In a ruling with significant implications for companies that utilize staffing agencies to hire temporary employees, a three judge panel of the United States Court of Appeals for the Third Circuit has found that those companies may be held liable for discrimination claims brought by such temporary employees under Title VII of the Civil Rights Act of 1964 as well as the Pennsylvania Human Relations Act.
In Faush v. Tuesday Morning, a Third Circuit panel held that the trial court had improperly dismissed racial discrimination claims brought by a plaintiff against the home-goods retailer at which he had worked for a total of 10 days. The plaintiff had been assigned to the retailer by Labor Ready, a national employment services company specializing in providing temporary employees to its clients. The trial court had found that the retailer was not the plaintiff’s employer and could not be held liable under Title VII.
The Court applied the Darden test to determine whether, in the temporary employment context, the retailer could be considered an “employer” subject to Title VII. The Darden test relies primarily on the common law of agency, and requires a fact-intensive analysis of a given defendant’s control over the manner and means of the plaintiff’s work. Notably, the Court wrote that classifying one defendant as an employer does not preclude a finding that a co-defendant is also an employer; two entities could be considered “co-employers” or “joint employers” of one employee.
Although Labor Ready set the temporary employees’ pay rate, paid their wages and was the entity responsible for hiring the employees, the Court found that the retailer’s ultimate control over their daily activities at work (including providing on-site training, direct supervision and equipment/materials) was evidence of an employer/employee relationship, rather than an independent contractor relationship. Moreover, the retailer’s payments to Labor Ready were functionally indistinguishable from direct employee compensation.
The Court expressly limited its ruling to the Title VII context, while stating that it did not anticipate a vast expansion of liability, since employers with over 15 employees were already subject to Title VII. However, this ruling brings the Third Circuit in line with similar decisions from its sister courts.
Comment: As a result of this ruling, companies must be more vigilant in ensuring that appropriate anti-discrimination policies are enforced in the workplace. Now more than ever, companies must take care that no one at work, whether permanent or temporary, is subject to the type of discrimination prohibited by Title VII, in light of the increasing difficulty of arguing “independent contractor” status under the law. While this is a Title VII case, any case involving employees and employers invariably raises workers’ compensation issues. The relationship between a staffing company and its customer, however, is almost always controlled by contract. However, if there is not a contract that confirms who is the responsible entity for workers’ compensation, then there will often be a question as to which entity is responsible for workers’ compensation purposes if there is an injury.
For more information, please contact David Greene, Co-Chair of Workers Compensation Group, at dgreene@wglaw.com or 215.972.7910 and Tracy Walsh, Co-Chair of Employment Group, at twalsh@wglaw.com or 215.825.7224.