Employers Face Exposure Under Title VII When Contracting For Temporary Workers

On November 18, 2015, the United States Court of Appeals for the Third Circuit allowed an employee of a temporary staffing agency to proceed with employment discrimination claims against a company to which the staffing agency assigned him.  In Faush v. Tuesday Morning, Inc., Docket No.14-1452 (3rd Cir. 2015), the Court found that for purposes of Title VII of the Civil Rights Act of 1964 (“Title VII”), the worker successfully established that he was an employee of the staffing agency’s customer.

In this case, the staffing agency directly employed the worker, and assigned plaintiff to a customer for a 10 day temporary assignment.  The worker claimed that the customer discriminated against him based on his race while performing his duties.  Plaintiff asserted claims against the customer under Title VII, which prohibits employers from unlawfully discriminating against employees.  The Court found that the customer exerted enough control over the manner in which the worker performed his duties, so that it became an employer under Title VII.

In reaching this determination, the Third Circuit applied a test called the Darden test, which focuses on “the hiring party’s right to control the manner and means by which the product is accomplished.”  This “right to control” is based upon a consideration of the following factors: 1) skill required to perform the job; 2) who provides the tools; 3) location of the work; 3) duration of the relationship between the parties; 4) whether the customer may assign additional projects to the worker; 5) the extent of the worker’s discretion on when and how long to work; 6) wages/method of payment; 7) the worker’s role in hiring and paying assistants; 8) whether the work performed is a part of the customer’s regular business; 9) whether the customer is in business; 10) whether employee benefits are provided; and 11) the tax treatment of the worker.

The Customer’s Control Over Wages.  Here, the staffing agency set the worker’s rate of pay, paid wages, paid payroll and social security taxes, and maintained workers’ compensation insurance for the worker.  The staffing agency’s customer, however, also shared some responsibilities in connection with the worker’s wages.  First, the customer was obligated to notify the staffing agency if any minimum wage was owed to the worker.  Second, the customer agreed to pay overtime charges.  Third, the customer also obligated itself to pay for any changes arising from an increase in the staffing agency’s costs for wages, taxes, and insurance for this worker.  Fourth, the customer paid the staffing agency for each hour worked by the worker, at an agreed upon hourly rate.  The Third Circuit found that this method of payment indicated the existence of an employment relationship between the worker and customer.  The Court reasoned that in an independent contractor relationship, the customer would have paid a fixed rate to the staffing agency.  Instead, the customer indirectly paid the worker’s wages, plus an administrative fee to the staffing agency.

The Customer’s Control Over Hiring and Firing.  The staffing agency hired the worker and assigned him to this particular customer.  However, the customer reserved the discretion to find this worker suitable for the assignment and could also demand a replacement worker.  Therefore, the customer essentially exercised discretion over hiring and termination decisions.

The Customer’s Control Over The Worker’s Daily Activities.  The customer delegated assignments to the worker, directly supervised him, trained him, furnished equipment and materials, and verified the time he worked.   The customer also managed the temporary worker in the same manner as its employees.  Moreover, the worker performed unskilled tasks, similar to those performed by the customer’s employees.  Finally, the customer assigned the temporary worker to one of its stores, as opposed to working in a location controlled by the staffing agency.

The Customer’s Treatment Of The Worker.  The customer itself characterized the worker as a temporary employee, not an independent contractor.  In addition, the customer committed to providing the worker with a workplace free from discrimination and unfair labor practices, and also committed to complying with all employment laws.  Thus, the Third Circuit found that these protections were similar to those offered by an employer.

Based on the customer’s control over the worker’s wages, hiring and firing decisions, and daily work activities, and based upon its treatment of the worker, the Third Circuit found that the worker could proceed with his claim that he was an employee of the customer under Title VII.

Employer’s Take-Away.  Hiring a temporary worker exposes employers to potential liability under the employment discrimination and wage and hour laws.  Carefully review agreements with staffing agencies to ensure that the worker is treated as an independent contractor and not an employee.  Employers also need to review their protocols for all contact and assignments with temporary workers to ensure that they are not treated in a manner similar to that of employees.

For more information regarding this decision and to learn if your company’s treatment of temporary workers exposes you to liability, please contact Dina M. Mastellone, Esq., Director of the firm’s Human Resources Practices Group, at dmastellone@nullgenovaburns.com or Brigette N. Eagan, Esq., Counsel in the firm’s Human Resources Practices Group, at beagan@nullgenovaburns.com.

New Jersey Interest Arbitration Reform: Are You Prepared For Your Next Round of Negotiations?

New Jersey public employers are currently feeling the effects of Arbitration Reform Bill P.L. 2010 c.105 (“the legislation”), which applies to any collective negotiations agreement (“agreement”) expiring on or after January 1, 2011 to March 31, 2014. This legislation sunsets on April 1, 2014. But in the meantime, the legislation greatly impacts the role of arbitration in police and firefighter contract negotiations by establishing a 2 percent cap on the aggregate increase in “base salary” that can be provided to public employees in an interest arbitration award. The legislation’s 2 percent cap prohibits an arbitrator from issuing an award that, on an annual basis, increases “base salary” by more than 2 percent of the aggregate amount expended by the employer on “base salary” items for the members of the union in the 12 months immediately preceding expiration of the agreement. An arbitrator can distribute the aggregate monetary value over the term of the agreement in unequal annual percentages.

In negotiations and during interest arbitration, disputes often arise as to what qualifies as “base salary” and “non-salary economic issues”. The legislation provides that the 2 percent cap applies to all “base salary” items, such as step increment payments, longevity and cost of living increases. The legislation specifically prohibits an arbitrator from issuing an award that addresses “non-salary economic issues” unless already included in the existing contract. “Non-salary economic issues” encompass paid time off, pension costs, and health /medical insurance costs. The legislation’s exclusion of “non-salary economic issues” from an award is particularly important because it restricts an arbitrator’s ability to create new cost items in successor contracts.

There is currently no case law to provide further guidance on the legislation’s distinction between “base salary” and “non-salary economic issues,” but we will provide updates on any new developments.

Should you need assistance or have any questions regarding interpretation or implementation of the legislation, please contact Joseph Hannon, Esq. or Phillip Rofsky, Esq. in our Labor Law Group.