Justices Deny Firm's Bid to Review Liability as 'Joint Employer'

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Denying a clothing company's petition to review how to determine joint employer status under the Fair Labor Standards Act, the U.S. Supreme Court May 2 left intact a federal appeals court decision upholding a jury verdict for 25 Chinese garment workers in New York City who alleged they were unlawfully denied minimum wages and overtime pay despite working more than 85 hours a week (Liberty Apparel Co. v. Zheng, U.S., No. 10-1086, cert. denied 5/2/11).

Liberty Apparel Co., which sells women's wear assembled by several contractors employing Chinese nationals in Manhattan, sought review of an August 2010 U.S. Court of Appeals for the Second Circuit ruling that a jury, rather than a trial judge, should decide the “mixed question” of law and fact of whether Liberty could be deemed the garment workers' joint employer under the FLSA ( 617 F.3d 182, 16 WH Cases2d 830 (2d Cir. 2010)).

In a companion, unpublished opinion, the Second Circuit also ruled that a jury permissibly found that Liberty was the workers' joint employer, based on a six-factor test the appeals court had announced in an earlier opinion (389 Fed. Appx. 63, 16 WH Cases2d 833 (2d Cir. 2010); 28 HRR 915, 8/23/10).

Circuit Split on Relevant Factors Alleged.

In seeking Supreme Court review, Liberty urged the justices to resolve a purported split among the federal appeals courts on how to determine whether a company is an FLSA joint employer. The present case was an especially appropriate vehicle for reviewing the split, since the district court reached two opposite conclusions regarding Liberty's status, depending on whether a four-factor test embraced by the Ninth Circuit or the six-factor test announced by the Second Circuit in 2003 was used, Liberty said in its petition for review.

Federal circuits also are divided on whether a judge or a jury should decide joint employer status, Liberty contended. It argued that the Second Circuit incorrectly ruled that Liberty was not entitled to a judicial determination of whether it fit within the FLSA's definition of employer or to de novo review of the jury's finding.

In a brief opposing Supreme Court review, the garment workers said the Second Circuit's decision is consistent with Supreme Court precedent and with other federal appeals courts' rulings regarding FLSA joint employer status.

“None of these rulings created a conflict between circuits as to how to determine the existence of a joint employer relationship under the FLSA,” the workers said. “Rather they reflected an unexceptionable concern by each of these courts for the particular facts and circumstances which may have been relevant in a given case and/or the procedural context in which the joint employment issue arose.”

Two Trips to Second Circuit.

In a 1999 lawsuit, the garment workers, who live and work in New York's Chinatown, sued Liberty and its principals, Albert Niori and Hagai Lanardo, alleging minimum wage and overtime pay violations under the FLSA and New York state law.

Although the plaintiffs worked an average of 85 hours a week in an establishment operated by defendant Lai Huen Yam, they allegedly spent 70 percent to 80 percent of their working hours stitching together and finishing ladies' wear for Liberty Apparel. Liberty paid Yam based on the pieces produced, and Yam paid the workers on a similar piece rate. The plaintiffs alleged that Liberty Apparel was their joint employer for FLSA and state law purposes, even though they worked in Yam's premises and Liberty Apparel used several contractors in addition to Yam.

The U.S. District Court for the Southern District of New York in 2002 ruled in favor of Liberty Apparel, reasoning that Liberty was not the plaintiffs' employer (20 HRR 386, 4/8/02). But in December 2003, the Second Circuit reversed, ruling that the district court used an improper legal standard in deciding Liberty Apparel was not a joint employer. Citing Rutherford Food Corp. v. McComb ( 331 U.S. 722, 6 WH Cases 990 (1947)), the Second Circuit announced a six-factor test for determining whether a company is a joint employer under the FLSA and remanded for reconsideration ( 355 F.3d 61, 9 WH Cases2d 336 (2d Cir. 2003)).

On remand, the district court sent the joint employer issue to a jury. The jury returned a verdict for the workers and in October 2009, the district court awarded 25 plaintiffs $556,557 in damages under the FLSA and state law.

In 2010, the Second Circuit mostly denied Liberty's appeal, ruling that the district court did not err by allowing the jury to decide “the mixed question of law and fact” of whether Liberty Apparel was the workers' joint employer. In its unpublished opinion, the Second Circuit added that the jury had legally sufficient evidence to find joint employer status, even though the plaintiffs conceded that Liberty prevailed on three factors in the six-factor test. But citing unresolved state law issues, the Second Circuit remanded for a recalculation of damages.

By Kevin P. McGowan