Third Circuit Rules on Employer Liability Regarding Temporary Employees
Author: Marta Moakley, XpertHR Legal Editor
November 19, 2015
The 3rd Circuit Court of Appeals has ruled that an employer using the services of a staffing agency (Labor Ready) may be held liable under federal and state civil rights laws for racial discrimination claims made by temporary employees. The 3rd Circuit applied the Supreme Court case Nationwide Mutual Insurance Co. v. Darden, which interpreted the definition of employee.
Matthew Faush was employed by a staffing agency that provided temporary employees to several clients, including Tuesday Morning, Inc. Faush was assigned to Tuesday Morning, Inc., where he alleged that he was subject to discrimination based on his race. Specifically, Faush claimed that he was subjected to racial slurs and accusations, and that he was eventually terminated based on his race.
Faush filed a claim based on violations of Title VII of the federal Civil Rights Act of 1964 as well as the Pennsylvania Human Relations Act. The lower court dismissed Faush's claims against Tuesday Morning at the summary judgment stage, ruling that Faush was not Tuesday Morning's employee. Specifically, Faush had never entered into a contract with Tuesday Morning, and never formally applied for a position there. Instead, Tuesday Morning entered into a contract with the staffing agency to provide temporary employees.
Under the contract, the staffing agency would:
- Set the temporary employees' pay rate;
- Pay their wages and withhold and remit their income and employment taxes;
- Maintain workers' compensation insurance on their behalf; and
- Complete their I-9 employment eligibility verification forms.
Tuesday Morning would:
- Share responsibility for the wages paid to the temporary employees;
- Be required to pay overtime pay;
- Have primary responsibility for ensuring compliance with prevailing wage laws; and
- Comply with any applicable federal, state and municipal civil rights laws.
The 3rd Circuit used the Darden test, which applies the traditional master-servant relationship factors, to determine the relationship between the worker and the employer, as well as any resulting liability. The relevant factors include:
- The skill required;
- The source of the instrumentalities and tools;
- The work location;
- The duration of the relationship;
- Whether the hiring party has the right to assign additional projects;
- The extent of the hired party's discretion over when and how long to work;
- The method of payment;
- The hired party's role in hiring and paying assistants;
- Whether the work is part of the regular business of the hiring party;
- Whether employee benefits are provided to the hired party; and
- The tax treatment of the hired party.
No one factor holds particular sway in the Darden analysis. In addition, the test may yield a relationship of co-employment or joint employment for purposes of liability under federal and state civil rights laws.
The 3rd Circuit determined that, when applying the Darden test, reasonable minds could come to different conclusions on Faush's employment relationship with Tuesday Morning. The Court noted the following factors as possibly signaling joint employment:
- Tuesday Morning's control over the temporary employee's daily activities;
- Payment of the worker on an hourly basis rather than based on the completion of a project; and
- Tuesday Morning's required evaluation of compliance with applicable labor laws.
In its reasoning, the 3rd Circuit cited support in similar 4th Circuit decisions and in EEOC guidance on the subject.
The court admitted that "many aspects of the Labor Ready - Tuesday Morning employment arrangement that we have identified in combination as sufficient to survive summary judgment will pertain to a large number of temporary employment arrangements, with attendant potential liability under Title VII for the clients of those temporary employment agencies." However, the court did not anticipate that its ruling, which is limited to the Title VII context, would "vastly expand such liability."