Staffing Agencies Not Liable for Alleged Workplace Bias by Client Company

Two staffing agencies could not be held liable for a client company's alleged discriminatory failure to promote two black employees because the agencies were not involved in the decision-making regarding promotions, a California appeals court ruled.

The staffing agencies recruited employees, including the two plaintiffs, for the client employer. The plaintiffs sued the staffing agencies and client employer for racial discrimination under California's Fair Employment and Housing Act (FEHA), claiming they had been denied promotions because of their race.

The trial court dismissed the claims against the staffing agencies before trial, and the plaintiffs appealed.

The appeals court first noted that the staffing agencies tracked and processed payroll, health insurance, workers' compensation, vacation time off, holidays, sick pay, taxes and social security payments. The business name on the employees' paychecks was one of the two agencies.

However, the court continued, no one employed by the staffing agencies was involved in the day-to-day supervision of the assigned employees. The decision to give a raise or promotion to any employee working for the client employer was made solely by the employer with no input from the staffing agencies.

The appellate court then affirmed the dismissal of the claims against the staffing agencies. The two agencies basically were "innocent bystanders" in this case, the court said. The staffing agencies were not involved with the promotion decisions challenged by the plaintiffs. "A company that has not discriminated cannot be liable for discrimination," the court said.

In reaching this decision, the appeals court relied in part on a California state regulation issued by the Fair Employment and Housing Commission, which is the agency charged with interpreting FEHA.

[SHRM members-only HR Q&A: What is FEHA and what does it cover?]

This regulation provides that an individual compensated by a temporary service agency for work performed for a contracting employer is an employee of the contracting employer for the terms, conditions and privileges of employment that the contracting employer controls. That individual also is an employee of the temporary service agency for the terms, conditions and privileges of employment controlled by the temporary service agency.

The appellate court noted that the undisputed evidence before the trial court conclusively established that the staffing agencies did not "provide any input, have any authority or make any decision" regarding the promotion of any employees assigned to the contracting employer. Therefore, the two staffing agencies are not liable and were properly dismissed from the plaintiffs' lawsuit, the appeals court concluded.

Ducksworth v. Tri-Modal Distribution Services, Calif. Ct. App., No. B294872 (April 7, 2020).

Professional Pointer: Whether a worker hired by a staffing agency and assigned to a client employer is considered an employee of the client, the staffing agency or both depends entirely on the facts of the case, and a court will make the determination on a case-by-case basis.

Joanne Deschenaux, J.D., is a freelance writer in Annapolis, Md.