How an Employer May Be Liable to Its Nonemployees

By Sep 21, 2015

Nearly all employers know that federal and state laws prohibit them from discriminating against their own employees or job applicants. Many employers, however, are unaware they could also face liability under these fair employment laws to individuals they never hired or considered for a job.

Joint Employers

Consider the following scenario: Company A, which operates a women’s health clinic, contracts with Company B to provide security services on its premises. Company B hires the guards, trains them, pays them, provides them with benefits, supplies their uniforms and equipment, dictates their schedules, and requires them to report exclusively to Company B’s supervisors. Because of the negotiated contract rate and the heightened risks of the job, Company B pays the guards assigned to Company A’s premises a higher rate than it pays guards assigned to other locations.

Several months into the contract, Company A tells Company B that it prefers that only female guards work at its facility because male guards make its patients uncomfortable. Company B removes all male guards from the facility and thereafter assigns only female guards.

Company A never “employed” the guards in the normal sense of the term, but could it nevertheless be subject to a lawsuit for employment discrimination by the male guards? Courts have found that an entity can be held liable to a nonemployee under a joint employer theory where, through its contractual relationship with the employer, the entity exercises control over the terms and conditions of the individual’s employment. To determine whether an entity exercises sufficient control to be considered a joint employer for purposes of Title VII of the Civil Rights Act of 1964, courts consider many factors, including whether the entity: controls the workers’ hiring, firing and discipline; pays them; keeps employment records on them; and supervises their work.

Even where an entity does not qualify as a joint employer, however, it might still be held liable to nonemployees for employment discrimination under an interference or “gatekeeper” theory. Under this theory, an individual can recover against an entity that interfered with the individual’s employment opportunities for a discriminatory reason. Thus, even if a court were to find that Company A was not a joint employer of the male guards, Company A could still be subject to potential liability for interfering with the male guards’ employment assignments with Company B.

‘Aider and Abettor’ Provisions

The risk of liability to nonemployees under state fair employment laws can extend beyond situations where one party directs another to take an action that negatively affects the other’s employees. An entity could also face liability if it fails to report and remediate discrimination directed at nonemployees under “aider and abettor” provisions of certain states’ fair employment laws.

For example, New Jersey’s Law Against Discrimination contains a provision, mirrored in the laws of many other states, making it unlawful “[f]or any person, whether an employer or an employee or not, to aid, abet, incite, compel or coerce the doing of any of the acts forbidden under this act.” Courts have interpreted this provision to authorize lawsuits against nonemployers not only for actively participating in a discriminatory act or practice by the employer, but also for remaining “deliberately indifferent” to the existence of such discrimination. (See Lopez-Arenas v. Zisa, No. 10-2668, 2012 WL 933251 (D.N.J. 2012).)

Consider this scenario: one of Company A’s third-party vendors makes repeated unwanted sexual advances to one of Company B’s guards on Company A’s premises. The guard reports the vendor’s conduct to Company A, and Company A does nothing. The sexual advances continue, causing the guard severe distress.

Can Company A be held liable to Company B’s guard for sexual harassment? The answer, under some states’ aider and abettor provisions, could be yes. Company A may have a duty to report the guard’s complaint to Company B and take remedial action against its own vendor who made the sexual advances, even though Company A never directly employed the guard or the vendor.

Preventive Steps

As employers increasingly do business in collaborative, project-driven and outsourced settings, their employees increasingly share the workplace with co-workers who have different employers. Such work environments can be fertile ground for lawsuits against employers who do not take complaints from nonemployees seriously or who make careless decisions affecting nonemployees.

To minimize exposure to claims by nonemployees under state and federal fair employment laws, employers first should be cautious not to direct a contractor or other entity to take an employment action that would be discriminatory for the employer to take vis-à-vis its own employees.

Second, employers should consider broadening their anti-discrimination policies to prohibit discrimination by and against all individuals in the workplace, including contractors, vendors, volunteers and customers. Employees must be made to understand that the same duties of nondiscrimination apply to workplace interactions with nonemployees as to dealings with fellow employees.

Third, employers should have policies and procedures that are broad enough to require the reporting of any act of discrimination, including by employees against nonemployees and vice versa. Most importantly, employers should take seriously any report of discrimination in the workplace, whether the complaint originates from one of its own employees or someone else.

In today’s employment environment, the threat of litigation is not just limited to lawsuits by employees against their employers. By understanding this reality and adopting effective policies and practices, employers can minimize their exposure to claims of discrimination from employees and nonemployees alike.

Paul J. Sopher and Ryan D. Freeman are attorneys in Littler’s Philadelphia office.

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