A recent $11.5 million wage settlement in federal court should be ringing alarm bells for business owners, executives, business brokers, valuation experts, and HR professionals. The settlement apparently resulted from the court’s initial refusal to dismiss several of the core claims.
The case, Martinez-Lopez et al. v. GFA Alabama Inc. et al., is not just a simple labor dispute. It serves as a high-stakes lesson in supply chain liability, joint employment, and the devastating cost of cutting corners. The defendants, logistics firm Glovis Georgia, LLC, and the staffing company GFA Alabama Inc., will now pay the price.
FLSA Joint Employer Liability
The plaintiffs successfully targeted Glovis Georgia, a key logistics subsidiary of the Hyundai Kia Automotive Group, and GFA Alabama, the recruiting firm, as joint employers.
While GFA served as the primary employer of record. Glovis, however, exercised sufficient control over the workers to establish joint employment between Glovis and GFA. Glovis and GFA were therefore equally liable for the employees’ wages and working conditions.
But that’s not all. The lawsuit also identified both GFA and Glovis as a RICO enterprise under Georgia law due to their alleged association in fraudulent activities. Additionally, the lawsuit implicated a second non-party firm, Capital People.
Alleged Multilayered Fraud
The plaintiffs, skilled Mexican professionals on TN visas, alleged a sophisticated “bait and switch” operation:
- Fraudulent Recruitment: The defendants promised the workers high-skilled engineering jobs compatible with the TN visa program.
- Low-Wage Reality: Once in the U.S., the defendants allegedly placed them in lower-wage manual labor jobs in warehouses, a violation of the TN visa’s purpose.
- Wage and Compliance Violations: The complaint included claims under the Fair Labor Standards Act (FLSA), Title VII (discrimination), the Americans with Disabilities Act (ADA), Georgia RICO statutes, and federal tax violations.
The specific allegations are stark, highlighting, in addition to a troubled work culture : a profound breach of trust, significant ethical and legal violations,
- Discrimination and Retaliation: Workers reported facing discrimination in pay and assignments compared to U.S.-born employees. A pregnant plaintiff requested light-duty work. GFA allegedly refused the accommodation, harassed her. Ultimately they fired her, forcing her to immediately vacate her GFA-provided apartment.
- IRS Fraud: GFA allegedly submitted false information returns to the IRS, over-reporting wages for TN visa holders. The fraudulent reporting created economic damages and tax liabilities for the workers.
- Hostile Environment: Management reportedly dismissed complaints by reiterating that workers could simply “return to Mexico if unhappy.”
🎯 The Takeaways
OK, beyond the news story, beyond the lawsuit itself, what are our takeaways? Here are just a few:
- For Business Owners & Executives: The FLSA Risk
Telling one thing to your employees and another to the government catches up to you. Your contracts, no matter how well well or cleverly written, will not shield you if you in fact act as a joint employer. Moreover, relying on staffing firms to perform administrative functions doesn’t outsource your FLSA compliance liability.
- For Business Brokers & Valuation Experts: The Hidden Cost of Non-Compliance
A large settlement and ongoing government scrutiny (from the IRS, DOL, and potentially the Department of Homeland Security) are now massive, quantifiable financial risks for these entities. For smaller companies, being in a similar position can instantly slash your company’s valuation, and, worse, bring the company to its knees. In other words, undisclosed FLSA or RICO risk can be a deal killer.
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Contents of this post are for educational/informational purposes only, are not legal advice, and do not create an attorney-client relationship. Consult with competent employment counsel in the state(s) in which you employ people with your specific questions.
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