September 10, 2025|Articles/Op-eds, Publications

Chavez-DeRemer v. HMMA: Court Lets Child Labor Joint Employment Suit Proceed Against Corporate Investor Brought by U.S. Department of Labor

By Thomas M. O’Connell

September 10, 2025 | U.S. District Court for the Middle District of Alabama, Northern Division | Slip Copy

Executive Summary

In an unpublished memorandum opinion, Chief Judge Emily C. Marks of the U.S. District Court for the Middle District of Alabama largely adopted a magistrate judge’s recommendation and denied motions to dismiss by Hyundai Motor Manufacturing Alabama, LLC (“HMMA”) and Smart Alabama, LLC (“SMART”), while granting dismissal without prejudice for a staffing agency that was no longer in business. The Secretary of Labor alleged that a 13-year-old girl and other minors were employed at SMART’s facility producing parts for HMMA, in violation of the Fair Labor Standards Act (“FLSA”). HMMA and SMART argued lack of Article III standing, constitutional infirmity in the Acting Secretary of Labor’s appointment, and insufficient pleading of knowledge. The court rejected these arguments, holding that the Secretary plausibly alleged joint employment and sufficient threat of future injury. The case will proceed against HMMA and SMART, but not the defunct staffing agency.

Relevant Background

The Department of Labor alleged that a 13-year-old girl, identified as “EC,” was employed by a staffing agency and placed at SMART’s Luverne, Alabama, factory from July 2021 through February 2022. According to the complaint, EC worked 50–60 hours per week operating heavy machinery used to shape automotive components. Her young appearance and inconsistent identification documents did not prevent her from being hired. The situation came to light only after she failed to return home one evening, prompting an AMBER alert. Further investigation revealed that child labor had been “widespread” at the SMART facility.

The Secretary alleged close ties between HMMA and SMART: HMMA owned a majority interest in SMART’s parent, provided over $100 million in financing, supplied manufacturing equipment, placed HMMA officers on SMART’s board, and retained authority to audit SMART’s compliance with child labor laws. The government contended that these facts supported joint employer liability under the FLSA.

Defendants challenged the complaint on three principal grounds: lack of Article III standing to pursue prospective relief, unconstitutional appointment of then-Acting Secretary Julie Su, and insufficient pleading of knowledge. They also sought to dismiss claims against the staffing agency, Best Practice Service, LLC (“BPS”), which had ceased operations.

Decision

Judge Marks denied HMMA’s and SMART’s motions to dismiss but granted BPS’s motion because its defunct status defeated redressability. Several holdings are significant for franchisors, private equity investors, and other employers:

  • Standing: The court held that the Secretary of Labor has Article III standing to seek prospective injunctive relief for child labor violations, even when violations appear historical. Citing Powell v. State of Florida, 132 F.3d 677 (11th Cir. 1998), the court emphasized that Congress vested exclusive enforcement authority in the Secretary. Allegations of “widespread” child labor at SMART supported a sufficient likelihood of future injury.
  • Constitutionality of Acting Secretary’s Appointment: The court rejected arguments that Julie Su’s service as Acting Secretary under 29 U.S.C. § 552 violated the Appointments Clause. Echoing other district courts, the court held her service valid and concluded that Article II concerns do not nullify Article III jurisdiction.
  • Knowledge Requirement: The court ruled that both SMART and HMMA could not disclaim knowledge of violations. Citing Gulf King Shrimp Co. v. Wirtz, 407 F.2d 508 (5th Cir. 1969), the court reiterated that “cases must be rare when prohibited work can be done within the plant, and knowledge or the consequences of knowledge avoided.” Given HMMA’s alleged control over SMART’s operations, the Secretary plausibly alleged that HMMA “knew or should have known” of the violations.
  • Dismissal of BPS: Because BPS was no longer in business, the court dismissed claims against it without prejudice. An injunction against a defunct entity could not redress the alleged harms.

Looking Forward

Family-owned franchisees sometimes allow their children or their children’s friends to “help out” at the business. While often well-intentioned, this practice can create FLSA violations if minors work excessive hours or perform prohibited tasks. These risks are not diminished by ownership structure or familial ties.

  • Private Equity Investor. Reputational fallout from child labor allegations doesn’t stop with the franchisee or franchisor — it can reach the portfolio level and damage enterprise value. Investors should expect regulators, the media, and limited partners to scrutinize any perception of lax oversight. The practical lesson is to address child labor risk through governance and due diligence: require franchisors to demonstrate that they have compliance systems in place, but stop short of dictating how franchisees manage their workforces. This avoids crossing the line into operational control that could fuel joint employer arguments.
  • Franchisor. For franchisors, the brand is always in the line of fire when a child labor story breaks, even if they are not the legal employer. The lesson is to strike a careful balance: insist on compliance with child labor laws through the Franchise Agreement and Operations Manual, and provide training and resources that help franchisees understand their obligations. However, franchisors must avoid directing how franchisees hire, schedule, or supervise minors, since that kind of involvement is exactly what creates joint employer exposure. Protecting the brand requires setting expectations and monitoring compliance at the system level without drifting into day-to-day employment control.
  • Franchisee. Franchisees are the actual employers and thus bear the direct legal risk. While it may be tempting in a family-owned business to have children or their friends help out, any misstep can result in penalties, brand-wide reputational harm, or even loss of the franchise. The lesson is straightforward: franchisees must know the applicable rules on work permits, hours, and hazardous occupations, and keep clear documentation to prove compliance. Short-term convenience is never worth the long-term exposure that comes with child labor violations.

The Chavez-DeRemer case illustrates the broad risks that child labor allegations create for companies with complex operational structures, including franchisors and their franchisees. Even when violations occur at a supplier or unit level, oversight authority and brand protection measures can draw the parent entity or investor into litigation.


Thomas O’Connell is a Shareholder at Buchalter APC and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.

This communication is not intended to create or constitute, nor does it create or constitute, an attorney-client or any other legal relationship. No statement in this communication constitutes legal advice nor should any communication herein be construed, relied upon, or interpreted as legal advice. This communication is for general information purposes only regarding recent legal developments of interest, and is not a substitute for legal counsel on any subject matter. No reader should act or refrain from acting on the basis of any information included herein without seeking appropriate legal advice on the particular facts and circumstances affecting that reader. For more information, visit www.buchalter.com.

Practices