04.21.2021 | Newsletters

If Your Payroll Clerk Goes Rogue …You’re in Trouble

The U.S. Supreme Court recently declined to review a Ninth Circuit decision in an important case on employer responsibility for the actions of low-level employees.

Employer Solutions Staffing Group (ESSG) contracted with Sync Staffing to recruit and place temporary employees at jobsites. ESSG handled the administrative duties associated with its employees, including processing their payroll. Sync prepared a spreadsheet each pay period of each employee’s hours worked and sent it to ESSG. ESSG correctly trained its payroll clerk on how to calculate the number of regular and overtime hours and on how to calculate the payroll accordingly to pay the required overtime. After the clerk prepared the first payroll report and sent it to Sync, a Sync employee called her and told her that she should process all hours as regular hours, but did not provide any explanation as to why. ESSG’s payroll clerk then proceeded to prepare and process the payroll reports without any overtime hours, despite her training and despite having to override ESSG’s payroll system’s constant error messages, for an entire year.

ESSG was liable for unpaid overtime and penalties under the Fair Labor Standards Act (FLSA) for willful failure to pay overtime. ESSG’s argument that it could not be liable for a low-level employee’s actions was rejected by the court, which held that allowing an employer “to evade liability simply because none of its ‘supervisors’ or ‘managers’ processed the payroll would create a loophole in the FLSA” that would leave workers unprotected. Since the payroll clerk ignored her training, even though she received no explanation from the Sync employee that explained why the overtime rules did not apply and she overrode the error messages in the payroll system to produce the reports, she at least acted in “reckless disregard” of whether or not she was properly paying all wages due. Therefore, the violation was willful and ESSG was liable for penalties.

Finally, a willful failure to pay overtime means, by definition, that the employer did not act in good faith and is also liable for liquidated FLSA damages.

There are several lessons to be learned from this case:

  • train all levels of employees on wage and hour law;
  • conduct training at regular intervals;
  • ensure your supervisors are reviewing their staff’s work processes at appropriate intervals; and
  • be sure your lower-level employees know who they should take instruction from, with clear lines of authority.

(Scalia v. Employer Solutions Staffing Group, LLC (9th Cir. 2020) 951 F.3d 1097 cert. den. 2021 WL 666405.)

Related practice team: Labor and Employment

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