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Top Wage & Hour Lawyer Reply: Can My Job Cheat Me Out of Overtime By Changing Names?

by | Jul 7, 2014 | Minimum Wage Violation, Overtime Violations, Tipped Employee Violations |

Best Ohio Overtime Wage Attorney Answer: How do I get paid overtime if my employer shut down and opened back up under another name? Can I sue for unpaid overtime? What should I do if my job makes me work over 40 hours but will not pay me time and a half? How do I find the best overtime lawyer in Ohio?

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In the world of business, mergers and acquisitions are common place. One business may bought out by another, or fail, only to be resurrected under another name. Often companies facing liability of debt will close down only to open the next day as a “new” company. XYZ Company will close down and “reopen” as XYZ & Sons Co. or XYZ Service Company. This sounds close enough for customers, but it is a new entity that is not liable for the sins of the first company. But, what happens though, when employees of the old business have claims against it for failing to pay minimum wage, or overtime? As the United States Third Circuit Court of Appeals recently held, the new business can be liable for the wage and hour sins of the old business.

In Thompson v. Real Estate Mortgage Network et al., the plaintiff, Patricia Thompson, sued both the old business she worked for, Security Atlantic Mortgage Company, and the new business that took Security Atlantic’s place, Real Estate Mortgage Network (“REMN”), alleging that Security Atlantic had violated the Fair Labor Standards Act (“FLSA”) by failing to pay her overtime for all hours worked over 40 in a given week. Thompson alleged that Security Atlantic and REMN were each liable for their own violations, and that REMN was also jointly liable for Security Atlantic’s violations. Critically, Thompson alleged that REMN was actually a “continuation” of Security Atlantic, because even after the change over, everything stayed the same, to include the work it was doing, staffing, office space, email addresses, and her employment conditions, to include her rate of pay and her supervisors. Interestingly, Thompson alleges that the main reason Security Atlantic became REMN in the first place was merely to limit its liability when the U.S. Department of Housing and Urban Development began to investigate Security Atlantic’s mortgage practices.

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REMN responded to Thompson’s complaint by filing a motion to dismiss, arguing that she could not sue it for alleged wage and hour violations that occurred when she was employed by Security Atlantic. The District Court agreed, and dismissed Thompson’s complaint. Thompson then filed an amended complaint, and the District Court again dismissed the case, including her direct claims against Security Atlantic and REMN. Notably, while the District Court agreed with REMN’s rationale that it could not be held liable for Security Atlantic’s violations of the FLSA, it did not provide any rationale at all for why it dismissed Thompson’s direct claims against each employer. As any reasonable plaintiff would, Thompson appealed.

On Appeal, the Third Circuit Court of Appeals vacated the District Court’s dismissal of Thompson’s direct claims, finding that because her complaint met the applicable pleading requirements, and because the District Court had dismissed her direct claims without a “articulable legal basis,” it was appropriate to vacate the District Court decision as to these claims.

The Court then explored Thompson’s joint-liability claims. The Court noted that Thompson had raised two theories of joint-liability; that (1) Security Atlantic and REMN were considered “joint-employers” for the purposes of the FLSA, and (2), that REMN was liable for Security Atlantic’s FLSA violations under the federal common law theory of “successor liability.” As to Thompson’s joint-employer theory of liability, the Court explained that under the “enterprise theory,” several factors were relevant into the inquiry about whether a joint-employer relationship exist:

the alleged employer’s authority to hire and fire the relevant employees; (2) the alleged employer’s authority to promulgate work rules and assignments and to set the employees’ conditions of employment: compensation, benefits, and work schedules, including the rate and method of payment; (3) the alleged employer’s involvement in day-to-day employee supervision, including employee discipline; and (4) the alleged employer’s actual control of employee records, such as payroll, insurance, or taxes.

The Court noted that Thompson had alleged several facts to establish that Security Atlantic and REMN had jointly employed her. For example, Thompson had alleged that (1) a REMN employee had trained her when she began at Security Atlantic (long before REMN took over), (2) that her trainer described Security Atlantic and REMN as “sister-companies,” and (3) that nothing changed after REMN took over for Security Atlantic. As a result, the Court found that Thompson’s claims could proceed under the joint employer theory.

Finally, the Court addressed Thompson’s “successor liability” theory of joint liability. REMN argued that under state law (New Jersey in this case), it could not be held liable for Security Atlantic’s violations. However, the Court rejected REMN’s argument, essentially finding that federal law should govern the scope of claims falling under a federal statute such as the FLSA. The Court then looked to Thompson’s argument that the Court should adopt the “lower bar” standard adopted by the Seventh and Ninth Circuits, and commonly used to evaluate successor liability claims in Title VII cases. Under the “lower bar” theory, Courts may hold successor employers liable when it necessary to do so in order to protect “important employment related policies.” In other words, Court may use the lower bar theory to prevent employers from being able to avoid liability to their employees merely by shutting their doors, and reopening them the next day with a new sign out front.

In order to evaluate claims for successor liability under the “lower bar” standard, Courts must evaluate (1) continuity in operations and work force of the successor and predecessor employers; (2) notice to the successor-employer of its predecessor’s legal obligation; and (3) ability of the predecessor to provide adequate relief directly. Here, the Court found that the facts as alleged by Thompson were sufficient to satisfy the lower bar standard:

The Amended Complaint in fact alleges that essentially all facets of the business at issue, including operations, staffing, office space, email addresses, employment conditions, and work in progress, remained the same after the February 2010 intercession of REMN.

* * *

With respect to the second factor, pre-transfer notice of the obligation’s existence to REMN, Thompson alleges that Security Atlantic was essentially controlled by a small supervisory and managerial group, including Lamparello and Chapman, who dictated payroll and scheduling and had ongoing knowledge of systematic FLSA violations. Thompson contends that when she and her colleagues were hired by REMN, the same practices continued under the same management, who were eventually integrated into corporate leadership roles with REMN.

* * *

As to the third factor, the predecessor’s “ability . . . to provide adequate relief directly,” defendants have represented that Security Atlantic is now “defunct,” which we take to mean that it is likely incapable of satisfying any award of damages to Thompson. In total, then, these allegations are enough to surmount a motion to dismiss under the federal standard.

As a result, the Court found that Thompson could also proceed under a theory of successor liability, and that it was appropriate to vacate the District Court’s decision as to Thompson’s joint liability claims.

So this is good news for employees. It protects them from companies trying to cheat them out of lawfully earned wages by rotating through different names and entities while essentially never changing the actual operation of the business.

If you believe that your employer is not paying you all of your wages for all of your lawfully earned overtime compensation at a rate of one and half times your normal wages as requires under the Federal Fair Labor Standards Act or Ohio Minimum Fair Wage Standards laws or you are an nonexempt employee that has been misclassified as exempt or independent contractor, contact the attorneys at Spitz, The Employee’s Law Firm today for a free and confidential initial consultation. The wage and hour lawyers at Spitz, The Employee’s Law Firm will provide you with the best options for your overtime pay dispute situation. If you even think that you may be entitled to overtime pay that you are not being paid, call 866-797-6040.

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