Washington State Issues New Administrative Policy Providing Guidance on Employment Relationships under the Minimum Wage Act

Last week, Washington’s Department of Labor & Industries (“L&I”), the state agency that enforces labor standards, rolled out a new administrative policy related to employment relationships under the Minimum Wage Act (the “MWA”). The new policy (ES.A.14 Minimum Wage Act - Employment Relationships) does not replace existing laws or regulations, but provides L&I’s opinion and interpretation of when a person or entity is an “employer” under the MWA (versus a bona fide independent contractor) and what it expects employers to do under the Act.   Specifically, L&I addressed the following:

• Personal liability;
• Joint employment relationships;
• Same employment relationships;
• Successorships; and
• Bona fide independent contractors.

Employers with Washington-based employees should review this important interpretation of the MWA and be prepared to make adjustments to ensure compliance.

When is an individual personally liable for violations of the MWA?

A corporate officer, owner, or manager is an “employer” and jointly liable for obligations under the MWA when the individual is acting “directly or indirectly in the interest of the employer in relation to the employee.” To avoid personal liability, individuals who meet this definition should ensure their employees receive minimum wage, paid sick leave, and overtime pay as required by law. L&I determines liability by considering an individual’s:

• ownership interest;
• degree of control over the day-to-day operations including compensation practices; and
• control over payment to workers.

L&I acknowledged that courts have looked at the following indicators: hiring and firing of employees, control over compensation, benefits, and employment taxes, setting wages or salaries for employees, control over whether or not employees are paid, and whether individuals are responsible for the chain of events that led to the financial situation that caused the failure to meet their obligations. Inadvertent payroll errors do not typically lead to personal liability if they are promptly corrected.

When does a joint employment relationship exist under the MWA?

L&I’s policy recognizes that an employee may have more than one employer under the Minimum Wage Act. To determine whether a joint employer relationship exists, the Washington Supreme Court adopted the FLSA’s economic reality test, applying a nonexclusive list of factors which includes:

• the nature and degree of control of the workers;
• the degree of supervision, direct or indirect, of the work;
• the power to determine the pay rates or the methods of payment of the workers;
• the right, directly or indirectly, to hire, fire, or modify the employment conditions of the workers;
• preparation of payroll and the payment of wages;
• whether the work was a specialty job on the production line;
• whether responsibility under the contracts between a labor contractor and an employer pass from one labor contractor to another without material changes;
• whether the premises and equipment of the employer are used for the work;
• whether the employees had a business organization that could or did shift as a unit from one worksite to another;
• whether the work was piecework and not work that required initiative, judgment or foresight;
• whether the employee had an opportunity for profit or loss depending upon the alleged employee's managerial skill;
• whether there was permanence in the working relationship; and,

When evaluating whether a joint employment relationship exists, L&I will consider any and all factors that apply in a given circumstance, and may also consider additional factors that show a connection between multiple employers in relation to the employee. If an employee works for joint employers, all of the employee’s work is considered to be one employment for purposes of the MWA, and all employer are responsible both individually and jointly for compliance with the MWA.

When does a “same employment” relationship exist for purposes of the MWA?

When an employee separates from one employer and is hired by a new employer, the new employer may be liable for unpaid minimum wage, overtime pay, or paid sick leave balances if the new employer is determined to be the “same employer.” When determining whether a “same employer” relationship exists, L&I examines each situation on a case-by-case basis while looking to the following factors:

• maintaining the same employees by the employer;
• retention of the same supervisors;
• retention of the same production facilities in the same location;
• production of the same product;
• maintaining the business’ same name;
• continuity of assets;
• continuity of general operations; and
• whether the buyer holds itself out as a continuation of the divesting corporations.

What governs “successorship” for MWA liabilities?

Employers can also be liable under the MWA as “successors” when there has been a change in business ownership. A successor is a person who acquires a business that holds current liabilities under the MWA or the Wage Payment Act (RCW 49.48.082 to RCW 49.48.087), and they are liable for MWA obligations held by previous owners when the successor has:

A. Actual knowledge of the fact and amount of the outstanding citation and notice of assessment; OR

B. A prompt, reasonable, and effective mean of assessing and verifying the fact and amount of the outstanding citation and notice of assessment from L&I.

Who qualifies as a bona fide independent contractors for purposes of the MWA?

While independent contractors are exempt from the MWA, an employer cannot avoid complying with the MWA by merely referring to someone as an independent contractor. To determine whether an individual is a bona fide independent contractors for the purposes of the MWA, L&I looks to the following factors:

• The degree of control that the business has over the worker;
• The worker’s opportunity for profit or loss is dependent on the worker’s managerial skill;
• The worker’s investment in equipment or material;
• The degree of skill required for the job;
• The degree of permanence of the working relationship; and
• The degree to which the services rendered by the worker are an integral part of the business.

Am I In Compliance With Washington Law?

Violations of the MWA can have serious implications and can expose your company (and some individuals) to liability for unpaid wages, attorneys’ fees, and double damages.  In order to ensure you are in compliance with Washington law in these areas and others, please contact a Seyfarth attorney.