HRM 530 EMPLOY LAW/LABOR RELATIONS
April 21, 2011
Over ten years ago, garment workers in New York City's Chinatown came forward to pursue and win back wages and overtime pay from their manufacturers, sparking a new wave of successful organizing to call for greater manufacturer accountability. The court’s decision
in Zheng v. Liberty Apparel Co. (No. 02-7826, 12/30/03), clarifies the standard by which companies may be held liable for the wage and hour violations of their subcontractors as a “joint employer” under the Fair Labor Standards Act (“FLSA”) and under analogous provisions of New York law.
In 1999, 25 Chinese garment workers in New York City's Chinatown sued Liberty Apparel Company and its two principals (collectively, "the defendants"), and others, for violations of the Fair Labor Standards Act, New York state analogs, and New York Labor Law. They were all worked in a factory in New York’s Chinatown
and employed by six different contractors who were doing business at the factory. In this case, Liberty subcontracted some of its sewing work to a garment factory in New York City's Chinatown. Liberty delivered partially-finished clothes to the factory (referred to in the decision as "sweat shop"), and the factory's employees would then
to stitch and finish garments which included sewing buttons and labels into garments, cuffing and hemming the garments and hanging the garments.. Liberty regularly sent quality control representatives to the factory to supervise the employees' work.
The relationship between Liberty and the factory was not exclusive, but 70 to 80 percent of the factory employees' work was done on Liberty's garments. The employees at the factory worked more than 85 hours per week, often without pay. To keep up with 85-hour work weeks and intense pace of work, several women at Liberty sent their babies back to China to be raised by relatives---a growing pattern among overworked, immigrant parents in the U.S. Pregnant women also were forced to work up until birth. When they were paid, the employees were paid below minimum wage. They never received overtime pay.
Under the joint employer doctrine, a company can be held jointly and severally liable for the violations of its subcontractors, even if the contracting business has no direct involvement in, or knowledge of, the wage practices of the subcontractor. The potential exposure can be substantial, as wage and hour cases are increasingly filed as large collective or class actions, with the FLSA providing double damages and attorneys’ fees awards to successful plaintiffs. When faced with such liability, smaller
subcontractors often fold up or disappear, leaving their corporate customer“holding the bag,” typically without business records or knowledge of the facts to defend the case. For
According to plaintiffs, the owner of the factory closed up shop and fled to Virginia, leaving them with no means of recourse. So, the plaintiffs dismissed their claims against the contractors. The Liberty Defendants moved for summary judgment on all claims against them on the ground that the twenty-six plaintiffs were not their employees. Plaintiffs cross-moved for summary judgment, seeking a determination
that they were jointly employed by the contractors and the Liberty Defendants, because they worked predominantly on the manufacturers’ garments, they performed
a line job that was integral to the production of the manufacturer’s product, and their work was frequently and directly supervised by the manufacturers’ agents. The evidence relied upon by the plaintiffs to show a joint-employment relationship included the following.
Plaintiffs claimed that 70 to 75 percent of their work during the time period at issue (March 1997 through April 1999) had been done for Liberty. Plaintiffs alleged that they knew that they were working for Liberty, based on the labels that were sown into the garments and the specific lot numbers that came with the garments.
Liberty employees oversaw the assembly process, visited the factory several times a week for up to three hours at a time, and urged the workers to work harder and faster. Various plaintiffs presented affidavits supporting these claims, identifying “a man named Ah Sen and a Taiwanese woman” whom they claimed visited the factory
regularly and urged the plaintiffs to work faster. The affidavits also alleged that Liberty representatives, as opposed to employees of the contracting companies, inspected their work and gave instructions directly to the workers if corrections needed to be made.
The Liberty Defendants responded to this evidence as follows. They asserting that during the time period in question, the percentage of Liberty work performed by the contractors at issue was between 10-15 percent. This figure was derived from the plaintiffs’ handwritten notes. Albert Nigri, a principal of Liberty, provided an
affidavit to the court that stated that Liberty’s quality control person made brief visits to assemblers’ factories and was instructed to speak only with the owner of the contracting companies or with his wife, and not to the employees. Nigri further asserted that Liberty representatives were instructed to spend just thirty minutes at each of the assemblers’ worksites. Finally, Nigri stated that Liberty did not employ two quality control persons at the same time, and did not employee a man as a quality control person.
Liberty is considered a “jobber,” that is, a manufacturing company that contracts out the last phase of its production process. The Second Circuit describes the entire production process as follows:
First, Liberty employees developed a pattern for a garment, cut a sample from the pattern, and sent the sample to a customer for approval. Once the customer approved the pattern, Liberty purchased the necessary fabric from a vendor, and the vendor delivered the fabric to Liberty’s warehouse. There, the fabric was graded and
marked and spread out on tables, and, finally, cut by Liberty employees.
After the fabric was cut, Liberty did not complete the production process on its own premises. Instead, Liberty delivered the cut fabric, along with other essential materials to various contractors for assembly. The assemblers, in turn, employed workers to stitch and finish the pieces, a process that included sewing the fabrics, buttons, and labels into the garments, cuffing and hemming the garments, and, finally hanging the garments.
Liberty’s arrangement with the contractors required the contractors to assemble
the garments to meet Liberty’s specifications. During the time period at issue, Liberty used as many as thirty to forty assemblers, including the contractor defendants in this case. As noted in the Second Circuit opinion, Liberty did not seek out assemblers; rather, assemblers came to Liberty’s warehouse looking for assembly work. In order for these assemblers to obtain work, they had to sign a form agreement.
In a suit under federal and state wage and hour laws, Liberty was held liable for the sweat shop's brazen failure to comply with the law. Six factors were analyzed by the Second Circuit when considering the jury's decision:
1. whether Liberty's premises and equipment were used by the employees when
performing the work in question;
2. whether the sweat shop was a business that could or did shift as a unit from
one putative joint employer to another;
3. the extent to which the employees performed a discrete line job that was
integral to Liberty's process of production;
4. whether responsibility under the contracts could pass from one subcontractor
to another without material changes;
5. the degree to which Liberty or its agents supervised the employees' work;
6. Whether the employees worked exclusively or predominantly for Liberty.
The Court held that the there was sufficient evidence to support factors (3), (5) and (6), and that the jury could properly infer from those factors that Liberty was a
"joint employer" with the sweat shop, and therefore, liable for the sweat shop's violations.
Joint employer relationships can arise from situations other than subcontracting. However, businesses that subcontract their work - particularly the manufacture of their product - need to take special precautions, such as the following:
1. All subcontracts must make clear that the employees of the subcontractor are exclusively employed by the subcontractor.
2. Businesses that subcontract work must reserve the contractual right to terminate the relationship if their subcontractors do not act in compliance with applicable laws.
3. Employees of subcontractors should only be permitted to use the subcontractor's equipment.
4. The subcontractor should perform work for many customers, not just the company, and the company should have the right to verify that fact by reviewing company records.
5. Companies should monitor their subcontractors' payment of their employees, to verify that the pay is accurate and in compliance with applicable laws. (Companies may also want to monitor their subcontractors' compliance with all other applicable legal requirements.)
6. Companies that subcontract should not supervise the performance of the outsourced work. The contract may expressly provide that the subcontractor shall have the duty to supervise the work in question.
7. Companies and their subcontractors need to maintain as much independence and separateness as possible.
It is no surprise that a growing number of industries have adopted the subcontracting system which allows employers to maximize their profit margins without any responsibility for workplace conditions. From meatpacking and construction to healthcare and temp work---the court ruling to gut the FLSA and strip workers of what little legal protections they have during a time of paycuts, rising unemployment and job displacement could be devastating. The Zheng decision makes
it increasingly important for businesses that subcontract out some aspect of their production to consider the extent to which they should monitor their subcontractors and confirm their compliance with applicable wage and hour laws. Although direct involvement in the wage and hour practices of the subcontractor may increase the risk of a finding of control, thus leading to joint employer liability, Zheng indicates that
the risk may already outweigh the benefit of staying out of the subcontractor’s
employment matters. The liberalization of joint employer liability will become even more significant if Congress adopts recently proposed legislation that would explicitly recognize the right of illegal immigrant workers to bring claims for wage and hour violations.