Source: https://m.openjurist.org/163/f3d/668
Timestamp: 2019-12-06 04:15:43
Document Index: 541210555

Matched Legal Cases: ['§ 706', '§ 29', '§ 203', '§ 203', '§ 203', '§ 791', '§ 16', '§ 578', '§ 16', '§ 578', '§ 578', '§ 16', '§ 578', '§ 578', '§ 578', '§ 578', '§ 578', '§ 578', '§ 16', '§ 16']

163 F. 3d 668 - Baystate Alternative Staffing Inc v. M Herman
163 F3d 668 Baystate Alternative Staffing Inc v. M Herman
163 F.3d 668
BAYSTATE ALTERNATIVE STAFFING, INC., Able Temps Referrals,
Inc., Harold Woods, William W. Woods, and Marlene
Woods, Plaintiff-Appellants,
In the administrative law context, where we review directly the decision of the agency, the APA can serve as an overlay to the familiar de novo standard applicable to appeals from a district court's grant of a summary judgment. See Associated Fisheries of Maine, Inc. v. Daley, 127 F.3d 104, 109 (1st Cir.1997). Where the APA obtains, as here, a court may set aside an administrative action only if that action is arbitrary, capricious, or otherwise contrary to law. See 5 U.S.C. § 706(2)(A)-(D); Associated Fisheries, 127 F.3d at 109; see also Commonwealth of Mass. Dep't of Pub. Welfare v. Secretary of Agric., 984 F.2d 514, 525 (1st Cir.1993). Thus, in our direct review of the agency's decision, we employ the same standard of review that was applicable before the district court.
In this case, plaintiffs apparently do not challenge the Board's factual findings, but rather argue that those facts do not support the Board's conclusion that Baystate was an "employer" of the temporary workers. In so arguing, plaintiffs challenge the Board's application of the law to established facts. We have previously noted that some question exists about the proper level of deference to accord agency decisions of this sort. See Carr Investments, Inc. v. Commodity Futures Trading Comm'n, 87 F.3d 9, 12-13 (1st Cir.1996); see also Maloley v. R.J. O'Brien & Assocs., Inc., 819 F.2d 1435, 1440 (8th Cir.1987) (observing that "[a]s to the proper standard of review of an agency's application of law to undisputed or established facts, it has been noted that the Supreme Court has developed two opposing lines of authority"); see generally 5 K. Davis, Administrative Law Treatise, §§ 29.9-.10, at 365-81 (2d ed.1984) (discussing scope of review problems that arise when law is applied to undisputed or established facts). While we are aware that such uncertainties exist concerning the proper standard to be applied to an agency's application of law to established facts, we need not resolve the matter here. Rather, because we find that the Board's decision with respect to the corporate plaintiffs survives even a more probing de novo standard of review, we have no occasion to traverse this difficult terrain. Cf., e.g., Carr Investments, 87 F.3d at 12-13 (refraining from deciding what level of deference should be applied to agency's application of law to facts, where agency's decision could not survive even under the more deferential standard).
2. Corporate Plaintiffs' Employer Status
Throughout the course of this litigation, plaintiffs maintained that the temporary workers were in fact "independent contractors," not employees, and that the FLSA's overtime compensation provisions therefore are inapplicable. Using a six-factor test commonly used to distinguish between independent contractors and employees in the context of the FLSA, see, e.g., Martin v. Selker Bros., Inc., 949 F.2d 1286, 1293 (3d Cir.1991), the Board rejected plaintiffs' contention and concluded that the workers were "employees" within the meaning of the Act. At oral argument, plaintiffs finally conceded this point, but continued to insist that the workers were the employees only of the client companies for whom they performed labor, rather than the employees of plaintiffs. The Board had also rejected this contention. We affirm the Board's conclusion that the corporate plaintiffs were employers of the temporary workers, notwithstanding the alleged simultaneous employer status of the client companies.
The Act defines an "employee" as "any individual employed by an employer." 29 U.S.C. § 203(e)(1). An "employer" is defined as "any person acting directly or indirectly in the interest of an employer in relation to an employee...." Id. § 203(d). The Act further states that the term "employ" includes "to suffer or permit to work." Id. § 203(g). In determining the scope of the Act, courts have consistently recognized that "a broader or more comprehensive coverage of employees within the stated categories would be difficult to frame." United States v. Rosenwasser, 323 U.S. 360, 362, 65 S.Ct. 295, 89 L.Ed. 301 (1945). These definitions "... [are] comprehensive enough to require [their] application to many persons and working relationships, which prior to this Act, were not deemed to fall within an employer-employee category." Rutherford Food Corp. v. McComb, 331 U.S. 722, 729, 67 S.Ct. 1473 (1947) (quoting Walling v. Portland Terminal Co., 330 U.S. 148, 150, 67 S.Ct. 639, 91 L.Ed. 809). Moreover, the remedial purposes of the FLSA require courts to define " 'employer' more broadly than the term would be interpreted in traditional common law applications." Dole v. Elliott Travel & Tours, Inc., 942 F.2d 962, 965 (6th Cir.1991). The FLSA contemplates several simultaneous employers, each responsible for compliance with the Act. See Falk v. Brennan, 414 U.S. 190, 195, 94 S.Ct. 427, 38 L.Ed.2d 406 (1973); Bonnette v. California Health & Welfare Agency, 704 F.2d 1465, 1469-70 (9th Cir.1983); see also 29 C.F.R. § 791.2(a).
Accordingly, to determine whether an employment relationship exists for the purposes of federal welfare legislation, courts look not to the common law conceptions of that relationship, but rather to the "economic reality" of the totality of the circumstances bearing on whether the putative employee is economically dependent on the alleged employer. See Aimable v. Long and Scott Farms, 20 F.3d 434, 439 (11th Cir.1994). To that end, we find that the factors used in Bonnette, 704 F.2d 1465, provide a useful framework.9 In Bonnette, the court evaluated whether "chore workers" who provided domestic in-home services were employed jointly by the individual recipients for whom they performed services and the state agency administering the program. In concluding that the chore workers were jointly employed, the court looked in particular to four factors: whether the alleged employer (1) had the power to hire and fire the employees; (2) supervised and controlled employee work schedules or conditions of employment; (3) determined the rate and method of payment; and (4) maintained employment records. See id. at 1470.
In addition to determining that the corporate plaintiffs were the temporary workers' "employers," within the meaning of the Act, the Board also concluded that two individual plaintiffs--Harold Woods and Marlene Woods10--were their employers as well and thus were personally liable for the alleged violations. As noted previously, more than one employer can be simultaneously responsible for FLSA obligations. A determination that the corporate plaintiffs are employers of the temporary workers does not preclude a determination that others are also "employers" for the purposes of the Act. See Falk, 414 U.S. at 195, 94 S.Ct. 427.
In this circuit, our analysis of the personal liability issue is informed by Donovan v. Agnew, 712 F.2d 1509 (1st Cir.1983), where we had to decide if appellants Agnew and Bradley, who together were president, treasurer, secretary, and members of the Board of Directors of Maxim Industries, Inc., were personally liable for minimum wage and overtime violations of the FLSA.11 In Agnew, we began our analysis by recognizing that individuals ordinarily are shielded from personal liability when they do business in a corporate form, and that it should not lightly be inferred that Congress intended to disregard this shield in the context of the FLSA. See id. at 1513. In this vein, we cautioned that the Act's broadly inclusive definition of "employer" should not be afforded too much weight. "[T]aken literally and applied in this context it would make any supervisory employee, even though without any control over the corporation's payroll, personally liable for the unpaid or deficient wages of other employees." Id. Similarly, we found it "difficult to accept, as the Secretary argues and as some courts have apparently held, that Congress intended that any corporate officer or other employee with ultimate operational control over payroll matters be personally liable for the corporation's failure to pay minimum and overtime wages as required by the FLSA." Id.
With these considerations in mind, we decided to apply an "economic reality" test to the Agnew personal liability issue. See id. Because the inquiry before us concerned personal liability, the well-established elements of the "economic reality" test commonly used to determine whether individuals should be excluded from the Act's coverage because of their status as independent contractors rather than employees, see, e.g., Superior Care, 840 F.2d at 1058-59 (citing cases), were not applicable. Instead, we emphasized elements drawn from the facts of the Agnew case that we deemed relevant to the personal liability determination. These elements included the significant ownership interest of the corporate officers; their operational control of significant aspects of the corporation's day to day functions, including compensation of employees12; and the fact that they personally made decisions to continue operating the business despite financial adversity and the company's inability to fulfill its statutory obligations to its employees. See Agnew, 712 F.2d at 1511-14. Given the presence of these elements, we concluded that Agnew and Bradley were personally liable for the failure to pay minimum and overtime wages as required by the FLSA. See id. at 1514.
When an agency makes an error of law in its administrative proceedings, a reviewing court may remand the case to the agency so that the agency may take further action consistent with the correct legal standards. See South Prairie Constr. Co. v. Local No. 627, Int'l Union of Operating Eng'rs, 425 U.S. 800, 806, 96 S.Ct. 1842, 48 L.Ed.2d 382 (1976) (per curiam); Cissell Mfg. Co. v. United States Dep't of Labor, 101 F.3d 1132, 1136-37 (6th Cir.1996)(citing cases). In this case, the Board's personal liability determination relating to the corporate employees reflects a misperception of the critical components of the personal liability analysis identified in Donovan v. Agnew, 712 F.2d 1509, and elaborated herein. Because there is no basis for concluding that the Board would have reached the same result had it applied the correct legal standard, cf. NLRB v. Wyman-Gordon Co., 394 U.S. 759, 766 n. 6, 89 S.Ct. 1426, 22 L.Ed.2d 709 (1969), we remand to the district court with instructions that it, in turn, remand to the Secretary for reconsideration consistent herewith of the personal liability of Harold and Marlene Woods for any civil penalty imposed.
C. Willfulness of the Violations
Alternatively, plaintiff-appellants argue that even if the temporary workers were their employees, the Board erred in finding that plaintiffs "willfully" violated the FLSA's overtime compensation provisions, within the meaning of § 16(e) of the Act. Citing the well-established test of a "willful violation" articulated in McLaughlin v. Richland Shoe Co., 486 U.S. 128, 133, 108 S.Ct. 1677, 100 L.Ed.2d 115 (1988) (holding that an employer acts willfully for the purposes of the FLSA's statute of limitations if it "knew or showed reckless disregard for the matter of whether its conduct was prohibited by the FLSA"),14 the Board concluded that plaintiffs either knew that their conduct was prohibited by the FLSA, or showed a reckless disregard for that possibility. In reaching this conclusion, the Board relied on examples set forth in 29 C.F.R. § 578.3(c),15 a regulation based on the Richland Shoe standard which defines the term "willful violation" for the purposes of § 16(e)'s civil penalty provision. See 57 Fed.Reg. 49,128 (1992)(supplementary information) (stating that the regulation's definition of a "willful" violation is based on the Richland Shoe decision).
First, citing 29 C.F.R. § 578.3(c)(2), the Board observed that during the 1989-1990 and 1992 investigations the Wage and Hour Division put plaintiffs on notice that plaintiffs' recordkeeping practices and overtime compensation practices violated the Act, and in fact gave plaintiffs a Wage and Hour Division publication which stated that temporary help companies are the joint employers of the workers they place. The Board reasoned that the Wage and Hour Division's notice to plaintiffs "was sufficient under [29 C.F.R. § 578.3(c)(2) ] to find that plaintiffs willfully violated the Act." Second, the Board rejected plaintiffs' contention that their alleged violations were not "willful," within the meaning of § 16(e), because they relied on the opinion of Baystate's attorney and accountant that the temporary workers were not covered by the Act. Citing 29 C.F.R. § 578.3(c)(3), the Board found that plaintiffs' reliance on such opinions "was not sufficient" after the Wage and Hour Division advised them that they were required to pay overtime compensation to the temporary workers, and that plaintiffs' failure to make "further inquiries"--over and above obtaining the advice of a professional--constituted a reckless disregard of the requirements of the Act.
Although neither party challenges or defends 29 C.F.R. § 578.3(c)'s examples of "willful" violations, we note their incongruity with the Richland Shoe standard on which the regulation is based. Pursuant to section 578.3(c)(2), an employer "knowingly" violates the FLSA if its actions are at variance with advice received from a responsible official of the Wage and Hour Division. See 29 C.F.R. § 578.3(c)(2). On its face, such a standard precludes legitimate disagreement between a party and the Wage and Hour Division about whether the party is an employer covered by the Act, leaving a putative employer in an untenable position: either accept the Wage and Hour Division's position and comply with its advice, or risk a finding of a willful violation of the Act. Whether the FLSA covers a particular putative employer has engendered considerable litigation, which has in turn given rise to various court-fashioned tests of employer status. These tests are by necessity fact-driven and context-specific, and in some cases there may be room for legitimate disagreement between a party and the Wage and Hour Division as to whether the party is an employer within the meaning of the FLSA. Because legitimate disagreement may exist about the Act's coverage, we have significant reservations about 29 C.F.R. § 578.3(c)(2)'s blanket assertion that a party's decision not to comply with the Wage and Hour Division's advice constitutes a "knowing" violation of the Act under the Richland Shoe standard.
Furthermore, pursuant to 29 C.F.R. § 578.3(c)(3), an employer shows "reckless disregard" for the requirements of the Act if it "should have inquired further into whether its conduct was in compliance with the Act, and failed to make adequate further inquiry." 29 C.F.R. § 578.3(c)(3). Although it is possible to envision circumstances in which a failure to make further inquiry into the legality of one's conduct might constitute a reckless disregard of the FLSA, section 578.3(c)(3) by its terms--specifically, that a party "should have inquired further" about the legality of its conduct--embraces a negligence standard of liability. The Richland Shoe Court, however, expressly rejected a negligence standard of liability, see Richland Shoe, 486 U.S. at 133-35, 108 S.Ct. 1677, and noted that an employer does not act willfully even if it acts unreasonably in determining whether it is in compliance with the FLSA, see id. at 135 n. 13, 108 S.Ct. 1677.
After this action was commenced, Secretary Robert B. Reich, who was named as defendant in plaintiff-appellants' complaint, was succeeded by Alexis M. Herman. Pursuant to F.R.A.P. 43(c)(1), Secretary Herman is substituted as defendant-appellee
Plaintiffs posit five factors to be considered as probative of whether, as a matter of economic reality, the workers are their employees: (1) the degree of control exercised by the putative employer over the workers; (2) the workers' opportunity for profit and 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. These factors have been applied by courts, in various combinations, for the purpose of determining whether a worker is an "employee" or an "independent contractor." See, e.g., Brock v. Superior Care, Inc., 840 F.2d 1054, 1058-59 (2d Cir.1988) (citing cases). The usefulness of the five factors proffered by plaintiffs is significantly limited in this case, however, because the employee/independent contractor choice is no longer before us
Cf., e.g., United States Dep't of Labor v. Cole Enters. Inc., 62 F.3d 775, 778-79 (6th Cir.1995)(corporate officer with significant ownership interest held to be "employer," where individual was engaged in running the business, was authorized to issue checks on the corporate accounts, had custody and control with his wife of the employment records and was responsible for maintaining those records, and determined with his wife the employment practices for the business, including hiring, firing, rates of pay and hours of work); Dole v. Elliott Travel & Tours, Inc., 942 F.2d 962, 965-66 (6th Cir.1991) (corporate officer with significant ownership interest held to be "employer," where evidence established that individual was the "top man" at the corporation, that he had control over significant aspects of the corporation's day-to-day functions, including determining employee salaries, and that the corporation functioned for his profit); Donovan v. Grim Hotel Co., 747 F.2d 966, 971-72 (5th Cir.1984)(corporate officer with no ownership interest held to be "employer" where, inter alia, he began and controlled the corporations, held their purse-strings, and guided their policies, and where, "speaking pragmatically, [the corporations] were [his] and functioned for the profit of his family" ); Donovan v. Sabine Irrigation Co., 695 F.2d 190, 194-95 (5th Cir.1983) (corporate officer with no ownership interest held to be "employer," where individual exercised pervasive control over the business and financial affairs of the corporation, indirectly controlled many matters traditionally handled by an employer (such as payroll, insurance, and income tax matters), and where "the corporation's very survival depended upon [his] largesse, with his decision to terminate all financial aid precipitating its near demise")
We note that neither party cites any case in which the term "willful" has been construed for the purposes of § 16(e)'s civil penalty provision. Nonetheless, both parties apparently acknowledge the applicability in the civil penalty context of the standard of willfulness adopted in Richland Shoe, 486 U.S. 128, 108 S.Ct. 1677, 100 L.Ed.2d 115, in which the Court held that an employer acts willfully for the purposes of the FLSA's statute of limitations if it "either knew or showed reckless disregard for the matter of whether its conduct was prohibited by the statute." Id. at 133, 108 S.Ct. 1677. Finding no legislative history to support a contrary conclusion, we agree that Richland Shoe 's test of a willful violation, which arose in the non-punitive context of the FLSA's statute of limitations, must also be applicable in the punitive context of § 16(e)'s civil penalty provision. See Atlantic Cleaners & Dyers v. United States, 286 U.S. 427, 433, 52 S.Ct. 607, 76 L.Ed. 1204 (1932)