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June 16, 2014Client Alert

A $21 Million Lesson for Joint Employers

Schneider Logistics Inc. (Schneider) agreed last month to pay a staggering $21 million to settle a class-action civil lawsuit brought by workers at a California warehouse. The suit, Carrillo v. Schneider Logistics et al, is not only significant because of the hefty settlement amount, but also because it shows courts’ willingness to untangle multi-level business operations and hold all involved entities liable for wage and hour violations.

 

The workers involved in the suit work at a warehouse that provides services for Walmart. Although Walmart often manages its own warehouse and distribution centers, it turns management of some over to logistic companies like Schneider. Schneider has managed the warehouse involved in the Carrillo suit since 2006 but has contracted with two labor services subcontractors to provide the actual loading and unloading labor.

 

The workers who brought the suit say they were illegally underpaid, were not compensated for overtime work, were denied mandatory meal and rest breaks, and were retaliated against when they complained about their working conditions. Although the two smaller firms hired them, the workers argued that Schneider and Walmart were also responsible for compliance with workplace regulations. For their part, Walmart and Schneider argued that they were not joint employers because the workers in question were directly employed and paid by the labor services subcontractors. Walmart also argued that it was merely a “customer” of the warehouse.

 

In a January 2014 ruling, a U.S. District Judge in California rejected these claims by Walmart and Schneider, and ruled they remained potentially liable in the case. Significantly, this marked the first time that retail giant Walmart was determined to have joint employer status in a suit involving contracted laborers.

 

Faced with the threat of having to stand trial as a potential joint employer, Walmart and Schneider agreed to a settlement of $21 million to resolve the massive wage and hour claims. Under the terms of the settlement agreement, Schneider will pay the entire $21 million in unpaid wages, interest, and penalties.

 

This settlement sends an important message to all joint employers, even those involved in multi-level business operations. Employers at every level of the operation must concern themselves with the day-to-day operations of their workplaces. Structural insulation from direct business operations does not equate to insulation from legal liability.

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