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department of labor building DOL headquarters, Washington D.C. (Phot:o: Michael Scarcella/ALM)

Companies frequently contract out specific services needed for their businesses in order to improve efficiency or to reduce costs associated with directly employing individual workers. Use of third parties to contract for services such as transportation, food services, cleaning or photocopying has become ubiquitous in today’s economy. Staffing companies in particular, have created business based on such contracting arrangements to take on the responsibility for compensating workers performing services for the business, reporting to taxing authorities, and providing health benefits to the workers.

Although companies using contractors undoubtedly have sound business reasons for using such arrangements, such conduct also can unwittingly create legal risks under the Fair Labor Standards Act (FLSA). Specifically, under the FLSA, courts and administrative agencies have developed the so-called “joint employer” theory, which provides that two ostensibly separate companies may be treated as “joint employers” of the same workers, and thereby share responsibility for each company’s wage and hour law violations.

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