Companies Not Safe From Title VII Liability For Claims of Workers From Temp Agencies

Bloomberg BNA Laura D. Francis
November 18, 2015

Reproduced with permission from Daily Labor Report, 222 DLR AA-1 (Nov. 18, 2015). Copyright 2015 by The Bureau of National Affairs, Inc. (800-372-1033) <

Race Discrimination

Companies Not Safe From Title VII Liability For Claims of Workers From Temp Agencies

An employee of a staffing agency who claimed he experienced race discrimination at the work site where he was assigned can sue the company operating the work site as his ” “employer” under Title VII of the 1964 Civil Rights Act, the Third Circuit ruled (Faush v. Tuesday Morning, Inc., 2015 BL 379369, 3d Cir., No.  14-1452, 11/18/15).

The decision was hailed by an employee-side attorney as ” “critical to the protection of contingent workers.”  Although the U.S. Court of Appeals for the Third Circuit already has adopted the ” “joint employer” concept, on Nov. 18 it held that the proper test for determining whether a company is an ” “employer” under Title VII is the common-law test announced by the U.S. Supreme Court in Nationwide Mutual Insurance Co. v. Darden,  503 U.S. 318, 14 EBC 2625 (1992).

Darden involved an interpretation of the Employee Retirement Income Security Act, which contains a ” “circular”definition of ” “employee” that is similar to Title VII’s, the court explained.

Applying the Darden test, the court found that Matthew Faush could bring a Title VII race discrimination claim against Tuesday Morning Inc., where he was sent to work by the staffing firm Labor Ready. Faush, who is black, claimed he was subjected to racially motivated accusations, racial slurs and eventual termination. Employee Advocates See Decision as “Critical.’ Paul W. Mollica, who is of counsel to Outten & Golden in Chicago, told Bloomberg BNA Nov. 18 that ” “extension of Title VII to temporary employment is critical to the protection of contingent workers, from sex as well as race discrimination.”

With the number of temporary employees on the rise, decisions such as the Third Circuit’s ” “recognize the reality that the clients often dictate the employment relationship down to very fine details,” Mollica said in an e-mail. ” “They cannot simply contract out the duty to protect workers from discrimination,” he said.

Employee advocates have been working to end a perceived practice of employers hiring workers through temp agencies to mask discrimination. The Equal Employment Opportunity Commission has looked specifically at employers using temp agencies as a shield for their own discriminatory hiring. In June 2011, the commission held a public meeting on the issue (120 DLR C-1, 6/22/11).

The Fourth Circuit also recently held that a company could be liable for the Title VII sexual harassment claims of a factory worker hired through a temporary staffing agency under a joint employer theory (Butler v. Drive Auto. Indus. of Am., Inc., 2015 BL 226147, 793 F.3d 404 (4th Cir. 2015)) (136 DLR AA-1, 7/16/15).

The Third Circuit declined to adopt that court’s ” “hybrid test” for joint employment, which combined common law agency principles and the ” “economic realities” test under the Fair Labor Standards Act. That test is very similar to the one in Darden, so there was no reason not to use the Supreme Court’s test, the appeals court said.

Section 1981 Claims Properly Dismissed. While the district court improperly granted summary judgment to Tuesday Morning on those claims, it correctly dismissed Faush’s claim under the Civil Rights Act of 1866 (42 U.S.C. § 1981), the Third Circuit held.

To present a valid Section 1981 claim, Faush would have to assert rights under an existing or proposed contract, the court said. The record doesn’t indicate that he entered into a contract with Tuesday Morning or ever attempted to do so, it said.

Yet the Third Circuit used Faush’s lack of a Section 1981 claim to bolster its argument in support of his Title VII claim.

” “The fact that temporary employees may not have any remedy for racial discrimination under § 1981 and that any such remedy, if it exists, would be contingent on the terms of a contract negotiated by the staffing firm and its client demonstrates the perversity of exempting the clients of staffing firms from Title VII,” Judge Julio M. Fuentes wrote for the court.

” “Traditional employees are covered by Title VII, and many independent contractors will be able to avail themselves of § 1981,” Fuentes said ” “There is no reason to believe Congress intended for temporary employees to fall through the cracks and be subjected to limitless discrimination at their places of work.”

Tuesday Morning also is subject to liability for race discrimination under the Pennsylvania Human Relations Act, which tracks Title VII’s ” “employee” language,  the court said.

Factors Suggest Employment Relationship. Overturning the district court’s grant of summary judgment to Tuesday Morning on Faush’s Title VII claim, the Third Circuit relied on several factors to find that the retailer was Faush’s employer. For example, Tuesday Morning made payments to Labor Ready that were ” “functionally indistinguishable from direct employee compensation.” And although Tuesday Morning couldn’t fire employees from Labor Ready, it did have the power to determine who could work at its store.

Finally, the court said, Tuesday Morning personnel gave Faush assignments, directly supervised him, provided site-specific training as well as necessary equipment and materials, and kept track of his hours.

Fuentes said the court was mindful that its ruling ” “will pertain to a large number of temporary employment arrangements, with attendant potential liability under Title VII for the clients of those temporary employment agencies.” But he said the ruling shouldn’t ” “vastly expand such liability, as entities with over fifteen employees are already subject to Title VII.”

Judges D. Michael Fisher and Cheryl Ann Krause joined the opinion.

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NUMBER 222 NOVEMBER 18, 2015