You can’t dodge FLSA by forming 2nd company

Ever thought you might be able to skirt the Fair Labor Standards Act’s overtime provisions by arranging for related entities to “share” the same employees? Courts aren’t likely to buy the arrangement.

Recent case: Carmen had worked for a masonry company for years. Then the owners set up a second company, ostensibly to transition ownership to their children as they neared retirement.

Before the new company came into being, employees were paid overtime when they worked more than 40 hours per week. After the new company started up, the original company retained workers for the first 40 hours and paid them their regular rate of pay. But after 40 hours, workers were listed as independent contractors working for the second company at a piece rate equal to their regular hourly rate.

Carmen sued, alleging overtime violations.

He said he never signed a separate agreement with the new company. Plus, work on the same projects often continued uninterrupted on the same day, but was charged to both companies.

The court sided with Carmen, concluding that the two companies were joint employers. That made Carmen eligible for overtime. (Martinez v. Ranch Masonry, et al., SD TX, 2018)

Final note: This scheme was doomed from the get-go. Simply calling someone an independent contractor doesn’t make them one.

Courts look at all the circumstances when trying to decide whether a worker really is an independent contractor or an employee. The primary consideration is the amount of control the company has over the worker. The more control, the more likely the worker is an employee.

If it looks like a separate company was set up to dodge the FLSA, the court will scrutinize the details like common ownership of the two companies, past practices and whether workers perform the same tasks for each related company.