Staffing Agency and Client Can Both Be Employers of Temp Worker

An employee of a staffing agency can also be the employee of the company where he was temporarily assigned to work for the purposes of Title VII of the 1964 Civil Rights Act and the Pennsylvania Human Relations Act (PHRA), the 3rd U.S. Circuit Court of Appeals held.

Matthew Faush, a black man, was employed by Labor Ready, a staffing firm supplying temporary employees to a number of clients, including retailer Tuesday Morning Inc. There was no employment agreement between Faush and Tuesday Morning; rather, Labor Ready and Tuesday Morning had an “agreement to supply temporary employees.” Labor Ready assigned Faush to work at Tuesday Morning pursuant to the agreement.

Although Faush was only assigned to Tuesday Morning for 10 days, he allegedly experienced a variety of discriminatory acts and claimed that he and his black co-workers were terminated unlawfully. Faush sued Tuesday Morning in the District Court for the Eastern District of Pennsylvania, alleging race discrimination in violation of Title VII, the PHRA and 42 U.S. Code Section 1981.

At issue was whether Faush was Tuesday Morning’s employee. The district court ruled for Tuesday Morning, finding that Faush was not Tuesday Morning’s employee and Tuesday Morning therefore could not be liable for employment discrimination. On appeal, the 3rd Circuit reversed and remanded the Title VII and PHRA claims to the district court, holding that a rational jury could find Faush was an employee of Tuesday Morning.

In reaching this decision, the 3rd Circuit applied the so-called Darden test, which weighs a variety of employment factors, including which company paid the employees’ salaries, had hiring and firing power, and maintained control over daily employment activities. Particularly inconvenient for Tuesday Morning was its contractual agreement to undertake “primary responsibility” for ensuring compliance with prevailing wage and other employment laws, and its pledge to provide a workplace free from discrimination. This promise, according to the court, demonstrated Tuesday Morning’s acceptance of many of the legal responsibilities of a traditional employer.

The court recognized that Labor Ready did set the temporary employees’ pay rate, issued their paychecks, maintained their workers’ compensation coverage and completed their I-9 documentation. This, however, was not enough to preclude Tuesday Morning from also being considered an employer because the contractual agreement effectively protected Labor Ready from rising labor costs: Not only did Tuesday Morning pay Labor Ready for the hours worked by the temporary employees, including overtime, but the agreement allowed Labor Ready to adjust its rates for increases in taxes, health care costs, and workers’ compensation insurance costs. The court therefore found Tuesday Morning’s payments functionally indistinguishable from direct employee compensation, rather than fixed-rate compensation to a contractor for the completion of a discrete project.

Finally, the court considered the degree of control Tuesday Morning exercised over the temporary employees. Tuesday Morning retained the right to demand a replacement from Labor Ready if it was unhappy with a temporary employee for any reason. Faush worked at a Tuesday Morning location, where Tuesday Morning directly supervised Faush, provided site-specific training, furnished necessary equipment and materials, and verified the hours he worked. Labor Ready, by contrast, only visited the store twice, and during one visit merely relayed instructions to its employees from the Tuesday Morning manager. Although the agreement limited the work that could be assigned to temporary employees, for example, prohibiting temporary employees from operating machinery, equipment or vehicles without Labor Ready’s prior written permission, the court found that Tuesday Morning managed the temporary employees the same way it managed its permanent employees, and the tasks assigned to temporary employees were no different than those assigned to permanent employees.

Faush v. Tuesday Morning Inc., 3rd Cir., No. 14-1452 (Nov. 18, 2015).

Professional Pointer: Companies that use temporary help from staffing agencies to augment their workforce should carefully review their arrangements for payment and supervision of these workers. Directing and supervising the daily activities of temporary workers may, in some cases, result in exposure to potential employment discrimination claims, even if a contractor is the workers’ nominal employer.

Kristina T. Grimshaw is an attorney with Collazo Florentino & Keil LLP, the Worklaw® Network member firm in New York City.