US Dept. of Labor Investigates Dealers – Focus Is On Outside Detailing Companies

If using an outside company for detailing work, dealers need to make sure the outside company is paying their employees correctly or risk opening up their own checkbook. The US Department of Labor (USDOL) forced several New England dealers to pay the employees of outside detailing companies for overtime and other wages that weren’t paid by the detailer. The USDOL has examined three NH dealerships and NHADA understands that several more are next in line. This article will give you recommendations as to how to avoid such an unwelcome conclusion. Unfortunately, there is no iron-clad solution. First some background.

The problem:

Outside companies that perform detailing or reconditioning work at dealerships. The USDOL has investigated several dealerships in the New England area including three in New Hampshire. Several more stores are in the hopper. The USDOL has alleged that some of these outside detailing companies failed to properly pay wages to their employees, usually overtime.

After investigating the relationship between the detailer and the dealer, the USDOL found that, in 100 percent of the cases, there was either no independent contractor relationship or the dealer was a joint-employer. Upon reaching that conclusion, the USDOL demanded that the dealer make up for the missing wages if the detailing company wasn’t able to come up with the cash.

The solution:

It’s neither easy nor guaranteed. Dealers should ensure (1) the outside company is paying their employees correctly; (2) the detailer is an independent contractor; (3) joint-employment is not present; and (4) they should consult with a labor attorney or just hire their own employees.

As you look at this and especially if you are contacted by the USDOL, I recommend that you call a labor attorney for advice. NHADA partners Cook, Little, Rosenblatt & Manson, p.l.l.c. (Jen Moeckel) or Devine & Millimet (Mark Broth) are both available for this.

Also, review this article: “How To Survive A Department of Labor Wage-Hour Audit,” NHADA, which discusses investigations. You can view the article online at https://www.nhada.com/blog/be-prepared-for-a-department-of-labor-audit-process

Is the detailing company correctly paying their employees?

There is no sure way to confirm this. Check their payroll records. Compare actual paystubs to cancelled checks. If you have a security log, see what hours the employees of the detailer are working, or limit the number of hours they operate to 40. These are are just a few ways to ensure compliance.

Dealers shouldn’t just blindly accept the detailing company’s word that wages are being paid correctly. After all, they have you as a financial backup if they can’t pay the full wages!

You should calculate how much it would cost you to hire your own detailing employees and compare that to what you are paying the detailing contractor. As the saying goes, “if something seems too good to be true, it probably is!”

You should also be cautious of detailing companies that hire other companies to do the detailing work because now you are going to have to check on that second company. You should also be concerned if the detailing contractor hires people he or she claims are “independent contractors.” It is a difficult test to pass at this level.

How do you ensure the independent contractor status and avoid joint employment?

Again, there is no black and white answer to this as the federal standards are broad and vague.

Here are some questions you should ask yourself to try avoid joint employment and ensure the independent contractor (IC) status is present:

• Is the detailing work done at the dealership or at an off-site location?
• Do the recon workers wear recon company uniforms?
• Did the dealer put out the recon contract out for a bid?
• Is a former employee running the recon company?
• Did the recon company hire the dealership’s former recon employees? and
• Does the recon company have its own employees or does it consider the workers to be independent contractors?
• Do your managers direct the work of the detailing contractors employees?
• Do the same detailing contractor employees work at your dealership nearly every day or are the employees constantly rotated around?
• If the detailer is at the dealership, does it rent space from the dealer at fair market rates?
• Does the recon company do work at other dealerships (not afflilated with your operations) or have other business operations?
• Does the recon company only do work for your dealership?
• Does the detailer advertise its services to the public or other dealerships?
• Is the recon company open more hours than the dealership? fewer hours? identical hours?
• Are the hours of operation dictated solely by the dealership?
• Can the recon company accept off-the-street customers?
• If so, does the recon set the rates for outside servicing or does the dealership?
• Do they advertise for off-the-street customers?
• Is the detailing service included in the dealerships’ advertising or marketing materials; if so, is the recon clearly identified as an independent operation in the advertising?
• Does the recon company provide its own tools and supplies?
• Does the detailer use any dealership supplies or tools (i.e. special wax, vacuum, hoses, brushes, soap, etc.)?

Dealers also need to answer these questions (A “no” is something you should correct.):

• Does the recon company have their own P&C and WC insurances?
• Is the recon company incorporated or an LLC?
• Is the recon company paying the appropriate taxes (employer and employee)?
• Will the recon company indemnify the dealership?
• Does the recon company warranty the recon work?
• Will the recon company protect confidential information?
• Have you limited the assignment of the recon contract?
• Is there a clear termination clause?

Use the USDOL as a resource.

If you have questions, please do call the NHADA, your attorneys (see the two partners above), or even, the USDOL itself. The call to the USDOL is anonymous. The local office can be reached at 603-666-7716. The USDOL has assured me that a call from a dealer triggers no investigation.

The USDOL also recommends three fact sheets for further information:

#13 – Employment Relationships under the Fair Labor Standards, online at https://www.dol.gov/agencies/whd/fact-sheets/13-flsa-employment-relationship

#44 – Visits to Employers, online at https://www.dol.gov/agencies/whd/fact-sheets/44-flsa-visits-to-employers

#76 – Car Wash and Auto Detailing Establishments under the FLSA: https://www.dol.gov/agencies/whd/fact-sheets/76-flsa-car-wash