrange a post-
hearing deposition of Mr. LaBerge. However, apparently the
affiant s physical condition presented the taking of his deposition
and Plaintiff has again moved for the admission of the Affidavit.
(PX 21) Respondents again object to the Affidavit as they have
been deprived of their due process rights to cross-examine Mr.
LaBerge. (RX 5, RX 6)
I agree with Respondents on this issue and I sustain their
objection to Mr. LaBerge s affidavit. The right of confrontation
of a witness is one of the essential tenets of our American
judicial system and while the rules of evidence are somewhat
relaxed in an administrative proceeding, nevertheless the opposing
party must have the opportunity to cross-examine the affiant. In
the case at bar, the affiant s physical evidence has prevented his
availability at the hearing and at a post-hearing deposition. The
introduction of such affidavit into evidence would greatly
prejudice Respondents in this proceeding. In this regard
seeRichardson v. Perales, 402 U.S. 389 (1971);
Bethlehem Steel Corporation v. Clayton, 578 F.2d 133, 8 BRBS
663 (5th Cir. 1978).
Plaintiff submits that I should admit the affidavit as the
witness is unavailable and as an exception to the hearsay rule. I
disagree as it is that very unavailability which has prejudiced the
Respondents herein.
I also agree with Respondents basic position that the
Plaintiff has not provided sufficient basis to deprive the
Respondents of the right of cross-examination of Mr. LeBerge. The
hearsay exception relied upon by the Complainant Rule 894(b)(5).
[Page 3]
(See also 29 CFR 18.804(b)(5)) requires three (3) things:
1) the statement is offered as an evidence of material fact; 2) the
statement is more probative on the point for which it is offered
than any other evidence which the proponent can procure through
reasonable efforts and 3) the general purpose of these rules and
the interest of justice will best be served by admission of the
statement into evidence. The Plaintiff fails to meet Item
804(b)(5) of the Federal Rules, 28 CFR 18.804(b)(5)(ii) in that
there is no reason to assume that Mr. LaBerge s statement would be
more probative than other evidence which the proponent could have
procured through reasonable efforts. Most of the information
relevant to this matter would be part of the books and records of
Tucker Housewares insofar as it would show the amount paid the
workers, when the workers were employed, how many, what they were
paid and what hours they worked. In addition, supervisors at
Tucker interacted with the workers as described by Mr. LaBerge.
Those witnesses and records were available to the proponent. The
proponent took no steps to seek them and to admit Mr. LaBerge s
testimony as more probative on any of the points for which it is
offered; does not serve the general interest of justice. The
Respondents would have shown, under cross-examination, that Mr.
LaBerge s testimony as reflected in the affidavit, is inaccurate.
Mere statements that Mr. LaBerge s affidavit is more probative on
the point for which it is offered than any other evidence which the
proponent can produce through reasonable efforts is inaccurate,
does not meet the general requirements of the rule . . . (RX 6)
Moreover, I am not persuaded that Mr. LaBerge is the only
person who could have given a similar affidavit on the items
contained therein. Furthermore, documentary evidence from Tucker
Housewares could have been offered to establish the points
attempted to be made by the affidavit. Moreover, the parties
STIPULATIONS (JX 1), specifically 2(B)-(F), essentially deal
with the same issues as Mr. LaBerge s affidavit.
Thus, the affidavit (PX 13) is not admitted into evidence and
shall be placed in the Rejected Evidence folder.
SUMMARY OF THE POSITIONSPLAINTIFF
The Plaintiff seeks in this case the imposition of civil money
penalties in the amount of $150,000.00 for the willful violation by
the Respondents of Section 7 of the FLSA of 1938, as amended, 29
U.S.C. 201, et seq. According to Plaintiff, William Bill
Woods formed and operated a temporary employment business, which
included approximately ten corporations in Massachusetts and New
Hampshire, operating both concurrently and consecutively over the
last twelve to thirteen years. Plaintiff alleges that William
Woods could not form or operate these businesses in his own name
[Page 4]
and, thus, set up various family members, including his wife
Marlene Woods, his sister Ann Woods and his son Harold Woods as
officers of the corporations.
According to Plaintiff, although the corporate names of this
business changed over the years, the basic business and its
operations remained the same, i.e., providing unskilled day
workers to manufacturers and other businesses. Respondents paid
these workers only the minimum wage and then charged the client
company an approximate $3.00 premium per worker per hour and, until
July of 1994, these workers were never paid overtime. The
Respondents allegedly told their prospective customers that by
using Respondents day workers they would save money since the
Respondents would handle all the burdensome paperwork,
bookkeeping, record keeping, payroll costs and government
reporting. Respondents also promised to provide transportation
service to and from the job site and all insurance coverage.
Moreover, according to Plaintiff, until July of 1994 the
Respondents handled the burdensome paperwork, record keeping,
payroll and government reporting by classifying these low skill
hourly paid workers as independent contractors.
Plaintiff further submits that the Respondents have known
since at least 1989 that these workers were not independent
contractors, that Respondents did not change this practice even
after two investigations by the Wage and Hour Division wherein
Respondents were told that such misclassification violated the Act
and that Respondents continued to fail to pay overtime to the day
workers until July of 1994.
In conclusion, Plaintiff submits that the Respondents
willfully violated Section 7 of the Act because They have known
since 1989 that what they were selling their clients was an illegal
scheme to violate state and federal labor laws, that Respondents
have profited substantially from this practice and that the
civil money penalties assessed are appropriate and should be
imposed both as punishment of these employers and as a deterrent to
future potential violators. (ALJ EX 19; TR 32-39)
RESPONDENTS
On the other hand, Respondents submit that they have not
willfully violated the Act because in 1983 and in 1990, the
Respondents received legal advice from Robert U. Holden, their
attorney, now deceased, that the laborers they placed were not
employees of themselves as individuals or any corporate entities
they operate. In July 1991, as part of an Internal Revenue Service
proceeding wherein the Internal Revenue Service sought to hold
Harold Woods and Ann Woods, both Respondents, as persons
responsible to collect, account for, and pay over the employee
[Page 5]
portion of U.S. individual income tax and F.I.C.A. taxes, Mr.
Holden restated his opinion in affidavits to the Internal Revenue
Service where he stated, It was my opinion that persons procured
for various employers by Harold Woods or his corporations were not
employees of Harold Woods or his corporation. (ALJ EX 22)
Respondents further submit that they entered into an agreement
with the Wage and Hour Division with respect to their compliance
with the Fair Labor Standards Act, that they were represented in
that matter by John T. Bresnahan, CPA, and James M. Walsh, Esq.,
and that Mr. Bresnahan and Mr. Walsh were of the opinion that the
issues involving the placement of temporary laborers was not
covered by any agreement with the Department of Labor, but rather,
it was their view that the Department of Labor had accepted the
Respondents treatment of the laborers as non-employees.
According to respondents, three different professionals have
advised the Respondents that their actions are in compliance with
the law and, thus, there can be no reckless disregard of the law
by Respondents in following the advice of professionals obtained by
them for the specific purpose of representing them in
administrative proceedings involving the Department of Labor and
the enforcement of the Fair Labor Standards Act. No civil money
penalties can be sustained, according to Respondents. (ALJ EX 20;
TR 39-43)
Summary of the Evidence
Respondent William Bill Woods formed and operated a
temporary employment business which included approximately ten
corporations in Massachusetts and New Hampshire, operating both
concurrently and consecutively over the last twelve to thirteen
years. Mr. Woods believed he would have a problem getting a permit
to run temporary agencies, due to a previous conviction for mail
fraud. (TR 194; U.S. v. Ciampaglia, Woods, Canessa, and
Gintner, Bancroft and McNiff, 628 F.2d 632 (1st Cir. 1980).
With the aid of his Attorney, Robert Holden, Woods purposefully
excluded his name from any corporate documents, instead setting up
various family members, including his wife Marlene Woods, his
sister Ann Woods and his son Harold Woods as officers of the
corporations. (TR 194)
Although the corporate names changed over the years, the basic
business and its operations remained the same; providing unskilled
day workers to manufacturers and other businesses. he Woods paid
these workers usually only the minimum wage and then charged the
client company an approximate $3.00 premium per worker per hour.
(PX 2 at 54) Up until July of 1994, these workers were never paid
overtime. (PX 3, No. 91-99, and 123-124)
The Respondents told prospective customers that by using
Woods' day workers they would save money since the Respondents
would "handle all the burdensome paperwork, bookkeeping, record
keeping, payroll costs, and government reporting". (PX 4) They
also promised to provide transportation service to and from the job
site and all insurance coverage. The Respondents handled the
"burdensome paperwork, record keeping, payroll and government
reporting" by classifying these low skilled hourly paid workers as
independent contractors. Respondents' business was in effect to
illegally cut off low wage employees from federal and state
protective labor legislation; in return for this service
Respondents kept almost half of the earnings of these workers.
As early as 1989, the Respondents knew these workers were not
independent contractors. They had been told by the Supreme Court
of New Hampshire in the context of unemployment compensation that
these dayworkers did not engage "in an independently established
trade, occupation, profession or business..." Appeal of
Work-A-Day of Nashua, Inc., 564 A.2d 445, 447 (N.H. 1989).
The employment status of these workers was again brought to
Respondents' attention by the Massachusetts Commissioner of
Employment and Training in 1989, in a proceeding in which
Massachusetts took the position that these workers were the
employees of respondents and that Respondents were obliged to
contribute to the unemployment compensation fund with respect to
these workers' wages. Work-A-Day of Fitchburg, Inc. v.
Commissioner of the Department of Employment and Training,
Case No. 9016-CV-0147 (May 6, 1992) (attached to PX 3). The
Commissioner's decision was affirmed by the Massachusetts Board of
Review in 1990. Id. The Supreme Judicial Court for the
Commonwealth remanded the case to the Board in 1992 stating,
We have no difficulty in concluding that in performing
their services the workers are in employment as defined
in G. L. c. 151A..., at least for the reason that they
are receiving wages and are not 'free from control and
direction in connection with the performance of such
services'. It is true that both Work-A-Day and the
client exercise some control over the workers. But the
workers surely are not free from control. The question
for decision then is whether, for the purposes of G. L.
c. 151A, the workers are in employment of Work-A-Day or
its respective clients.[1]
Id., at 4.
In 1994, the Board of Review, on remand, held that the workers
were employees of Work-A-Day, citing the control the Respondents
exercised over the workers it placed with clients such as its
recruitment, placement and payment of workers. In the Matter
of Work-A-Day of Fitchburg, Inc, Decision of Board of
[Page 6]
Review, Appeal no. X-1216-A-CT-RM, at p.3 (June 9, 1994); See
AlsoIn the Matter of Able Temps, Inc., Decision of
Board of Review, Appeal No. X-2041-A (June 10, 1994) (both attached
to PX 3).
Although Respondents were put on notice as early as 1989 that
their practice of calling their workers independent contractors in
order to avoid their responsibilities as an employer was illegal,
they did not change this practice.
In 1990, the U.S. Department of Labor investigated the
Respondents. Investigator William Pickett met with the
representative of the Respondents, Attorney James Walsh, a number
of times. At the first face to face meeting, Mr. Pickett was
satisfied that "in house employees" of the Respondents, such as
clerical and telemarketing workers, were paid in compliance with
the Act. (TR 50-51, 59 and 65) Mr. Pickett, at that meeting, and
at all subsequent meetings, placed the focus of the investigation
clearly on the day workers, specifically requesting that time
records of the day workers be produced. (TR 51)
Mr. Pickett gave Mr. Walsh a copy of a government publication,
originating in the Wage and Hour National Office, entitled
"Employment Relationship Under the Fair Labor Standards Act." (WH
Publication 1297, Revised May 1980) (TR 51; PX 20) This
publication is handed out generally to all individuals and
companies that are investigated by Wage and Hour. (TR 51) Mr.
Pickett used that document to review with Attorney Walsh the six
factors that the Supreme Court uses to help people make a
distinction between an employee and a nonemployee under the Act
(TR 53).[2]
Attorney Walsh testified that he remembered Mr. Pickett
indicating that the Department's position was that these people
were employees. (TR 283)
Since no records of day workers' hours worked were produced in
response to the request of Mr. Pickett and a substantial number of
questionnaires sent out to the dayworkers were returned unopened
due to inaccurate addresses, he was unable to determine if any
overtime hours had been worked. (TR 60 and 62) Mr Pickett was
therefore only able to allege recordkeeping violations as to those
day workers. The Respondents entered into a stipulation of
compliance, and the Department officially closed the initial
investigation.
Although Attorney Walsh contended at trial that the
Stipulation executed at the close of that investigation
"...kept the position, I felt, of Able Temps open...", he did not
dispute Mr. Pickett's testimony that he had been made well aware of
the Department of Labor's position. Since Respondents continued in
[Page 7]
violation, willfulness is established under the test applicable to
this proceeding. 29 C.F.R. 578.3(c)(2). When a subsequent Wage
Hour investigation was conducted two years later, Respondents
stalled and even defied a court order before finally turning over
the records which they had refused to turn over in 1989. What is
more they continued in violation until July of 1994.
I. LEGAL DISCUSSION OF EMPLOYMENT RELATIONSHIP(a) WHO IS AN EMPLOYEE ?
The crux of this case is whether or not the temporary day
workers are independent contractors, as Respondents submit, or
whether they are employees of the Respondents, as Plaintiff
alleges. The answer to this question requires an analysis of the
employment relationship to determine who is an employee under FLSA.
Under the Act, an "employee" is broadly defined as "any
individual employed by an employer" "'Employ' includes to suffer
or permit to work". 29 USC 203(e)(1) and 203(g).
The scope of the employer-employee relationship has been
interpreted expansively by the Supreme Court. Rutherford
Food Corp. v. McComb, 331 U.S. 722, 728-729 (1947);
United States v. Rosenwasser, 323 U.S. 360, 363
(1945). As stated by the First Circuit in Donovan v.
Agnew, 712 F.2d 1509, 1513 (1st Cir. 1983),
To gauge the scope of the employer-employee relationship
in particular contexts, the Supreme Court has looked not
only to the definitions of employer and employee but to
the entire remedial context of the Act....The Court has
not looked to "technical" common law concepts to define
the scope of the Act, but rather to "economic reality".
(quoting Goldberg v. Whitaker House Cooperative,
Inc., 366 U.S. 28, 33 (1961).
Further, the Supreme Court has emphasized that "the
determination of the relationship does not depend on...isolated
factors but rather upon the circumstances of the whole activity."
McComb, 331 U.S. at 730. A number of factors, while
not individually controlling, are "relevant in determining whether
individuals are employees or independent contractors for purposes
of the FLSA." Brock v. Superior Care, Inc., 840 F.2d
1054, 1058-1059 (2d Cir. 1988). See AlsoMartin v. Selker Brothers, Inc., 949 F.2d 1286 (3d
Cir. 1991); Brock v. Mr. W. Fireworks, Inc., 814 F.2d
1042 (5th Cir. 1987) cert. denied, 484 U.S.
924 (1987); Martin v. Albrecht, 802 F. Supp. 1311
(W.D. Pa. 1992); and Sec'y of Labor v. Lauritzen, 835
F.2d 1529 (7th Cir. 1987) cert. denied, 488
[Page 8]
U.S. 898 (1988).
These factors, termed the "economic reality test", were
derived from a Social Security Act case, United States v.
Silk, 331 U.S. 704 (1947), and are as follows:
(1) the degree of control exercised by the
employer over the workers, (2) the workers'
opportunity for profit or loss and their
investment in the business, (3) the degree of
skill and independent initiative required to
perform the work, (4) the permanence or
duration of the working relationship, and (5)
the extent to which the work is an integral
part of the employer's business.
Superior Care, 840 F.2d at 1058-1059. As stated by
that court, "No one of these factors is dispositive..." but rather
"the test is based on a totality of the circumstances."
Id., at 1059. Further, "the ultimate concern is
whether, as a matter of economic reality, the workers depend upon
someone else's business for the opportunity to render service or
are in business for themselves." Id.; See
AlsoBartels v. Birmingham, 332 U.S. 126, 130,
(Social Security Act); Selker Brothers, Inc., 949
F.2d at 1293-1296; Lauritzen, 835 F.2d at 1534-1535;
Mr. W. Fireworks, Inc., 814 F.2d at 1047-1054; and
Albrecht, 802 F.Supp. at 1313-1314.
(b) WHO IS AN EMPLOYER?
With reference to the status of an employer, the Act defines
"employer" to "include [] any person acting directly or indirectly
in the interest of an employer in relation to an employee." 29
U.S.C. 203(d).
The courts look here also to the "economic reality" of the
employment relationship in deciding whether a person or entity is
an FLSA "employer", Whitaker House, 366 U.S. at 33
(1961); Fegley v. Higgins, 19 F.3d 1126, 1131 (6th
Cir. 1994), cert. denied, 115 S.Ct. 203
(1994); Donovan v. Agnew, 712 F.2d at 1510.
Consequently, individuals with operational control over a
corporation or business may be held jointly liable along with that
corporation for violations of the Act. Donovan v. Sabine
Irrigation, 695 F.2d 190, 196 (5th Cir. 1983)
Cert.denied, 463 U.S. 1207 (1983),
citingDonovan v. Hamm's Drive Inn, 661 F.2d
316 (5th Cir. 1981). Further, more than one employer may be
concurrently liable for violations of the Act. Falk,
[Page 9]
414 U.S. at 195; Dole v. Simpson, 784 F. Supp. 538,
544 (S.D. Ind. 1991).
This is true not only for owners of businesses, but also for
corporate officers with operational control. Sabine
Irrigation, 695 F.2d at 194-195. As stated by the First
Circuit in Agnew, 712 F.2d at 1511, "The overwhelming
weight of authority is that a corporate officer with operational
control of a corporation's covered enterprise is an employer along
with the corporation, jointly and severally liable under the FLSA
for unpaid wages."
Some of the factors involved in the analysis of whether an
individual is an employer include whether the individual has
significant ownership interest, and whether he or she had
operational control of significant aspects of the corporation's day
to day functions, including compensation to employees.
Id., at 1514.
As stated by the Sixth Circuit, "to be classified as an
employer, it is not required that a party have exclusive control of
a corporation's day-to-day functions. The party need only have
'operational control of significant aspects of the
corporation's day to day functions'"(emphasis in original).
Dole v. Elliott Travel and Tours, Inc., 942 F.2d
962, 966 (6th Cir. 1991) (quoting Agnew, 712 F.2d at
1514).
I. CIVIL MONEY PENALTIES FOR WILLFUL VIOLATIONS OF THE
ACT
Section 9 of the Fair Labor Standards Amendments of 1989
amended section 16(e) of the Act by subjecting employers to civil
money penalties for repeated or willful violations of Section 6 or
Section 7 of the Act.
The regulations define "willful" violations to include those
situations "where the employer knew that its conduct was prohibited
by the Act or showed reckless disregard for the requirements of the
Act." 29 CFR 578.3(c)(1). The regulations further set out the
parameters of willful behavior, stating "an employer's conduct
shall be deemed knowing, among other situations, if the employer
received advice from a responsible official of the Wage and Hour
Division to the effect that the conduct in question is not lawful."
29 CFR 578.3(c)(2).
The regulation's definition of "willful" comes directly from
McLaughlin v. Richland Shoe Co., 486 U.S. 128, 133
(1988), the Supreme Court case defining willfulness under the Act.
See 57 Fed. Reg. 49128 (1992). A number of cases
since Richland Shoe have found willfulness, and have
[Page 10]
thus applied a three year statute of limitations where knowing
violations or reckless disregard for the law were shown.
SeeReich v. Waldbaum Inc., 52 F.3d 35, at 39-
41 (2nd Cir. 1995) (Employer's belief that its hourly employees
were bona fide executives exempt from overtime and record keeping
requirements of the FLSA amounted to reckless disregard of the
law); Albrecht, 802 F.Supp. at 1314-1315 (Case
involving misclassification of homeworkers as independent
contractors, which held employer who "was in a position to know"
about another employer's previous violations of the Act to a three
year statute of limitations); Selker Brothers, 949
F.2d at 1296 (Holding employer who misclassified gas station
operators as independent contractors to a three year statute since
the record showed the employer knew this could result in violations
of the Act.). See Also Superior Care[3], 840 F.2d at
1062 (Temporary employment agency case, holding employers showed
"reckless disregard" where a compliance officer had specifically
advised them in a previous investigation that the temporary workers
were employees).
Once it is established that an employer committed a willful
violation or violations of the Act the Administrator of the Wage
and Hour Division may assess the civil money penalty. 29 CFR
578.3(a). In granting the Secretary, through the Administrator,
the authority to assess these penalties, Congress believed it could
deter potential violators of the Act. See 57 Fed.
Reg. 49128 (1992) (quoting House Report No. 101-260, p.25,
September 26, 1989).
The regulations also set out the manner in which the penalty
is calculated. According to these regulations, "the Administrator
shall consider the seriousness of the violations and the size of
the employer's business." 29 CFR 578.4(a). Other factors the
Administrator may consider include good faith efforts the employer
made to comply with the Act, whether the violations "were the
result of a bona fide dispute of doubtful legal certainty", the
"previous history of violations", "the employer's commitment to
future compliance", "the interval between violations", "the number
of employees affected", and "whether there is any pattern to the
violations". 29 CFR 578.4(b).
FACTUAL DISCUSSION
In analyzing the employment relationship between the
Respondents and their temporary workers, the "economic realities
test" as applied to the undisputed facts show that those workers
were indeed employees under the Act.
In looking at the first factor, the "degree of control"
exercised over the workers, it is undisputed that Respondents
controlled who would be sent to which client company and what they
[Page 11]
would be paid (See PX 3, No. 131, 135 and 136). Respondents
transported workers to and from the placements, controlling when
they arrived and when they could leave the client companies
(See PX 3, No. 132). Further, most important for violations
involving the nonpayment of overtime, they controlled the payment
of the workers, issuing them checks after receipt of the validated
work slips or invoices prepared by the Respondents (See PX
3, No. 130 and 133). They even attempted to specify the clothes
these workers could wear. (TR 142) This degree of control is
demonstrated by the memorandum to "All Workers" that was
distributed to day workers. (PX 7) This memorandum specifies the
time the workers must arrive at the offices of Alternative
Staffing, the behavior that must be exhibited at the client
companies and the footwear that must be worn by the workers.
In Superior Care, Inc., a most relevant Second
Circuit case, the defendant "engaged in the business of referring
temporary health-care personnel, primarily nurses to individual
patients, hospitals, nursing homes and other health care
institutions". Id., at 1057. The defendant claimed
that these nurses were independent contractors and thus not covered
as employees under the Act. The Court, in discussing the "economic
realities test" as applied to the nurses, held that "the totality
of the circumstances reveals that as a matter of economic reality
the nurses are employees." Id., at 1061.
The Court, in discussing the factor of control, and while
relating that the parties had stipulated that supervisory visits to
the job sites were infrequent, held that even where direct
supervision is minimal, "an employer does not need to look over his
workers' shoulders every day in order to exercise control."
Id., at 1060. The nurses knew they were subject to
review, just as the temporary workers in the present case know that
they will need to submit an invoice form showing the requested
hours were worked for the client company in order to receive any
payment. Id. (See PX 3, No. 130). Further,
unlike the Superior Care case, the workers in the
present case are not performing skilled work that requires any
considerable review. As described by the Director of Human
Resources of one Respondents' major clients, Plastican, Inc., these
workers typically perform unskilled "light assembly work" such as
"putting a handle on a bucket". (PX 15 at 13) Due to the
unskilled nature of this work, "...there's very little supervision.
They're shown how to do the task, and they're, they're expected to
do it, so, so there's really, I would say, no supervision". (PX 15
at 14)
Courts have also ruled in situations where individuals worked
at home, away from supervision, that where an industry inherently
requires such a lack of control, that factor should not be
overemphasized in the "economic realities" analysis. Donovan
[Page 12]
v. DialAmerica Marketing, Inc., 757 F.2d 1376, 1383-1384
(3rd Cir. 1985) cert. denied 474 U.S. 919
(1985) (Holding home researchers to be employees, regardless of the
fact "that the defendant had very little control over the manner in
which the home researchers did their work" and that "...the home
researchers had the freedom to work at any time and for as many
hours as they desired, and that they were not directly supervised
by defendant." Due to the fact that lack of control "inheres in
the very nature of home work" the control factor should not be
overemphasized in the employment analysis.) See Also
Albrecht, 802 F.Supp. at 1314 (Holding seamstresses working
at home to be employees, regardless of a contract they signed which
stated they were independent contractors.)
As in the home worker scenario, the analysis of the control
factor in an employment relationship between a temporary employment
agency and a worker should not be overemphasized. In sending the
employee to a client company to perform work, there is a lack of
direct supervision inherent in this type of industry. Furthermore,
the agency in this case maintained tight control over who would be
sent to which client, the hours they would remain there, the
payment of the workers, and even the manner and dress of the
workers while at the client company.
The decision of the Board of Review of the Commonwealth of
Massachusetts as to the employment status of these workers under
the state's unemployment compensation statute is particularly
illustrative of the control exercised by the defendants. According
to the Board,
...Able-Temps recruits and screens the
workers which it places. Clients contact
Able-Temps and Able-Temps, alone, chooses the
individual that it feels will satisfy the
client's requirements. If a client expresses
dissatisfaction with a worker, Able-Temps
would refuse to offer the worker another
assignment with that client. Workers are paid
by Able-Temps at an hourly rate determined by
Able-Temps. Clients are billed by Able-Temps
and the individual receives no compensation
directly from the client. Under these
circumstances, it has not been shown the
individuals are free from control and
direction of Able-Temps in connection with the
performance of their services...Able Temps
does exercise control over the workers it
places with clients.
In the Matter of Able-Temps, Inc., Decision of Board
of Review, Appeal No. X-2041-A, at p. 4 (June 10, 1994).
The second factor in the analysis, the employee's "opportunity
for profit or loss" and their investment in the business is clearly
in the favor of a determination of employee status. These day
workers received a fixed hourly rate, which was established by
respondents (See PX 3, No. 135 and 136). They made no
investment whatsoever in equipment or materials (TR 198).
See Lauritzen, 835 F.2d at 1536-1537.
The third factor, "the degree of skill and independent
initiative required to perform the work" is also clearly in favor
of the conclusion that the workers were employees. It is
undisputed that the day workers do not perform skilled labor for
the client companies. (See PX 3, No. 128) As stated by
Marlene Woods in her deposition of May 3, 1995, "...if they're
sober and they're breathing and want to go to work, I want them to
go to work. They're hired. They're asked to work." (PX 2 at 46)
(See Also the Deposition of William Woods, where he
describes negotiations with client companies by stating "Well, to
put it crudely, you know, do you want to use our people to unload
your trucks, and how much will you pay us for this service?" (PX
1 at 50))
Further, the memorandum attached to several of the contractors
agreements, provided by respondents in discovery, clearly shows
that the workers not only are not required to use independent
initiative, they are not allowed to do so. (See PX 7,
stating "Do not contact companies on your own. We will schedule
work: that is not your job. If you contact a company directly, you
will not be sent out again.").
It is noteworthy that the court in Superior
Care, 840 F.2d at 1060, ruled that the temporary nurses
were employees even though "the nurses are skilled workers who
require several years of specialized training." The court further
stated that "the fact that workers are skilled is not itself
indicative of independent contractor status. A variety of skilled
workers who do not exercise significant initiative in locating work
opportunities have been held to be employees under the FLSA."
As to the fourth factor of the analysis, the "permanence" or
"duration of the working relationship", while a large number of
these workers are transient since it is the nature of the temporary
employment business to have a transient work force, a number of
dayworkers have worked for the respondents' various temporary
employment businesses for as long as three to four years at a time.
(PX 2 at 16-17)
Further, recent cases have held that where work forces are
deemed transient due to operational characteristics intrinsic to
the industry rather than to the workers' own business initiative,
these transient workers may still be deemed to be employees rather
than independent contractors. See Mr. W. Fireworks,
[Page 13]
Inc., 814 F.2d at 1053-1054 (Holding operators of firework
stands to be employees, notwithstanding the 80% turnover rate due
to the seasonal nature of the work.); See Also Superior
Care, 840 F.2d at 1060-1061 (In holding the temporary
nurses to be employees, notwithstanding a 90% turnover rate during
a 3 year period, the court stated, "the fact that these nurses are
a transient work force reflects the nature of their profession and
not their success in marketing their skills independently.")
Finally, the fifth and last factor, "the extent to which the
work is an integral part of the employer's business", is also
clearly in the favor of a determination of employment. Temporary
employment is the defendants' business. Their profit depends upon
their placement of these workers. (See PX 3 at 134).
Further, the product they offer their clients is the services of
workers without the bother or expense of complying with state and
federal employment laws. As stated by the New Hampshire Supreme
Court in the case which litigated the employment status of the
workers of Work-A-Day of New Hampshire, Inc., a predecessor
corporation of the Respondents,
Work-A-Day advertises its service of placing
temporary workers in a brochure which Work-A-
Day mails to various companies in the State.
In the brochure, Work-A-Day assures its
prospective client-companies that it will take
care of up to 90% of the bookkeeping, and that
the clients will never have to worry about
paying workers' compensation, health
insurance, or deducting social security from
the workers' wages if the clients take
advantage of Work-A-Day's placement service.
Appeal of Work-A-Day of Nashua, Inc., 564 A.2d at
446.
As late as Spring of 1993, the Respondents advertised in a
Plastics Industry Supplement of the Sentinel and Enterprise in
Fitchburg, Massachusetts that they would "handle all the burden
some paperwork, bookkeeping, record keeping, payroll costs, and
government reporting". (PX 4) The Director of Human Resources of
Plastican, a plastics manufacturer in the Fitchburg/Leominster
area, who utilized the Respondents' services during the spring of
1993, testified that it was her "understanding that...they would
comply with all of the requirements dealing with labor". (PX 15 at
4, 5, and 17)
In looking at the "totality of the circumstances", "as a
matter of economic reality", these workers "depend upon someone
else's business for the opportunity to render service." See
[Page 14]
Superior Care, 840 F.2d at 1059. They are clearly not
independent contractors. Whether they are to be considered
employees of the Respondents, employees of the client companies, or
jointly employed by both, they clearly are employees under the Act,
and should have been paid time and a half their regular rate of pay
for all hours worked over 40 per week. The respondents advertised
to these client companies that they would be responsible for the
payroll, paperwork and government reporting. They should be
estopped from attempting now to avoid that responsibility by either
classifying these workers as independent contractors or shifting
the blame to the client companies.[4]
II. THE INDIVIDUAL RESPONDENTS ARE EMPLOYERS UNDER THE
ACT
The named individual Respondents each had operational control
of Alternative Staffing and therefore should be held jointly liable
along with the employing corporations for violations of the Act.
SeeSabine Irrigation, 695 F.2d at 196.
William Woods, by his own admission, personally formed, owned
and operated the sequence of temporary employment agencies, two of
which are the corporations named in this proceeding. (PX 8 at 1,
and PX 1 at 48) At his bidding, a number of the members of his
family became involved in this temporary employment business.
(PX 8 at 1)
Marlene Woods, the wife of William Woods, ran the Fitchburg
location of Able Temps, Alternative Staffing, and All American
Temps. (PX 2 at 6, 24 and 29) She hired, fired, and supervised
the employees at that location. (PX 2 at 7, 15-18)
Harold Woods, the son of William Woods, as president,
treasurer and director of Alternative Staffing, Inc., was involved
extensively in the corporation's formation (PX 5), as well as the
business dealings such as setting up bank accounts, filing papers,
answering phones, sales, recruitment of clients, placement of
workers and payment of workers. (TR at 136, 246-247) He also
transported workers to the job sites. (TR at 247)
Ann Woods, the sister of William Woods, was the listed
president of Baystate Alternative Staffing, and Able Temps
Referrals, Inc. As president of Able-Temps, Ms. Woods signed the
1990 stipulation with the Wage and Hour Office. In the present
litigation as well, Ms. Woods acted for all of the Respondents in
signing the "Defendant's Response to Plaintiff's Request for
Admissions". She also handled some bookkeeping duties as well as
placement of workers. (TR at 135)
It is clear that William Woods, as well as Marlene, Harold and
Ann Woods, acting at the direction of William Woods, controlled the
operations of Able-Temps and Alternative Staffing. Therefore,
these individuals are employers under the Act and shall be held
jointly liable along with those corporations for violations of the
Act. Id. It is further clear from the totality of
the testimony in this case that unless these family members are
held accountable in this proceeding the assets of this business
will simply turn up in their hands rather than in William Woods'
hands. In addition to the factors discussed in the case law,
William Woods has shown an affinity for playing shell games with
phony corporations and using family members as corporate officers
who simply follow his orders, usually without even knowing or
caring that they've been listed as officers of such paper companies
as Plato Management. (PX 2 at 64-65)
III. THE RESPONDENTS ACTED WITH RECKLESS DISREGARD FOR THE
REQUIREMENTS OF THE ACT, AND THE IMPOSITION OF THE CALCULATED CIVIL
MONEY PENALTY UNDER THE WILLFUL STANDARD IS APPROPRIATE
The Respondents clearly showed knowledge of and reckless
disregard for the requirements of the Act for the following
reasons.
This was not the first time the issue of the classification of
these workers as "employees" had arisen for the respondents. As
detailed earlier, the Respondents had been involved in litigation
involving the classification of these employees for purposes of the
state unemployment compensation statutes in both New Hampshire and
Massachusetts as early as 1989. In all of these proceedings the
courts have held that the temporary workers at issue were employees
and not independent contractors. Respondents had knowledge of the
doubtful legality of those actions from the New Hampshire and
Massachusetts litigation as early as 1989.
Respondents further showed reckless disregard for the
requirements of the Act through their attempts to keep the
Department of Labor from obtaining payroll records of the day
workers from 1990 through January, 1994, their actions and
practices directly contrary to advice given them by a Wage and Hour
investigator in 1990, and their failure to attempt to come into
compliance until July of 1994.
In 1990, investigator William Pickett requested payroll
information as to all employees of the Respondents, specifically
requesting payroll records and time sheets of all temporary
employees. (TR at 51) While the Respondents produced records for
the "in-house" employees, which showed compliance with the overtime
portions of the Act, no time records were produced for the
temporary workers. (PX 11; TR 52, 59, 60, 61 and 65) As a result
of this lack of records, combined with the lack of interview
responses received due to faulty addresses, Mr. Pickett was unable
to determine whether Respondents were in compliance with the
overtime requirements of the Act. (TR 60, 62-63) He informed the
Respondents that it was necessary to keep records on all
employees, not just the "in-house" employees, and was clear in
stating to the Respondents that "employees" included the temporary
workers. (TR 65). The Respondents entered into a stipulation with
the Department of Labor, agreeing to comply with Sections 6, 7 and
11 of the Act in the future. (PX 3, No. 100 and 101)
It is apparent from admissions of the Respondents in their
depositions that records of the hours of work and rates of pay of
temporary workers did in fact exist at the time Mr. Pickett
requested them. (PX 1 at 30-31, PX 2 at 62-63) The Plaintiff
submits that these documents were purposefully withheld by the
Respondents so that no overtime violations could be substantiated.
With no overtime violations found, the Respondents could resolve
[Page 15]
the matter merely by entering into the stipulation of compliance
with the Wage and Hour Department rather than paying backwages owed
to the day workers. After entering into this stipulation, the
Respondents then made no change in their practice of not paying
these workers for hours worked over forty per week.
The Respondents have made several arguments in support of
their position that their actions were not willful. First, they
contend that since they did not meet directly with Mr. Pickett,
choosing instead to hire representatives to deal with the
investigation, they themselves had no knowledge of the requirements
of the Act regarding the employment status of these workers. It is
their contention that they believed the stipulation applied only to
the "in house" workers. (TR 173-174)
Mr. Pickett met solely with Attorney Walsh during the prior
investigation, as Mr. Walsh had indicated to him that he should not
contact the clients directly, and should go through him if he had
questions of the Respondents. (TR 339) Case law is clear that
"each party is deemed bound by the acts of his lawyer-agent and is
considered to have 'notice of all facts, notice of which can be
charged upon the attorney'." Link v. Wabash Railroad
Company, 370 U.S. 626, 634 (1962); See AlsoLevin v. Berley, 728 F.2d 551, 553 (1st Cir. 1984)
(stating "...a client is charged with the knowledge of his
attorney.");
Mr. Pickett is certain that the "in house" workers were not
discussed in the first investigation after his first meeting with
Attorney Walsh, because the Respondents were already in compliance
with respect to these workers. (TR 51, 59, and 65) Mr. Pickett
spent considerable time explaining the Department's position on the
temporary workers to Attorney Walsh. He gave him a Department of
Labor publication which clearly laid out Wage and Hour's position
as to the treatment of temporary workers under the Act. (PX 20)
While Attorney Walsh believed the wording of the stipulation "was
without prejudice to certain positions that Able had taken with
respect to violations of the law" (TR 289), he does not dispute the
fact that he knew that the Department of Labor's position was that
the temporary workers were employees under the Act and should be
paid appropriate overtime for hours worked over 40 per week. (TR
283) Respondents hired Attorney Walsh to represent them during
this investigation, and are chargeable with the knowledge conveyed
to Attorney Walsh by Mr. Pickett. See Wabash, 370
U.S. at 634 and Berley, 728 F.2d at 553.
During Mr. Pickett's second investigation in 1992, Respondents
continued to withhold records for almost a year and a half. Mr.
Pickett first attempted to obtain the payroll records of these
temporary workers in September of 1992. (PX 3, No. 108) The
Secretary was forced to file a "Motion to Enforce Subpoena Duces
[Page 16]
Tecum" with the Federal District Court and notify the respondents
of plans to file a contempt action on U.S. District Judge Gorton's
order granting that motion, in order to get the Respondents to
produce those records. (PX 3, No. 114, 118, 119, and 122) The
Respondents' willful actions in 1990, 1992 and 1993 allowed the
respondents to keep the Department of Labor from discovering back
wage violations until January of 1994.
William Woods also argues that Respondents' actions were not
willful since Attorney Robert Holden, now deceased, gave him advice
that these workers should be classified as independent contractors
for income tax purposes.
The advice of Attorney Holden is suspect at best. Attorney
Holden had been William Woods's family attorney for at least 35
years. (TR 193) Attorney Holden had set up for him a company
called Masterson Corporation. (TR 191) As stated by District
Judge Mazzone, in a slip opinion dated April 10, 1980, Mr. Woods
was the main player in an attempt, through Masterson Corporation,
"to conceive, execute, and conceal a fraudulent purchase order
scheme." United States v. Peter Canessa, et al,
Criminal Action No. 79-0017-MA, Slip Opinion, April 10, 1980, p. 3,
aff d, U.S. v. Ciampaglia, Woods, Canessa, and
Gintner, Bancroft, and McNiff, 628 F.2d 632 (1st Cir.
1980), cert.denied 101 S.Ct. 365. Although
this scheme "derived mainly from ...William Woods", Attorney Holden
did not make Mr. Woods a corporate officer of Masterson
Corporation. Id. (See also TR at 180)
This pattern continued in 1983 when Woods met with Attorney
Holden to form the temporary help agencies involved in this case.
Attorney Holden set up a number of corporations, including Able
Temps, Work-A-Day of Fitchburg, Work-A-Day of Worcester, Work-A-Day
of Nashua and Alternative Staffing. (TR 193). Attorney Holden,
though knowing about Woods's criminal conviction, and knowing that
Woods would be running all of these corporations, set up the
corporations listing Woods's relatives as corporate officers and
excluding William Woods from all corporate documents. (TR 194;
PX 3, No.'s 1-3, 6, 8, 9, 15, 18, 19, 21-23, 26-27, 30-32, 40-42,
71-76)
William Woods and Attorney Holden went further to hide the
business's real ownership, setting up paper corporations, Plato
Merchandising and Galactic Management, as managing agents of the
business. (TR 178-179) In response to Complainant's Request
Numbers 64 through 70 which refer to William and Marlene Woods's
control of payroll, recordkeeping, hiring and firing and general
business operations of the corporations, Respondents denied that
William and Marlene Woods controlled and directed these
corporations, alleging instead that "...the business affairs of
Able were managed under contract with Plato Merchandising Corp.,"
[Page 17]
and "...the business affairs of Alternative were managed under a
contract with an entity known as Galactic Management, Inc." (PX 3,
Res. No.'s 58 and 61).
Marlene Woods, the named president of Plato Merchandising
Corporation, was asked about her role as president during her
deposition. (PX 2 at 64-65) According to Marlene Woods, she may
have been named as president but she never did anything other than
receive a paycheck. (PX 2 at 65) William Woods admitted in his
deposition that he ran Plato Merchandising Company. (PX 1 at 57)
As was the usual practice of Robert Holden and William Woods,
Woods's name was conspicuously absent from corporate documents.
Over the last 15 years, William Woods ran between 15 and 20
corporations, mainly set up by Attorney Holden; Woods's name did
not appear on any of the corporate documents. The Plaintiff
contends that any "advice" given to William Woods by Attorney
Holden was highly suspect because of that pattern of past practice.
Further, since Attorney Holden is no longer alive, he can not
be cross-examined as to what version of the facts he was given
prior to giving any "advice" about the status of these workers for
income tax purposes. Respondents' version of facts often edits out
or even changes extremely relevant information. For instance,
William Woods stated that he really didn't know if he told Attorney
Holden that the unemployment litigation in New Hampshire ruled
against them, since he "didn't attach that much importance to it".
(TR 199)[5]
The regulations state "an employer's conduct shall be deemed
to be in reckless disregard of the requirements of the Act,..if the
employer should have inquired further into whether its conduct was
in compliance with the Act, and failed to make adequate further
inquiry." (29 CFR §578.3(c)(3))
The Respondents in this case clearly did not make adequate
further inquiry. They knew as early as 1989 that there was a
question as to the legality of their classification of the workers
as independent contractors from the New Hampshire case. The
"advice" of Attorney Holden was in relation to an income tax matter
they were involved with concurrently with the Wage and Hour cases.
The Respondents do not claim to have asked Holden his advice as to
the workers' status for purposes of the Fair Labor Standards Act,
and in fact avoided telling Holden about the New Hampshire
litigation when he rendered his "opinion" in the IRS matter.
Plaintiff essentially submits that the Respondents showed
reckless disregard in that they and their agents failed utterly to
make adequate good faith inquiries as to the legality of their
actions.
The Plaintiff further contends that the Respondents knew their
actions were contrary to the Act. The regulations state that "an
employer's conduct shall be deemed knowing, among other situations,
if the employer received advice from a responsible official of the
Wage and Hour Division to the effect that the conduct in question
is not lawful." In this regard, see 29 CFR
§578.3(c)(2). The Respondents received this advice from
investigator Pickett and were given a pamphlet outlining the
position of the Wage and Hour Department as to the employment
status of these workers in 1990. They were given this advice a
second time by Mr. Pickett in the 1992 investigation. However the
Respondents waited until July of 1994 to begin compliance with the
Act. Respondents agent Walsh, who was selected by Respondents to
negotiate with the Department, admits that he understood the
Department's position (TR 283), and yet describes no efforts
whatsoever to research the validity of the position Respondents
were asserting. There can be no question that at the very least
Respondents' continuing noncompliance during their defiance of
Judge Gorton's Order constitutes "reckless disregard" under
Richland Shoe, 486 U.S. at 1681. See Also
Superior Care, 840 F.2d at 1062 (Temporary nursing agency
held to show reckless disregard for Act where compliance officer
advised them in an earlier investigation that their temporary
workers were employees rather than independent contractors).
The Administrator, in assessing the penalty for these willful
violations, considered both the size and seriousness of these
violations, as well as the firm's efforts to comply, the prior
history of the firm, its prior stipulation, the number of employees
affected, the pattern of the violations, their commitment for
future compliance and their cooperation during the investigation.
(TR 124)
The Respondents obtained a substantial monetary benefit from
their illegal payment practices. They advertised to their clients
as late as Spring of 1993 that they could save money since the
Respondents would handle "all the burden some paperwork,
bookkeeping, record keeping, payroll costs, and government
reporting." (PX 4) In reality, they handled this burden by
classifying these workers, in reckless disregard of the law, as
independent contractors. They were able to profit substantially by
usually charging their clients between $7.00 and $7.50 per hour per
worker for their service and paying the day workers usually only
the minimum wage. (PX 2 at 54) Scott Valentine of the Litigation
Support Office, using the data provided by the Respondents, was
able to calculate that at least 4199 day workers worked a total of
974,115 hours for the Respondents during the period between
September 30, 1991 and July 3, 1994, and were paid out a total of
$4,366,285.50 (See PX 6 (Stipulated to by the Respondents))
Plaintiff further submits that, considering an approximated $3.00
to $3.50 premium per worker per hour, the Respondents certainly
profited substantially from holding themselves out as they did in
[Page 18]
their advertisements.
Further, by ignoring the clear instructions of the Wage and
Hour Division not only for the two years preceding the second
investigation but for almost two years following it, the
Respondents denied proper pay to more than six hundred of their
employees by not paying them overtime compensation due under the
Act, bringing about a calculated backwage liability of $142,409.16
for the period between September 30, 1991 and July 3, 1994.
(See PX 6 and Stipulation of the Parties) These
calculations show both the seriousness of these violations and the
size of the business of the Respondents.
The original calculation of penalties was done in April of
1994. The Department used a standard form which took into
consideration the number of employees paid in violation, the
willfulness of the violation, and the employer's refusal to come
into compliance, to calculate originally a penalty of $240,000.00.
(See PX 10)[6] In consideration of the nature of the
temporary employment business which tends to result in a large
number of employees being effected, the Administrator, in
consultation with the Solicitor's Office, reduced the penalty to
$150,000.00. (TR 127-128) It was determined from looking at the
size of the company, the profit margin per employee and annual
dollar volume, the seriousness of the violation, and the company's
refusal to come into compliance that this penalty was appropriate.
(TR 127-128)
In determining whether an individual is an employee under the
Act, the ultimate concern is whether, as a matter of economic
reality, the workers depend upon someone else s business for the
opportunity to render service or are in business for themselves."
Superior Care, 840 F.2d at 1058-1059. One need only
look to the words of William Woods in his deposition to see that
the day workers in this case were employees of the Respondents. As
stated by Mr. Woods, "...to put it crudely, you know, do you want
to use our people to unload your trucks, and how much will you pay
us for this service?". (PX 1 at 50)
The Respondents willfully violated Sections 7 and 11 of the
Act. They have known since 1989 that what they were selling their
clients was an illegal scheme to violate state and federal labor
laws. Their attorney admitted that he had been told in a previous
investigation by Mr. Pickett that the Department's position was
that these workers were to be treated as employees under the Act.
They have profited substantially from this practice.
The civil money penalties assessed are appropriate and should
be imposed as a deterrent to these employers and to future
potential violators. See 57 Fed. Reg. 49128 (1992)
(quoting House Report No. 101-260, p.25, September 26, 1989).
This Administrative Law Judge, in reaching the ultimate
conclusions in the matter before me must keep in mind certain well-
settled legal principles which form the foundation for the FLSA and
its passage by Congress.
The FLSA is intended to secure for workers the fruits of their
toil and exertion. Tennessee Coal, Iron & R. Co. v. Muscoda
Local No. 125, 321 U.S. 590, 64 S.Ct. 698 (1944). This chapter
is comprehensive, having the special purpose of covering all
workers in commerce or production of goods for commerce except
those specifically exempted and its remedial purposes should be
liberally construed and its exemptions to coverage narrowly
construed. Waialua Agr. Co. v. Ciroco Maneja, 77 F.Supp.
480 (D.C. Hawaii 1948), remanded on other grounds, 178 F.2d
603 (9th Cir. 1949), cert. denied, 339 U.S. 920, 70 S.Ct.
622 (1950). This chapter was designed to protect the laboring
public generally against the practices which it outlaws.
Fleming v. Tidewater Optical Co., 35 F. Supp. 1015 (D.C. VA.
1940).
It is now well-settled that the FLSA is construed liberally to
apply to the furthest reaches consistent with congressional
direction. Mitchell v. Lublin, McGaughy & Associates, 358
U.S. 207, 79 S.Ct. 260 (1959). This chapter is to be given a
liberal construction. Dunlop v. Asby, 555 F.2d 1228 (5th
Cir. 1977), H.B. Zachary Co. v. Mitchell, 262 F.2d 546 (5th
Cir. 1959), aff d, 362 U.S. 310, 80 S.Ct. 739 (1960). This
chapter is remedial and calls for a liberal construction.
Richter v. Barrett, 173 F.2d 320 (3d Cir. 1949). This
chapter is remedial and, having a humanitarian purpose in view, is
to be liberally construed in respect of coverage. McComb v.
Farmers Reservoir & Irr. Co., 167 F.2d 911 (10th Cir. 1948),
aff d, 337 U.S. 755, 69 S.Ct. 1274 (1949), rehearing
denied, 336 U.S. 839, 70 S.Ct. 31 (1949). This chapter is
remedial and must be given a liberal construction with its manifest
intent and purpose in view. Walling, Administrator, v.
Rutherford Food Corp., 156 F.2d 513 (10th Cir. 1946), aff d
in part, modified in part on other grounds, 331 U.S. 722, 67
S.Ct. 1473 (1947).
This chapter is social legislation to be liberally construed
so as to effect broad coverage, Wirtz v. Ti Ti Peat Humus,
249 F.Supp. 166 (D.C. S.C. 1966), reversed on other grounds and
remanded, 373 F.2d 209 (4th Cir. 1967), cert. denied,
389 U.S. 834, 88 S.Ct. 37 (1967), and to accomplish the declared
policy of Congress. Coomer v. Durham, 93 F.Supp. 526 (D.C.
Va. 1950). A liberal construction of this chapter is imperative,
Blankenship v. Western Union Tel. Co., 67 F.Supp. 265 (D.C.
W.VA. 1946), aff d, 161 F.2d 168 (4th Cir. 1947), and
Congress meant to include all employees not expressly excepted.
J.J. Rose Truck Line v. Ross, 442 S.W.2d 483 (Tex. Civ. App.
1969), rehearing denied, (May 28, 1969). Doubt is resolved
[Page 19]
in favor of coverage of employees by this chapter, Mitchell v.
S.A. Healy Co., 190 F.Supp. 897 (D.C. Ill. 1959), rev d on
other grounds, 284 F.2d 39 (7th Cir. 1960), and this chapter
should be strictly construed in favor of the employee. Edwards
v. Riverside Products Co., 85 F.Supp. 290 (D.C. W.VA. 1949).
FLSA must be construed liberally to effectuate broad policies
and the intentions of Congress, Fegley v. Higgins, 19 F.3d
112 (6th Cir. 1994), and in such a way as to apply to the furthest
reaches consistent with congressional direction. Biggs v.
Wilson, 1 F.3d 1537 (9th Cir. 1993); Donovan v. Sabine Irr.
Co., 695 F.2d 190 (5th Cir. 1983), cert. denied, 463
U.S. 1207, 103 S.Ct. 3537 (1983), rehearing denied, 463 U.S.
1249, 104 S.Ct. 37 (1983). Courts should construe exemptions to
the FLSA narrowly and the employer has the burden of proof
establishing entitlement to an exemption, Brock v. Mr. W
Fireworks, Inc., 889 F.2d 543 (5th Cir. 1989), cert.
Denied, 495 U.S. 929, 110 S.Ct. 2167 (1990), and exceptions
under the FLSA are to be narrowly construed against the employer
asserting them, Luther v. Z. Wilson, Inc., 528 F.Supp. 1166
(D.C. Ohio 1981), in furtherance of Congress role of providing
broad federal employment protection. Hurley v. State of
Oregon, 859 F.Supp. 427 (D. Or. 1993), rev d on other
grounds, 27 F.3d 392 (9th Cir. 1994).
It would be contrary to congressional intent to permit an
employer who exercises substantial control over a worker, but whose
hiring decisions occasionally may be subjected to a third party s
veto, to escape compliance with this chapter. Carter v.
Dutchess Community College, 735 F.2d 8 (2d Cir. 1984). The
FLSA serves both a public and a private purpose; its enforcement
provisions are intended to protect workers and their families, whom
this chapter is intended to benefit, but it is also intended to
protect those employers who comply with its terms. Lerwill v.
Inflight Services, Inc., 3797 F.Supp. 690 (D.C. Cal. 1974).
An employee cannot contract with an employer to accept wage
payments which to not conform to the standard requirement of this
chapter, Wirtz v. William H. LaDew of Louisiana, Inc., 282
F.Supp. 742 (D.C. La. 1968), and an employer and its employees
cannot by contract or by understanding limit the scope and effect
of this chapter. Kappler v. Republic Pictures Corp., 59
F.Supp. 112 (D.C. Iowa 1945), aff d, 151 F.2d 543 (8th Cir.
1945), aff d, 327 U.S. 757, 66 S.Ct. 523 (1946),
rehearing denied, 327 U.S. 817, 66 S.Ct. 804 (1946).
Congress, in adopting this chapter, intended to achieve a national
uniform policy of guaranteeing compensation for all work or
employment engaged in by all employees covered by this chapter, and
any custom or contract falling short of that basic policy, like an
agreement to pay less than the minimum wage requirements, cannot be
[Page 20]
utilized to deprive employees of their statutory rights. Jewell
Ridge Coal Corp. v. Local No. 6167, United Mine Workers of
America, 325 U.S. 161, 65 S.Ct. 1063 (1045), rehearing
denied, 325 U.S. 897, 65 S.Ct. 1550 (1945). For example, a
railroad station janitor was entitled to recover compensation and
damages under the FLSA notwithstanding a written agreement
at lower wages designated him as an independent contractor.
Hargis v. Wabash R. Co., 163 F.2d 608 (7th Cir. 1947)
Moreover, the FLSA does not by its terms exclude temporary workers
from its coverage. Mitchell v. Feinberg, 123 F.Supp. 899
(D.C. N.Y. 1954), modified on other grounds, 236 F.2d 9 (2d
Cir. 1956), cert. denied, 352 U.S. 943, 77 S.Ct. 266 (1956).
Welders are employees within the FLSA and, thus, are
entitled to overtime compensation for work performed in excess of
40 hours in any week, notwithstanding that they signed contracts
stating that they were independent contractors, furnished their own
equipment, provided their own insurance coverage, listed themselves
as self-employed on their tax returns, had their own business cards
and letterheads, and were paid a higher hourly wage than welders
considered to be employees, where from looking at the economic
realities of relationship it was apparent that they were
economically dependent upon the alleged employer. Robicheaux v.
Radcliff Material, Inc., 697 F.2d 662 (5th Cir. 1983).
During the 1990 investigation Investigator Pickett gave to the
Respondents WH Publication 1297, entitled Employment
Relationship Under the Fair Labor Standards Act, a document in
evidence as PX 20. In pertinent part this document states as
follow (PX 20):
The Fair Labor Standards Act contains provisions and standards
concerning recordkeeping, minimum wages, overtime pay and child
labor. These basic requirements apply to employees engaged in
interstate commerce or in the production of goods for interstate
commerce and also to employees in certain enterprises which are so
engaged. Federal employees are also subject to the recordkeeping,
minimum wage, overtime, and child labor provisions of the Act.
Employees of State and local government are subject to the same
provisions, unless they are engaged in traditional governmental
activities, in which case they are subject to the recordkeeping and
child labor requirements. The law provides some specific
exemptions from its requirements as to employees employed by
certain establishments and in certain occupations.
For the Fair Labor Standards Act to apply to a person engaged in
work which is covered by the Act, an employer-employee relationship
must exist. The purpose of this publication is to discuss in
general terms the latter requirement.
If you have specific questions about the statutory
[Page 21]
requirements, contact the W-H Division s nearest office. Give
detailed information bearing on your problem since coverage and
exemptions depend upon the facts in each case. (Emphasis
added)
STATUTORY DEFINITIONS
Employment relationship requires an employer and an employee
and the act or condition of employment. The Act defines the terms
employer , employee , and employ as follows:
Employer includes any person acting directly or indirectly in the
interest of an employer in relation to an employee and includes a
public agency, but does not include any labor organization (other
than when acting as an employer), or anyone acting in the capacity
of officer or agent of such labor organization. Section 3(d).
(1) Except as provided in paragraphs (2) and (3), the term
employee means any individual employed by an employer. . .
TEST OF THE EMPLOYMENT RELATION
The Supreme Court has said that there is no definition that solves
all problems as to the limitations of the employer-employee
relationship under the Act; it has also said that determination of
the relation cannot be based on isolated factors or upon a single
characteristic or technical concepts , but depends upon the
circumstances of the whole activity including the underlying
economic reality . In general an employee, as distinguished from
an independent contractor who is engaged in a business of his own,
is one who follows the usual path of an employee and is dependent
on the business which he serves. The factors which the Supreme
Court has considered significant, although no single one is
regarded as controlling, are:
(1) the extent to which the services in
question are an integral part of the
employer s business;
(2) the permanency of the relationship;
(3) the amount of the alleged
contractor s investment in facilities and
equipment;
(4) the nature and degree of control by
the principal;
(5) the alleged contractor s
opportunities for profit and loss; and
(6) the amount of initiative, judgment,
or foresight in open market competition
with others required for the success of
the claimed independent enterprise. . .
FACTORS WHICH ARE NOT MATERIAL
There are certain factors which are immaterial in determining
whether there is an employment relationship. Such facts as the
place where the work is performed, the absence of a formal
employment agreement and whether the alleged independent contractor
is licensed by the State or local government are not considered to
have a bearing on determinations as to whether or not there is an
employment relationship. Similarly, whether a worker is paid by
the piece, by the job, partly or entirely by tips, on a percentage
basis, by commissions or by any other method is immaterial. The
Supreme Court has held that the time or mode of compensation does
not control the determination of employee status.
EFFECT OF EMPLOYMENT RELATIONSHIP
Once it is determined that one who is reputedly an independent
contractor is in fact an employee, then all the employees of the
co-called independent contractor engaged in the work for the
principal employer likewise become the employees of the principal
employer, who is responsible for compliance with the Act. However,
in order to protect himself against the hot goods prohibition of
the Act, a manufacturer or producer should undertake to see that
even a true independent contractor complies with the law. . .
(PX 20)
As noted above, the six-factor test developed by the Wage and
Hour Division of the Department of Labor to determine whether
workers are employees for purposes of the FLSA is the totality of
the circumstances test and it is not necessary that all six
criteria be met to preclude a determination that the workers are
employees. Reich v. Parker Fire Protection District, 992
F.2d 1023 (10th Cir. 1993). Whether an employment relationship
exists under the FLSA depends on the economic reality of employment
situation, and whether alleged employer had power to hire and fire
employees, supervise and control employee work schedules or
conditions of employment, determine rate and method of payment, and
maintain employment records. Hale v. State of Arizona, 967
F.2d 1356 (9th Cir. 1992), aff d on rehearing en banc, 993
F.2d 1387 (1993).
The ultimate conclusion that an individual is an employee
within the meaning of this section is a legal determination rather
than a factual one. Castillo v. Givens, 704 F.2d 181 (5th
Cir. 1983), cert. denied, 464 U.S. 850, 104 S.Ct. 160
(1983). Among the factors which are useful in distinguishing
employees from independent contractors for purposes of social
[Page 22]
legislation such as this chapter are: degree of the alleged
employer s right to control the manner in which the work is to be
performed; alleged employee s opportunity for profit or loss
depending upon his/her managerial skills; alleged employee s
investment in equipment or materials required for this task, or his
employment of helpers; whether the service rendered requires
special skill; degree of permanence of the working relationship;
and whether the service rendered is an integral part of the alleged
employer s business. Real v. Driscoll Strawberry
Associates, 603 F.2d 748 (9th Cir. 1979); Aviles v.
Kunkle, 765 F. Supp. 358 (S.D. Texas 1991); Wagner v. Career
Opportunities, Inc., 602 F. Supp. 887 (D.C. Tenn. 1984);
Donovan v. Gillmor, 535 F. Supp. 154 (D.C. Ohio 1982),
appeal dismissed, 708 F.2d 723 (6th Cir. 1982).
Under FLSA, the definition of employee is broad; when
determining whether an individual is an employee or independent
contractor, the Court is not restricted to common-law concepts,
Baker v. Barnard Construction Company, 860 F. Supp. 766 (D.
N.M. 1994), and the test is whether the worker is an employee as a
matter of economic reality. Hageman v. Park West Gardens,
480 N.W. 2d 223 (N.D. 1992). Under the economic reality test of
determining employee status under FLSA, the court inquires whether
alleged employer has power to hire and fire the employees,
supervises and controls employee work schedules or conditions of
employment, determines rate and method of payment, and maintains
employment records. Watson v. Graves, 909 F.2d 1549 (5th
Cir. 1990); Martin v. State of Wyoming, 770 F. Supp. 612 (D.
Wyo. 1991); Griffin v. Daniel, 768 F. Supp. 532 (W.D. Va.
1991); Donovan v. American Airlines, 514 F. Supp. 526 (D.C.
Tex. 1981), aff d, 686 F.2d 276 (5th Cir. 1982). Under
FLSA, determining the degree of control of alleged employer over a
work is only an aid to be used to gauge degree of dependence of
alleged employees on business with which they are concerned, and is
not an end in and of itself. Hageman, supra.
The essential factor in determining application of this
chapter is whether there is an employment relationship.
Mitchell v. Whitaker House Co-op, Inc., 275 F.2d 362 (1st
Cir. 1969), rev d on other grounds, 366 U.S. 28, 81 S.Ct.
933 (1961). The application of this chapter depends upon the
character of the employee s work, and not upon the nature of the
employer s activities. Schroepfer v. A.S. Abell Co., 138
F.2d 111 (4th Cir. 1943), cert. denied, 321 U.S. 763, 64
S.Ct. 486 (1944), rehearing denied, 322 U.S. 770, 64 S.Ct.
1149 (1944).
On the basis of the totality of this closed record and having
in mind the humanitarian and remedial statute and having considered
the excellent briefs submitted by the parties in support of their
respective positions, and having accepted and adopted certain
[Page 23]
findings and conclusions and having rejected other findings and
conclusions, I now make the following:
FINDINGS OF FACT AND CONCLUSIONS OF LAWA. Findings of Fact
1. Respondent William Woods formed and operated a temporary
employment business, which included approximately ten corporations
in Massachusetts and New Hampshire, operating both concurrently and
consecutively over the last twelve to thirteen years. (PX 1,
Deposition of William Woods and PX 8, Affidavit of William Woods)
2. Respondent William Woods was convicted of mail fraud in
1979. (U.S. v. Ciampaglia, Woods, Canessa, and Gintner,
Bancroft and McNiff, 628 F.2d 632 (1st Cir. 1980)
3. Respondent William Woods believed he might have trouble
getting a registration or a permit to run a temporary agency
because of his criminal conviction. (TR 194)
4. Attorney Robert Holden, acting in conjunction with
respondent William Woods, set up all of the temporary employment
agencies. (TR 194)
5. Respondent William Woods was not listed as a corporate
officer of any of the temporary agencies. (TR 194)
6. Respondent Baystate Alternative Staffing, Inc. was
incorporated in Massachusetts on July 7, 1992. (PX 3)
7. The president of Baystate Alternative Staffing, Inc. was
respondent Ann F. Woods. (PX 3)
8. Ann F. Woods is the sister of William Woods. (PX 3)
9. The treasurer and clerk of Baystate Alternative Staffing,
Inc. was Harold Woods. (PX 3)
10. Harold Woods is the son of William Woods. (PX 3)
11. Baystate Alternative Staffing, Inc. was a shell
corporation which did not conduct any business. (PX 3)
12. Respondent Able Temps Referrals, Inc. was incorporated in
Massachusetts on December 15, 1988. (PX 3)
13. The president of Able Temps Referrals Inc. was Ann F.
Woods. (PX 3)
14. The registered agent of Able Temps Referrals was Michael
[Page 24]
McKinney. (PX 3)
15. Michael McKinney is the son-in-law of Marlene Woods, and
Marlene Woods is the wife of William Woods. (PX 3)
16. The treasurer of Able Temps Referrals was Cinda Wagner
Pittman. (PX 3)
17. Cinda Wagner Pittman is the daughter of Marlene Woods.
(PX 3)
18. Able Temps Referrals ceased doing business in September
of 1991. (PX 3)
19. At the request of William Woods, on or about September of
1991, Respondent Harold Woods, aided by Attorney Robert Holden
attempted to incorporate Alternative Staffing, Inc. (PX 5,
Affidavit of Harold Woods)
20. Alternative Staffing, Inc. was not formally incorporated
until June of 1994. (PX 5, Affidavit of Harold Woods)
21. Alternative Staffing, Inc. ceased doing business in July
of 1994. (PX 3)
22. Harold Woods was the president, treasurer and director of
Alternative Staffing, Inc. (PX 3)
23. Ann F. Woods was the clerk and director of Alternative
Staffing, Inc. (PX 3)
24. Michael McKinney was the director of Alternative
Staffing, Inc. (PX 3)
25. All American Temps, Inc. was incorporated in
Massachusetts on May 2, 1994. (PX 3)
26. William Woods owns and operates All American Temps, Inc.
(PX 1, Deposition of William Woods)
27. Marlene Woods manages the Fitchburg location of All
American Temps, Inc. (PX 2, Deposition of Marlene Woods)
28. Blue Collar Temporaries, Inc. was incorporated in
Massachusetts on November 16, 1992. (PX 3)
29. The president of Blue Collar Temporaries, Inc is Michael
McKinney. (PX 3)
30. The treasurer of Blue Collar Temporaries, Inc. is Cinda
Wagner Pittman. (PX 3)
31. Work-A-Day of Fitchburg, Inc. was incorporated in
Massachusetts on September 1, 1984. (PX 3)
32. Work-A-Day of Fitchburg, Inc. was dissolved on December
31, 1990. (PX 3)
33. The president of Work-A-Day of Fitchburg, Inc. was
respondent Marlene Woods. (PX 3)
34. The treasurer of Work-A-Day of Fitchburg, Inc. was Harold
Woods. (PX 3)
35. The registered agent of Work-A-Day of Fitchburg, Inc. was
Cinda Wagner Pittman. (PX 3)
36. Work-A-Day of Lowell, Inc. was incorporated in
Massachusetts on November 14, 1986, and dissolved on December 31,
1990. (PX 3)
37. The president and registered agent of Work-A-Day of
Lowell, Inc. was Harold Woods. (PX 3)
38. The treasurer of Work-A-Day of Lowell, Inc. was Cinda
Wagner Pittman. (PX 3)
39. Work-A-Day of Worcester, Inc. was incorporated in
Massachusetts on September 1, 1984 and dissolved on December 31,
1990. (PX 3)
40. The president and treasurer of Work-A-Day of Worcester,
Inc. was Ann Woods. (PX 3)
41. The registered agent of Work-A-Day of Worcester, Inc. was
Cinda Wagner Pittman. (PX 3)
42. Work-A-Day of Nashua, Inc. was incorporated in New
Hampshire in 1985 and was dissolved in November of 1991. (PX 3)
43. The president of Work-A-Day of Nashua, Inc. was Harold
Woods. (PX 3)
44. The treasurer of Work-A-Day of Nashua, Inc. was Marlene
Woods. (PX 3)
45. The secretary of Work-A-Day of Nashua, Inc. was Cinda
Wagner Pittman. (PX 3)
46. Harold Woods, the president, treasurer and director of
Alternative Staffing, Inc., set up bank accounts, filed papers, was
involved in sales and recruitment of clients, and the placement,
transportation and payment of day workers for that company.
(TR 136, 246-247)
47. Ann Woods, the president of Able-Temps Referrals, signed
the 1990 Stipulation with the Wage and Hour Office and the
Respondents' Response to the Secretary's Request for Admissions in
the present litigation. Ms. Woods performed bookkeeping duties and
placed dayworkers for the companies. (PX 3; TR 135)
48. With the aid of Attorney Robert Holden, William Woods
formed Plato Merchandising Corporation and Galactic Management,
Inc. as vehicles through which William and Marlene Woods could
receive their salaries for overseeing Able Temp Referrals,
Alternative Staffing, and All American Temps. (TR 178-179)
49. In response to the Secretary's Request for Admissions,
dated February 2, 1995, as to William Woods directing "the business
affairs and operations" and controlling "the payroll and
recordkeeping" and "the hiring and firing of both employees and
dayworkers of both the Worcester and the Fitchburg locations of the
corporations doing business as Alternative Staffing", the
respondents stated, "Deny. Allege the business affairs of
Alternative were managed under a contract with an entity known as
Galactic Management." "Deny Able used a d/b/a. Allege the
business affairs of Able were managed under contract with Plato
Merchandising Corporation." (PX 3)
50. In response to the Secretary's Request for Admission
Number 16, "Marlene Woods was a managing employee of Able-Temp's
Referrals, Inc.", the respondents stated, "Deny. Able was managed
under a consulting contract with a management company known as
Plato Merchandising Corp." (PX 3)
51. In response to the Secretary's Request for Admissions,
dated February 2, 1995, as to Marlene Woods directing "the business
affairs and operations" and control of "the hiring and firing of
employees for Alternative Staffing in the Fitchburg location", the
respondents stated, "Deny. Allege the business affairs of
Alternative were managed under a contract with an entity known as
Galactic Management." (PX 3)
52. Respondent Marlene Woods stated in her deposition of May
3, 1995 that she ran the Fitchburg location of Able Temps,
Alternative Staffing, and All American Temps. (PX 2)
53. Respondent Marlene Woods stated in her deposition of May
3, 1995 that she hired, fired, and supervised employees at that
location. (PX 2)
54. Respondents' employees handle, sell or otherwise work on
goods or materials that have been moved in or produced for
commerce. (PX 3)
55. The Respondents' business is covered under the "Act".
(Stipulation of Parties, dated January 16, 1996 [JX 1])
56. Able Temps Referrals, for the fiscal year 1991, had an
annual gross volume of business done in an amount not less than
$500,000.00 (exclusive of excise taxes at the retail level that are
separately stated). (PX 3)
57. Alternative Staffing, for the fiscal year 1992 and 1993
had an annual gross volume of business done in an amount not less
than $500,000.00 (exclusive of excise taxes at the retail level
that are separately stated). (PX 3)
58. The Respondents' business provided unskilled workers on
a day to day basis to manufacturers and other client companies.
(PX 3)
59. The Respondents kept all records on these workers.
(Stipulation of Parties, dated January 16, 1996)
60. The Respondents usually paid these workers the minimum
wage. (Stipulation of Parties, dated January 16, 1996)
61. The Respondents usually charged client companies between
$6.00 and $7.50 per hour per worker for providing these workers.
(Stipulation of Parties, dated January 16, 1996)
62. The Respondents usually transported these workers to and
from the client company work sites. (Stipulation of Parties, dated
January 16, 1996 [JX 1])
63. To receive a placement, a day worker was required to
report to an office of the respondents, and was then placed by the
respondents with a client agency. (PX 3)
64. The Respondents pay the workers, issuing them pay checks
upon receipt of completed invoice forms or work slips which are
prepared by the Respondents and completed and signed by the client
company. (PX 3)
65. The Respondents did not deduct state income tax from the
paychecks of dayworkers during the period between September 1991
and June, 1994. (PX 3)
66. The Respondents did not deduct federal income tax from
the paychecks of dayworkers during the period between September,
1991 and June, 1994. (PX 3)
67. The Respondents did not pay into social security for
dayworkers during the period between September, 1991 and June,
1994. (PX 3)
68. The Respondents issued a memorandum to dayworkers,
specifying the time the workers must arrive at the offices of the
Respondents, the behavior that must be exhibited at the client
[Page 24]
companies and the footwear that must be worn by the workers. (PX 7
and Stipulation of Parties, dated January 16, 1996)
69. The dayworkers' actual tasks at the client companies
required no skill. (PX 3)
70. The dayworkers received a fixed hourly rate generally
established by the respondents. (PX 3)
71. The dayworkers made no investment in equipment or
materials. (TR 197-198; PX 3)
72. The memorandum distributed to dayworkers by the
Respondents stated "Do not contact companies on your own. We will
schedule work: that is not your job. If you contact a company
directly, you will not be sent out again." (PX 7 and Stipulation
of the Parties, dated January 16, 1996)
73. The Respondents advertised in the spring of 1993 to
client companies that they would "handle all the burden some
paperwork, bookkeeping, record keeping, payroll costs, and
government reporting." (PX 4)
74. Between the period of September 30, 1991 and July 3, 1994
a total of 619 dayworkers worked a number of hours over forty per
week and were not paid time and a half their regular rate for those
hours. (PX 6 and Stipulation of the Parties, dated January 16,
1996 [JX 1])
75. If the dayworkers are found to be Respondents' employees
under the "Act", the payroll records of the Respondents show that
619 dayworkers are owed a total of $142,409.16 in backwages between
September 30, 1991 and July 3, 1994 for overtime hours worked by
the dayworkers for which they received only their straight time
pay. (PX 6; Stipulation of Parties, dated January 16, 1996 [JX 1])
76. The payroll records furnished by the Respondents show
that for the period between September 30, 1991 and July 3, 1994,
the Respondents paid 4199 dayworkers $4,366,285.50 for a total of
974,115.22 hours worked at client companies. (PX 6; Stipulation of
Parties, dated January 16, 1996 [JX 1])
77. The Supreme Court of New Hampshire in 1989 ruled that
Respondents' dayworkers did not engage "in an independently
established trade, occupation, profession or business" for purposes
of unemployment compensation. (PX 3)
78. The Massachusetts Commissioner of Employment and Training
ruled in 1989 for purposes of the unemployment compensation statute
that Respondents' dayworkers were employees of the Respondents.
(PX 3)
79. The Supreme Judicial Court for the Commonwealth of
Massachusetts remanded the case referred to in number 78 back to
the Board of Review in 1992 for the purposes of determining whether
the workers were employed by the Respondents, their clients or both
the Respondents and their clients for purposes of the unemployment
compensation statute. (PX 3)
80. The Board of Review in Massachusetts ruled in 1994, in
the case referred to in No. 78, that for the purposes of
unemployment compensation, the dayworkers were employed by the
Respondents. (PX 3)
81. In 1990, the U.S. Department of Labor began their first
investigation of the Respondents. (TR 48-49)
82. Investigator William Pickett was contacted by Attorney
James Walsh, who stated that he was representing the Respondents in
the investigation, and that all questions should be directed to
him. (TR 48, 49, and 338)
83. On December 5, 1989, Mr. Pickett met with Attorney Walsh
at his office. (TR 50)
84. On December 5, 1990, Mr. Pickett looked at records of
"in-house" workers such as clerical and telemarketing employees and
told Attorney Walsh that they were being paid in compliance with
the "Act". (TR 50-51, 59, and 65)
85. On December 5, 1990, Mr. Pickett specifically requested
payroll information and time records of the day workers. (TR 51)
86. On December 5, 1990, Mr. Pickett gave Attorney Walsh a
copy of a government publication entitled "Employment Relationship
Under the Fair Labor Standards Act". (TR 51; PX 20)
87. On December 5, 1990, Mr. Pickett reviewed with Attorney
Walsh the six factors that the U.S. Supreme Court uses to help
people make a distinction between an employee and a nonemployee
under the "Act". (TR 53)
88. Attorney Walsh remembered Mr. Pickett indicating that the
Department's position was that the dayworkers were employees under
the "Act". (TR 283)
89. A letter dated Feb. 2, 1990 was sent to the Respondents
specifically requesting payroll information and time sheets for all
temporary workers. No records of in-house workers were requested
in this letter. (TR 56-57, 59; PX 11)
90. Mr. Pickett received no time records of the temporary
workers during the investigation. (TR 60-62)
91. The Respondents had been keeping time records on the
temporary workers since approximately 1985. (PX 1, Deposition of
William Woods, 30-31)
92. The Wage and Hour Department cited the Respondents for
recordkeeping violations and entered into a stipulation of
compliance with the Respondents in April of 1990. (PX 3)
93. Subsequent to signing the stipulation, the Respondents
continued classifying the temporary workers as independent
contractors and not paying them overtime for hours worked over 40
per week. (PX 6, PX 3, Stipulation of the Parties [JX 1])
94. Mr. Pickett began a second investigation of the
Respondents in July of 1992. (TR. 65-66)
95. Mr. Pickett was contacted by John Bresnahan, the
Respondents certified public accountant, in August of 1992.
(TR 67)
96. Mr. Bresnahan advised Mr. Pickett to direct all questions
through him and to not contact the Respondents directly. (TR 338-
339)
97. Mr. Pickett requested payroll records and time sheets of
all employees of the Respondents in August, 1992. (TR 67)
98. On December 4, 1992, Mr. Pickett met with Mr. Bresnahan
and told him his position was that the temporary workers were
employees, and gave him the booklet "Employment Relationship Under
the Fair Labor Standards Act". (TR 70-71, 312; PX 20)
99. No records were produced between December, 1992 and
March, 1993. (TR 72-78)
100. The Wage and Hour Office served a subpoena on Harold
Woods for the payroll records and timesheets on March 28, 1993.
(TR 80, 85; PX 3)
101. On April 16, 1993, Attorney DeFranceschi delivered to Mr.
Pickett a statement refusing to comply with the subpoena. (TR 86-
87, PX 3)
102. The Secretary of Labor filed a Motion to Enforce
Subpoena Duces Tecum in Federal District Court, and the
motion was granted in July of 1993. (PX 3)
103. On October 18, 1993 Investigator Patricia Colarossi met
with Mr. Bresnahan to examine the records requested in the
subpoena. (TR 104-107; PX 3)
104. All the records listed on the subpoena were not present
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on October 18, 1993 at the office of Mr. Bresnahan. (TR 104-107;
PX 3)
105. Ms. Colarossi was not cleared by Mr. Bresnahan to take
out of his office the records that were present on October 18,
1993. (TR 107)
106. On November 4, 1993, Attorney Susan G. Salzberg,
representing the Plaintiff, called Attorney DeFranceschi and
requested that he ensure his clients produced all records stated in
the Subpoena Duces Tecum. (PX 3)
107. On December 9, 1993, Attorney Salzberg again called
Attorney DeFranceschi and told him to produce all records stated in
the Subpoena Duces Tecum or the Secretary would proceed with a
contempt action. (PX 3)
108. The Respondents acted willfully, with reckless disregard
of the "Act", by not providing records of time worked by the day
workers when requested by the Wage and Hour Division of the
Department of Labor during the 1990 investigation, and not
informing the Wage and Hour Division that those records existed.
(TR 51; PX 1)
109. The Respondents acted willfully, with reckless disregard
of the "Act", by not providing records in the second investigation,
even subsequent to a Federal District Court Order for their
production, and continuing to fail to produce those records until
informed by the Office of the Regional Solicitor that failure to
produce those records would result in the initiation of a contempt
proceeding. (PX 3)
110. The Respondents acted willfully, with reckless disregard
of the "Act", by not paying the dayworkers overtime for hours
worked over 40 per week, after having been told by the New
Hampshire and Massachusetts state courts that the dayworkers were
their employees, and after having been told by Investigator Bill
Pickett that the dayworkers were their employees under the Act.
(TR 283; PX 3, PX 6)
B. Conclusions of Law
1. Jurisdiction of this action is conferred upon this Court by
Section 16(e) of the Act, 29 U.S.C. §216.
2. Respondents are an enterprise engaged in commerce or in the
production of goods for commerce within the meaning of section 3
(s) of the Act. 29 U.S.C. §203(s).
3. The temporary workers at issue in this case, looking at the
"totality of the circumstances", "as a matter of economic reality"
[Page 27]
are employees of the respondents as defined by the Act.
Martin v. Selker Brothers, Inc., 949 F.2d 1286 (3d
Cir. 1991); Sec'y of Labor v. Lauritzen, 835 F.2d
1529 (7th Cir. 1987) cert.denied, 488 U.S.
898 (1988); Brock v. Superior Care, Inc., 840 F.2d
1054, 1058-1059 (2d Cir. 1988); Brock v. Mr. W. Fireworks,
Inc., 814 F.2d 1042 (5th Cir. 1987), cert.denied, 484 U.S. 924 (1987); Martin v.
Albrecht, 802 F. Supp. 1311 (W.D. Pa. 1992).
4. The individual Respondents William Woods, Marlene Woods,
Harold Woods and Ann Woods are employers of the temporary workers
as defined under the Act. Donovan v. Agnew, 712 F.2d
1509 (1st Cir. 1983); Donovan v. Sabine Irrigation,
695 F.2d 190 (5th Cir. 1981).
5. The Respondents have violated Section 7 of the Act by not
paying overtime to temporary workers working over 40 hours per
week. 29 U.S.C. §207.
6. The Respondents have violated Section 11 (c) of the Act by
failing to produce records, when requested in the course of an
investigation, to the Department of Labor. 29 U.S.C. §
211(c).
7. The Respondents' violations of the Act were willful, as
defined by the civil money penalty regulations, in that the
Respondents knew their conduct was prohibited by the Act since they
had received advice from a responsible official of the Wage and
Hour Division to the effect that their conduct was not lawful. 29
CFR §§578.3(c)(1) and 578.3(c)(2).
8. The Respondents' violations were willful, as defined by the
civil money penalty regulations, in that the Respondents had
knowledge that the temporary workers were not independent
contractors. 29 CFR §578.3(c)(1).
9. The Respondents' violations were willful in that the
Respondents knew that their conduct was prohibited by the Act and
showed reckless disregard for the requirements of the Act. 29 CFR
§578.3(c)(1).
10. The civil money penalties of $150,000.00 are appropriate based
on the seriousness of the violations, the size of the Respondents
business, Respondents past history and their failure to take
appropriate steps to comply with FLSA for almost five years. 29
CFR §§578.4(a), 579.5.
ORDER
Accordingly, it is determined that the civil money penalties
[Page 28]
assessed herein are appropriate, that the Administrator s
assessment is AFFIRMED and that such penalties shall be paid to the
Department by the Respondents joined herein, pursuant to 29 CFR
§580.32.
__________________________
DAVID W. DI NARDI
Administrative Law Judge
Boston, Massachusetts
DWD:ln
[ENDNOTES]
[1]The Court then considers in a footnote the possibility that both
Work-A-Day and the client agencies could be employers of these
workers.
[2] In addition to the section covering the Supreme Court's six
part test of employment, this pamphlet has a section entitled
"Joint Employment" on pages 8 and 9. In that section, the pamphlet
states,
...a joint employment relationship generally
will be considered to exist in situations such
as:...Where one employer is acting directly or
indirectly in the interest of the other
employer (or employers) in relation to the
employee. For example, employees of a
temporary help company [emphasis added]
working on assignments in various
establishments are considered jointly employed
by the temporary help company and the
establishment in which they are employed. In
such a situation each individual company where
the employee is assigned is jointly
responsible with the temporary help company
for compliance with the minimum wage
requirements of the act during the time the
employee is in a particular establishment.
The temporary help company would be
considered responsible for the payment of
proper overtime compensation to the employee
since it is through its act that the employee
received the assignment which caused the
overtime to be worked(emphasis added).
[3] While Superior Care was decided prior to
Richland Shoe, this case adopted the willfulness
standard the Supreme Court enunciated in Trans World Airlines
v. Thurston, 469 U.S. 111, 127 (1985), an Age
Discrimination in Employment Act case measuring "willfulness" for
liquidated damages purposes under the ADEA. Thurston
set forth the reckless disregard standard for willfulness later
adopted by the Supreme Court in Richland Shoe.
[4] At least one of the competitors of the Respondents advertise
that they treat their temporary workers as employees. As stated in
one of the competitor's brochures mistakenly provided by the
Respondents in their discovery response,
...figures, taken from the most recent United
States Chamber of Commerce survey, show that
the average "fringes" as a percentage of
payroll for all companies is 36.7%. When you
call in All Temps, Inc...you have none of
these expenses or responsibilities because we
are the employer. (PX 16)
[5] Indeed the respondents misrepresented the outcome of
Work-A-Day of Fitchburg, Inc. v. Commissioner of the
Department of Employment and Training, Case. No. 9016-CV-
0147 (May 6, 1992) to the Wage and Hour Department in their
statement of April 16, 1993, refusing to comply with Wage and
Hour's subpoena (PX 3). In that statement, the respondents
described this case as ruling that the "individuals involved were
not employees". As stated earlier in this brief, this case
actually held the opposite. That court ruled that the workers were
employees. The question they remanded back to the Board was
whether those workers were employees of the respondents, the
respondents' clients, or both the respondents and the respondents'
clients Id., at 4.
[6] It is noted that updated backwage information has more than
doubled the number of employees effected, but the Secretary has not
sought to increase the amount of penalty assessed, as the parties
have agreed to extend the period covered by this administrative
case without increasing the penalty (See Motion filed on May 15,
1995).
