The Fair Labor Standards Act (FLSA) establishes a federal minimum wage, overtime pay and record keeping requirements, and youth employment standards.  It is not surprising that an employer’s failure to comply with the FLSA can mean large penalties and payment of back wages.  But what happens when an employer uses a third party contract labor provider to staff its business and that third party violates the FLSA?  A Boston-area restaurant group recently found out, to its detriment.

As part of the Department of Labor’s (DOL) multiyear enforcement initiative focused on restaurants in Massachusetts, an investigation revealed that 409 employees at 15-restaurant Lyons Group were not properly paid for all of the hours they worked and were not properly compensated for overtime.  The majority of the noncompliance related to kitchen staff, who were paid by third party contract labor provider, Superbrite Professional Cleaning, rather than Lyons Group.  Despite Lyons Group’s arrangement with Superbrite Professional Cleaning, which included that Superbrite was to handle payment of the staff’s wages, the DOL alleged that Lyons Group shared responsibility for the wage/hour violations.  Lyons Group ultimately agreed to pay $212,000 in back wages and an equal amount in liquidated damages to settle the claim.

This settlement should serve as a warning for all employers. As the recent settlement so aptly portrays, it is a mistake for employers to think that they can protected themselves from claims brought pursuant to the FLSA by putting the responsibility for wage/hour compliance on a third party.  Even when a third party is “employing” a business’ workers, the DOL and the courts typically will find that the organization for which the workers are actually performing services is a “joint employer” of those workers.  Accordingly, that organization will be on the hook for any wage/hour violations, even if the workers are on a third party’s payroll.  Thus, getting workers from a third-party provider can sometimes create more headaches than it prevents.  Employers who hire their employees directly can ensure that they are in full compliance with the FLSA.  On the other hand. monitoring a third party’s payment practices can be challenging, and its failure to comply with the FLSA could mean money out of your pocket.