Taking the Employer Out of Employment Law? Accountability for Wage and Hour Violations in an Age of Enterprise Disaggregation

Abstract

Violations of wage and hour mandates are widespread at the low end of the labor market. The disaggregation of business enterprises into smaller, independent parts has been an important factor in this growing problem. Limitations on liability for work-law violations invite such arrangements since statutory protections for workers usually impose duties only on “employers.” That status, in turn, hinges on the level of control a firm exercises over the work, and when exacting control is not necessary, firms usually can avoid accountability by shifting work to independent third-party suppliers. This creates severe enforcement obstacles: detection becomes difficult, labor suppliers often are undercapitalized, and coverage uncertainties lead to unprosecuted claims and discounted settlements. Thus, disaggregation does far more than shift legal responsibility from one entity to another: it allows end-user firms to avoid noncompliance risks while benefiting from labor at a price discounted by the unlikelihood of enforcement.

Consistent with the theme of this symposium – Decent Work in a Post-Recessionary World – this Article offers a novel proposal for addressing the problem: eliminating the “employer” coverage barrier altogether. Under this approach, commercial actors would be held strictly liable for wage and hour violations in the production of any goods and services they purchase, sell, or distribute, whether directly or through intermediaries. The only limitation is that a firm’s liability would not exceed the proportion of the violations attributable to the goods or services it purchases, sells, or distributes.

The resulting accountability would increase the probability of enforcement and, therefore, compliance. And there is not much risk of the disadvantages sure to be raised in opposition. For example, distant purchasers unaware of upstream wage violations would not be frequent targets for collection because litigation realities would steer enforcement towards better-positioned intermediaries. Indeed, the elimination of control-based coverage barriers would prompt firms to address their exposure through private ordering, including utilizing reputable suppliers, bargaining for indemnification, and implementing monitoring mechanisms. The end result will be a dramatic shift in firm risk management techniques: from avoidance through outsourcing, which reduces compliance, to enterprise self-regulation that promotes it.

Keywords: employer, employment, employee, independent contractor, labor law, wages, wage and hour, minimum wage, outsource, outsourcing, disaggregation, nature of the firm, coase, enterprise liability, race to the bottom, respondeat superior, hot goods, FLSA, Fair Labor Standards Act

JEL Classification: K13, K31