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Another Example of Owner Liability for Unpaid Wages and Liquidated Damages for Employee Misclassification

Written by Jessica Catlow

Do you still think that business owners aren’t responsible for wage and hour law violations? Do you think that a court will only award liquidated damages where the violation is wilful? Think again. Following an investigation into certain residential treatment facilities for the elderly, disabled and mentally ill, the DOL obtained a default judgment against the husband and wife owners of the facilities for various wage and hour violations under the Fair Labor Standards Act, including an award of liquidated damages.

In Perez v. Carranza (N.D. Cal. May 2014), Helen and Eduardo Carranza owned and operated a number of residential care facilities and engaged independent contractors to care for the residents paying them a flat fee for their services. The DOL concluded as a result of its investigation that the Carranza’s had misclassified them as independent contractors because they regularly directed the caregivers work hours and tasks to be performed, and conducted background checks on the caregivers. Further, The DOL determined that Mr. and Mrs. Carranza were “employers” under the FLSA because they acted, either directly or indirectly, in the interest of the five care facilities they operated in relation to the employees.

Though it is unclear from the publicly available documents how the DOL reached the conclusion that the owners were “employers” within the meaning of the FLSA, what is clear is that, once the DOL determines that an employer has misclassified employees, absent the ability of the employer to prove that their violation was subjectively and objectively made in good faith, liquidated damages in an amount equal to the unpaid wages is basically mandatory. Indeed, the DOL referred to a case from 1945 interpreting the liquidated damages provision of the FLSA, noting that the provision is not penal, but rather constitutes compensation for the retention of an employee’s pay which might result in damages too difficult and obscure to prove or estimate. In other words, because the consequences of an employee not receiving all wages to which he or she is due are hard to measure (i.e., damages beyond the amount unpaid), liquidated damages are appropriate. The result here was a $260,000 judgment against the facilities and Mr. and Mrs. Carranza for misclassifying just 10 individuals.

What’s the take away? From its audit and enforcement activities, it is clear that the DOL continues to look closely at employee classification issues and will pursue all available remedies on behalf of the employees. So, it behooves every employer to carefully consider their classification decisions in light of the risks of failing to get it right.

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