“The following article originally appeared on the Fox Rothschild’s Wage & Hour blog, and was authored by Mark Tabakman, Partner in the Princeton, NJ office.”
When two entities are a joint employer, or could be deemed as such, they must aggregate the hours worked by employees at each facility in a given week. If those hours exceed forty in total, then overtime must be paid. Sometimes, the entities either believe they are not a joint employer or, simply, do not want to pay overtime. A new FLSA class action seeks to test this truism as two Texas CBD shops are being sued by workers who allege the employer(s) avoided overtime by paying workers with two separate checks. The case is entitled Ross v. Sherman Hemp LLC et al. and was filed in federal court in the Eastern District of Texas.
The Complaint alleges that the owners used employees to work at both stores and would direct them to transfer inventory between the stores. The plaintiffs assert that since the entities have common ownership and shared employees (a sign of joint employer status) the hours worked had to be aggregated for overtime purposes. The Complaint alleges that “even though defendants jointly employed plaintiff, defendants refused to combine the hours plaintiff worked for both Sherman Hemp, LLC and Ashten, LLC each week for overtime purposes.”
The Complaint alleges the workers received two paychecks, one from each entity, as to avoid paying overtime. The Complaint alleges that the Company did this “as if Sherman Hemp, LLC and Ashten LLC were totally independent and unrelated companies.” The result was the continuous working of overtime hours, without proper payment, according to the allegations.
The plaintiffs’ lawyer claims the defendant owners own other franchise locations in Oklahoma, where this same protocol is supposedly in effect. They may seek to add other sites and workers to the case. The lawyers also are delving into whether the parent company knew that these franchisees were operating in this manner. The plaintiff lawyer stated that “if we find some sort of knowledge of and or awareness of these shady business practices then we will definitely be looking at looping them into the litigation as well.” In this regard, the parent Company has in excess of eighty (80) operations.
The joint employer doctrine is a dangerous thing for employers. It may seem tempting to pay employees with two checks from the different entities to avoid overtime, whether on purpose or not, but if certain factors are present, such as interchange of employees, which is the biggest factor in these determinations, there will be a problem. Common ownership, by itself, is not dispositive, but other commonalities (e.g. Employee Handbook) coupled with interchange, will virtually militate such a finding. Here, if the parent is brought in, that is big trouble!
Then, it is a matter of doing the math…