A Houston-based vendor that provides drafting, car wash and valet services to area dealerships recently agreed to pay $166,000 to resolve an employee misclassification complaint filed with the US Department of Labor. United – but luckily the dealers in the area were never caught up in the legal web that ensnared the detailer. Instead, for the dealers, it remained a “them” problem, not a “us” problem. According to the complaint, Majestic Dealership Services Inc. treated workers providing these services to its dealership customers as independent contractors when they should have been classified as employees. USDOL determined that these workers were in fact employees of Majestic and that the company failed to pay them in accordance with applicable law. This overview summarizes the situation that unfolded and provides four suggestions your dealer can take to ensure this remains a “them” problem and not a “you” problem.

Dealerships Avoid Legal Trouble – But That’s Not Always The Case

Although it may have done so, there is no indication that USDOL’s investigation ever focused on dealerships using Majestic’s services. There is no evidence that federal authorities attempted to hold any of the dealers liable for unpaid wages. Majestic’s payment of the settlement amount has or should end this case for everyone involved.

For dealerships that use salespeople to provide detailing and valet services, claims for unpaid wages by workers providing these services aren’t always a “them” problem. Government agencies and plaintiffs’ attorneys in these situations often claim that the seller and the dealer are co-employers of those performing the work and are therefore jointly liable for any wage violation.

The pattern of fact often cited in support of the joint employer theory is that the dealer’s employees perform work traditionally done by dealer’s employees on dealer’s property using dealer’s equipment and under the direction and approval of persons directly employed by the concessionaire. The joint employer theory approach increases the plaintiff’s chances of recovery, especially when the vendor is unable or unwilling to pay unpaid wages or is no longer in business.

The joint employer approach has had varying degrees of success depending on the particular facts of each situation. Sometimes dealerships are successful in defending and defeating joint employer allegations and are not held liable. In other situations, the dealer makes the business decision to help resolve the claim to avoid further disruption and litigation costs. In some situations, the seller takes full responsibility and settles the matter on behalf of both the dealer and the seller.

4 steps to make it a “them” problem

While dealerships using vendors for services such as those provided by Majestic can never be completely safe from joint employment claims, here are four suggestions to reduce exposure to unpaid wage claims:

  1. Contract with reputable suppliers. Make sure the provider providing these services is a registered business with the Office of the Secretary of State. Supplier must be able to show proof of all required licenses and required insurance coverages for their employees. He must provide itemized invoices for services provided and create and maintain accurate payroll records which he may provide to the dealer for inspection if requested (one of the recommended provisions of the written agreement between the dealer and the seller). The seller must appear to be a legitimate business with the ability to pay wages (and unpaid wage claims if necessary) and reimburse the dealer if their actions result in claims against the dealer. Using three former employees who own a truck and a pressure washer to provide these services could make the dealership an easy target for joint employment allegations or even allegations that the dealership is the sole employer.
  2. Use a full written contract. The concessionaire must formalize in writing its relationship with the seller and its expectations of it. (Informal and handshake agreements have their place – but this is not one.) While a formal written agreement does not eliminate the risk of supplier employees asserting unpaid wage claims against your dealer , a written agreement should provide significant protection that may not otherwise exist. Among other provisions, the agreement should:
    • explain the kind of relationship between Dealer and Seller, including Seller’s acknowledgment that its employees will perform the contracted services and that it is free to provide services to other businesses with few restrictions;
    • include an attestation from the supplier stating that it has and will maintain all relevant insurance coverages and that it will comply with all legal obligations;
    • contain the seller indemnification agreement the dealer for all claims arising from the actions of the seller or its employees, including claims for unpaid wages;
    • specify that the seller is responsible for bear the expenses and costs related to the provision of services under the agreement; and
    • include the seller’s agreement to provide documents to the dealer on request if necessary to confirm compliance with the terms of the agreement.
  3. Train your management. Control over employees is one of the main factors in determining whether a joint employment relationship exists. Dealership managers working with supplier employees should be trained to work with the supplier’s on-site manager when needs and issues arise or if expectations change or are not met.
  4. Make sure your wage and hour practices are compliant. A government investigation into a complaint filed by a supplier employee could lead to a broader investigation into the dealership’s wage and hour practices. You should perform periodic audits to ensure that all employees are properly classified and paid (under both federal and state law) and that your dealership has the legally required records to prove that employees are properly paid. The lack of time slips likely left Majestic at the mercy of employees seeking unpaid wages.

Conclusion

The USDOL has made it clear that it is aggressively pursuing federal wage and hour enforcement and seeking payment of wages deemed due and unpaid. Lawyers representing employees who allege wage and hour violations are filing class and class action lawsuits because they are more lucrative for them and problematic for employers. There’s no better time than now to take action to protect your dealership from employee claims or supplier claims.

Your favorite Fisher Phillips attorney will be happy to help you resolve any issues discussed in this article. If you have any further questions, contact your Fisher Phillips attorney, the author of this overview, or any attorney on our Auto Dealer Industry team. Make sure you’re subscribed to Fisher Phillips’ Insights to get the latest information straight to your inbox.

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