163 F.3d 668 (1st Cir. 1998), 98-1084, Baystate Alternative Staffing, Inc. v. Herman

Docket Nº:98-1084.
Citation:163 F.3d 668
Party Name:BAYSTATE ALTERNATIVE STAFFING, INC., Able Temps Referrals, Inc., Harold Woods, William W. Woods, and Marlene Woods, Plaintiff-Appellants, v. Alexis M. HERMAN, Secretary of Labor, United States Department of Labor, Defendant-Appellee.
Case Date:December 30, 1998
Court:United States Courts of Appeals, Court of Appeals for the First Circuit
 
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Page 668

163 F.3d 668 (1st Cir. 1998)

BAYSTATE ALTERNATIVE STAFFING, INC., Able Temps Referrals,

Inc., Harold Woods, William W. Woods, and Marlene

Woods, Plaintiff-Appellants,

v.

Alexis M. HERMAN, Secretary of Labor, United States

Department of Labor, Defendant-Appellee.

No. 98-1084.

United States Court of Appeals, First Circuit

December 30, 1998

Heard July 30, 1998.

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[Copyrighted Material Omitted]

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Edward DeFranceschi, for appellant.

Ellen R. Edmond, with whom Marvin Krislov, Deputy Solicitor for National Operations, Steven J. Mandel, Associate Solicitor, Paul L. Frieden, Counsel for Appellate Litigation, were on brief for appellee Secretary of Labor.

Before SELYA, BOUDIN, and LIPEZ, Circuit Judges.

LIPEZ, Circuit Judge.

This appeal involves an action brought in the district court under the Administrative Procedure Act ("APA"), 5 U.S.C. § 701 et seq., seeking review of a final administrative determination by the Department of Labor's Administrative Review Board (the Board) that Baystate Alternative Staffing, Inc., Able Temps Referrals, Inc., William Woods, Harold Woods, and Marlene Woods willfully violated the overtime compensation provisions of the Fair Labor Standards Act (FLSA), 29 U.S.C. § 201 et seq., and therefore were subject to civil monetary penalties pursuant to 29 U.S.C. § 216(e). 1 Plaintiff-appellants, who were engaged in the business of providing unskilled workers to factories, cleaning companies, and similar entities in need of temporary labor, maintain that the district court erred by affirming the ruling of the Board that the corporate appellants, Harold Woods, and Marlene Woods were the temporary workers' "employers," within the meaning of the FLSA. Alternatively, plaintiff-appellants argue that the court erred by affirming the Board's conclusion that their alleged violations were "willful," within the meaning of § 16(e) of the Act.

We find no error in the court's affirmance of the Board's ruling that the corporate appellants were "employers" of the temporary workers. We conclude, however, that the Board misperceived the legal standards to be applied to the issues of whether Harold Woods and Marlene Woods were personally liable for civil penalties as "employers" of the temporary workers and whether the conduct of the plaintiff-appellants was "willful," within the meaning of § 16(e). We therefore vacate those portions of the court's judgment resolving those issues and order a remand of this case to the Board for reconsideration of the personal liability and willfulness issues under the correct legal standards.

I. BACKGROUND

A. The Employment Agencies

Beginning in the early 1980s William Woods formed and operated approximately

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ten temporary employment agencies, including plaintiff-appellants Baystate Alternative Staffing, Inc. 2 and Able Temps Referral, Inc. (referred to collectively herein as "Baystate"), in Massachusetts and New Hampshire. 3 After founding the agencies, William was assisted in their operation by his son, Harold Woods, his sister, Ann Woods, and his wife, Marlene Woods, who served the agencies in various capacities as corporate officers and/or managers.

Each of the Baystate agencies was managed in a similar fashion. Baystate advertised its services to companies in need of temporary workers to perform unskilled labor, including industrial and factory work, heavy labor, and assembly and packing. Baystate generally charged its client companies between $6.00 and $7.50 per hour for the services of the workers; from this amount, Baystate usually paid the workers the minimum wage, keeping the premium for itself. Baystate's advertisements represented that it would "handle all the burdensome paperwork, bookkeeping, record keeping, payroll costs, and government reporting." Baystate also informed potential customers that it would provide workers' compensation coverage for the workers, and that it would transport the workers to and from the work site. To obtain temporary workers, client companies called one of Baystate's offices with a job order requesting a specified number of workers.

Baystate required all job applicants seeking temporary work to sign a "Contractor Agreement," which stated that the worker was an independent contractor and not an employee of Baystate. A memorandum attached to the agreement set forth the rules and regulations all workers were required to follow. The memorandum warned that if a worker contacted a client company on his or her own initiative about potential job opportunities, without the involvement of Baystate, the worker would not be placed with a client company in the future. It also prescribed rules on completing and submitting time cards to Baystate, informed workers when they were to present themselves at Baystate's offices for work assignments and how they would be transported to and from job sites, and instructed workers about appropriate clothing and behavior at job sites.

Although Baystate issued the workers' paychecks and apparently provided some type of workers' compensation insurance for the workers, it concedes that it did not pay the workers time-and-one-half their regular rates for hours they worked in excess of forty per week. 4 It also did not deduct federal or state income taxes from the workers' paychecks, contribute to the workers' social security accounts, or pay any state unemployment insurance on the workers' behalf.

B. The DOL Investigations

  1. The 1989 Investigation

    In 1989 William Pickett, Jr., an investigator from the Wage and Hour Division of the Department of Labor, initiated an investigation of Able Temps. Pickett first met with James Walsh, Able Temps' attorney, at Walsh's office on December 5, 1989. At this meeting, Walsh provided Pickett with the payroll records for Able Temps' "in-house employees"--that is, individuals who were employed by Able Temps as clerks, telemarketers, or in other in-house capacities. Able Temps acknowledged these in-house employees were its "employees," within the meaning of the FLSA. Pickett examined the in-house employees' payroll records and determined that they were being paid in compliance with the FLSA.

    Pickett informed Walsh that he also needed the payroll records of the temporary workers. Walsh stated that he had been unaware that Pickett would need the temporary workers' records, and that he did not have the information available at that time.

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    In the absence of the temporary workers' payroll records, Pickett and Walsh proceeded to discuss in general terms whether the temporary workers were Able Temps' "employees," within the meaning of the FLSA. Pickett gave Walsh a copy of the Wage and Hour Division's publication entitled "Employment Relationship Under the Fair Labor Standards Act," which set forth a six-factor test used to distinguish between independent contractors and employees. 5

    After discussing the general criteria used by the Wage and Hour Division to determine whether an employment relationship exists between a worker and an alleged employer, Pickett told Walsh that he suspected that Able Temps' temporary workers were its "employees," within the meaning of the FLSA. Walsh disagreed with Pickett's position, and stated his belief that the temporary workers were not Able Temps' employees. As the meeting concluded, Walsh stated that he would contact Able Temps to try to obtain the temporary workers' payroll records.

    After calling Walsh's office several times to inquire about the temporary workers' payroll records, Pickett received in early February 1990 a list of names and addresses for 109 temporary workers and a computer disk containing some of the requested payroll information. 6 Because the payroll records were incomplete, Pickett determined that Able Temps' record keeping practices were not in compliance with the FLSA. In April 1990, Pickett informed Walsh that although Pickett suspected that Able Temps had violated the FLSA's overtime provisions, the incomplete state of the payroll records did not allow him to confirm his suspicions. Pickett told Walsh that the Wage and Hour Division "would like [Able Temps] to enter into a stipulation so that we cannot have this problem in the future."

    On April 30, 1990, Able Temps and the DOL executed a stipulation which stated, inter alia, that Able Temps would "maintain an accurate record of daily and weekly hours worked for all employees," and that it would "henceforth comply with the Recordkeeping provisions of Section 11(c), the minimum wage provisions of Section 6, and the overtime provisions of Section 7 of the [FLSA]." The stipulation also stated that "[n]either the execution of this Stipulation nor the performance by the Company of any of its obligations above shall constitute or be construed as an admission by the Company that it has violated any provisions of the Act and such execution and performance shall be without prejudice to the Company's position in this respect." Walsh testified that he believed the stipulation did not prejudice the position of Able Temps that the temporary workers were independent contractors, and that he communicated this opinion to his client.

  2. The 1992 Investigation

    In 1992 Pickett initiated a second investigation of the Woodses' temporary employment business, whose activities were now being conducted through an entity called Alternative Staffing, Inc. Pickett met on several occasions with John Bresnahan, Alternative Staffing's accountant. Pickett gave

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    Bresnahan a copy of the DOL's pamphlet "Employment Relationship Under the Fair Labor Standards Act," the same pamphlet he had given to Walsh in 1989, and informed Bresnahan that his "determination had been and would probably be this time that [the temporary workers] were still employees of [Alternative Staffing]." Bresnahan disagreed with Pickett, asserting that Alternative Staffing did not exercise sufficient control...

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