Joint Employers and Overtime Pay – Zhou v. IBM

By Jerome D. Pinn

In Zhou v. IBM (N.D. Iowa 2017), a former IBM employee claimed that he was entitled to be paid more overtime under the Fair Labor Standards Act (FLSA) than he had already been paid by his joint employers, IBM and Artech. Although Zhou was nominally employed by Artech and Artech paid him, IBM was also his employer because it exercised significant control over many aspects of Zhou’s work, including his work assignments and when his work tasks were to be done.

Zhou claimed that he was owed more overtime than he was paid by Artech because both employers should have realized from the amount of E-mail traffic he had with them that he was working even more hours than Artech credited him with. Artech and IBM argued that there was no reason that they should have realized that he was working more overtime than he had reported. Zhou noted that he was sending E-mails during the day, even though he was scheduled to work nights. He claimed that both employers should have understood that he was working more hours than he was being paid for.

The court rejected Zhou’s argument that either or both of his employers should have had to monitor their employee’s E-mail activities to determine whether or not the employee’s reported hours worked matched his E-mails. The court noted that both companies “maintained a specific tool for reporting regular and overtime hours,” and both companies informed employees that they must accurately report all their hours worked. In light of this, the court found that, “To require [an employer] to painstakingly wade through e-mails between itself and Zhou, which do no more than raise the possibility that he was being overworked, … would be to relieve Zhou of his responsibility to comply with [the employers’] policies regarding the reporting of overtime. The law is clear that this is not required.”

The court noted that, under the FLSA, an employee must be paid for time worked that the employer knew or should have known the employee worked, not could have known. If an employee deliberately prevents his employer from learning of his overtime, such as by not accurately reporting his hours worked, the employer cannot be held to have violated the FLSA.

With regard to IBM, the court found that Zhou could not demonstrate that his managers at IBM knew or should have known the extent to which he worked overtime. The record showed that IBM directed Zhou and others to report all hours worked, with no exceptions. The court noted that IBM maintained a system for reporting regular and overtime hours and Zhou regularly received overtime using that system. The court found no evidence suggesting that IBM should have known that he worked hours in addition to those he regularly claimed. If the court were to accept Zhou’s claims of underpayment of under-reported overtime, this would relieve Zhou of his responsibility to comply with his employers’ policies regarding the reporting of overtime. There was no evidence that IBM encouraged Zhou to under-report his hours worked. Based on these findings, the court granted judgment to the joint employers.

Joint Employment Update: On June 7, 2017, the U.S. Department of Labor (USDOL), under new Secretary of Labor Alexander Acosta, announced the withdrawal of the USDOL’s 2016 guidance on joint employment under the FLSA. The 2016 guidance opined that a company and its contractor were joint employers even when they did not both exert control over workers’ terms and conditions of employment. The 2016 guidance supported finding that joint employment exists in the vast majority of cases. The effect of the USDOL’s new action is that employers will be subject to the same standards they were previously regarding joint employment, as reflected in the long-standing FLSA regulations and case law. Courts in different areas of the country have adopted slightly different legal standards with respect to what constitutes joint employment under the FLSA, including the following:

5th Circuit (including Mississippi): The economic realities of the relationship between employers are examined, including (1) the power to hire/fire, (2) supervision and control over employee work schedules or conditions of employment, (3) rate and method of pay determination, and (4) maintenance of personnel records.

6th Circuit (including Tennessee and Kentucky): The Sixth Circuit has used two tests to determine joint employment status. Under the “economic reality” test, courts review: (1) the permanency of the relationship between the parties; (2) the degree of skill required for the rendering of the services; (3) the worker’s investment in equipment or materials for the work; (4) the worker’s opportunity for profit or loss, depending upon his/her skill; (5) the degree of the alleged employer’s right to control the manner in which the work is performed; and (6) whether the work performed is an integral part of the alleged employer’s business. Under the second “joint employment” test, courts review (1) the interrelation of operations between the companies, (2) common management, (3) centralized control of labor relations, and (4) common ownership.

8th Circuit (including Arkansas): Although the Eighth Circuit has not yet identified a definitive test to determine joint employer status, four factors are typically examined by courts to make this determination, whether the employer: (1) had the power to hire and fire; (2) supervised and controlled work schedules or conditions of employment; (3) determined the rate and method of payment; and (4) maintained plaintiff’s employment records.

11th Circuit (including Alabama and Georgia): The economic realities of the relationship between employers are examined, including (1) the nature and degree of control over the workers; (2) the degree of supervision, direct or indirect, of the work; (3) the power to determine the pay rates or the methods of payment of the workers; (4) the right, directly or indirectly, to hire, fire, or modify the employment conditions of the works; (5) the preparation of payroll and the payment of wages; (6) the ownership of the facilities where work occurred; (7) the performance of a specialty job integral to the business; and (8) the relative investments of the purported employer and the contractor.

Jerome D. Pinn, Attorney Member, Knoxville Office 	Wimberly Lawson Wright Daves & Jones, PLLC    

Jerome D. Pinn, Attorney
Member, Knoxville Office
Wimberly Lawson Wright Daves & Jones, PLLC