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Even If a Company Leases Employees, It Can Still Be Liable under the Joint Employer Doctrine

Thomas W. Hartmann
The Hartmann Law Firm LLC
TheHartmannLawFirm.com; Tom.Hartmann@gmail.com; 908 769 6888

Summary: In the last several months, the Department of Labor, the National Labor Relations Board, and the courts have become extremely sensitive to and focused on the issue of the Joint Employer. In this situation, one business may get some or all of its workers from a third-party staffing firm or similar provider, which remains the workers' "employer of record" for payroll and other purposes. However, it is becoming much clearer that the individuals involved may not only be employees of the staffing or employee leasing firm -- but also of the "customer" of the employee staffing company, negating many of the intended benefits of the employee leasing arrangement. In this scenario, the customer-company should very carefully consider setting up controls as if it were the true employer or revising the nature of the relationship with the staffing company.

Tuesday Morning Case Allows Temp to Sue Staffing Company and Tuesday Morning. Just about two months ago, on Nov. 18, 2015, the U.S. Court of Appeals for the Third Circuit (our federal circuit) reminded us that the assumption of insulation through a leasing or temporary employment agency may be wrong.

In Faush v. Tuesday Morning, Inc., __ F.3d ___, (3d Cir. Nov 18, 2015), the Third Circuit held that companies contracting with staffing companies for temporary workers may be held liable for such temporary employees' discrimination claims.

In this case, Matthew Faush was employed by Labor Ready, a staffing firm that provided temporary employees to its clients. Labor Ready placed Faush on a temporary assignment at Tuesday Morning Inc. Faush was only assigned to the store for 10 days. He worked each day for approximately eight hours with nine other temporary employees.

The temporary employees were employed to unload merchandise, set up display shelves, and stock merchandise. During the 10 days he worked at Tuesday Morning, Faush made several internal complaints of racial discrimination (that is, to Tuesday Morning) and, according to his complaint, he and other African-American coworkers were ultimately terminated. The complaint did not explain the circumstances of the "termination" or the respective roles of Labor Ready and Tuesday Morning - nor do the court opinions explain this further, indicating it was not important to the decision.

Following the termination, Faush sued Tuesday Morning for race discrimination. The trial court initially threw out the case against Tuesday Morning (by summary judgment), focusing on what it characterized as the "key three" issues of which entity paid employee salaries, hired and fired them and had control over daily activities.

However, the Third Circuit said that the trial court was wrong and ruled there was enough evidence that a jury could find that Tuesday Morning and Labor Ready were Faust's joint employers and both subject to suit.

In reaching this conclusion, the Third Circuit pointed to a number of incidents of an employment relationship that are common in an "employee leasing" situation:

  • While Labor Ready set the leased employees' wage rate and was responsible for payroll taxes and other matters, Tuesday Morning was primarily responsible for compliance with prevailing wage laws and explicitly undertook to comply with all state and federal laws governing employees.
  • While Tuesday Morning did not pay the leased employees directly, its payments to Labor Ready were "functionally indistinguishable" from direct wage payments because they just reimbursed Labor Ready for its direct hourly labor costs for each hour worked by the leased employees with an added administrative fee.
  • While Tuesday Morning did not have the power to hire or fire an individual as an employee of Labor Ready, it retained complete control over whether a Labor Ready employee could work in its facility.
  • Once the leased employee reported for work, the work was performed entirely on Tuesday Morning's premises, rather than at a site controlled by Labor Ready. Tuesday Morning provided training, equipment, materials and supervision, and otherwise exercised complete control over what the leased employee did. Labor Ready supervisors were seldom on site.
  • The leased employees worked next to Tuesday Morning's admitted employees, with virtually no distinction between the two groups.

NLRB January 20, 2016 Decision Outlines List of Issues for Joint Employer. On Jan. 20, 2016, the Wage and Hour Division of the Department of Labor ("DOL") issued an Administrator's Interpretation ("AI") providing guidance on "joint employment" under the Fair Labor Standards Act and Migrant and Seasonal Agricultural Worker Protection Act. The opinion was broadly framed, but appeared to concentrate on the hospitality, health care, construction, janitorial, warehouse and logistics, agricultural, and satellite television industries.

The DOL's January 20, 2016 opinion focused on so-called "fissured workplaces," that "have increasingly contracted out or otherwise shed activities to be performed by other entities through, for example, the use of subcontractors, temporary agencies, labor brokers, franchising, licensing and third-party management."

The DOL's January 20, 2016 opinion cites several factors relevant to an evaluation of the economic ties between two (or more) entities to determine whether there is a joint employer arrangement:

  1. The potential joint employer's right to direct, control or supervise the work performed "beyond a reasonable degree of contract performance oversight;"
  2. The potential joint employer's ability to control employment conditions (such as hiring, firing, determining rates of pay, etc.);
  3. The permanency and duration of the relationship, considered in the context of the industry, in which an indefinite, permanent, full-time or long-term relationship "suggests" economic dependence;
  4. The extent to which the nature of the work is repetitive, rote, relatively unskilled or requires no training, all of which weigh in favor of economic dependence;
  5. Whether the work is an integral part of the potential joint employer's business, which has "long been a hallmark of determining whether an employment relationship exists as a matter of economic reality;"
  6. Whether the work is performed off-site or on the potential joint employer's premises; and
  7. The extent to which the potential joint employer assumes administrative functions commonly associated with an employment relationship (handling payroll, providing workers' compensation insurance, providing necessary facilities and safety equipment, housing, or transportation, or providing tools and materials required for the work, etc.).

Brown-Ferris Decision of August 2015 Reinforces Standards for Finding Joint Employer . The National Labor Relations Board ("NLRB") also issued a decision in August 2015 (Browning-Ferris Industries of California, Inc., d/b/a BFI Newby Island Recyclery, and FPR-II, LLC, d/b/a Leadpoint Business Services, and Sanitary Truck Drivers and Helpers Local 350, International Brotherhood of Teamsters, Petitioner Case 32-RC-109684), in which it determined that "indirect control" could be a key factor in determining whether a joint employment relationship exists.

Browning-Ferris ("B-F") operates a recycling facility in California where it employs 60 people represented by the Teamsters. B-F has a labor services agreement with a supplier named Leadpoint, and under that agreement, Leadpoint provides workers who perform tasks at B-F's facility, such as sorting recycled materials, maintaining the screens used in the sorting equipment, and cleaning the facility. The Union sought to represent the 240 persons supplied by Leadpoint who work at B-F's facility.

In its management of the union election process, the NLRB's Regional Director initially concluded that B-F was not a joint employer of the Leadpoint employees. However, on appeal the full NLRB reversed and concluded that two or more businesses are joint employers of the same employees if they "share or codetermine those matters governing the essential terms and conditions of employment."

Conclusion: Based on these very recent cases, employers who are using leasing companies or other staffing agencies for employees should carefully evaluate what controls and policies they have in place for employment matters as well as the nature of the economic relationship with the staffing agency, particularly as to claims for indemnification. It is dangerous to simply assume that the staffing agency bears all the obligations of the "employer," as in the joint employment situation, both employers can be liable for a claim.

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