Can an employer be held liable for acts of employment discrimination carried out by another employer? The quick, lawyerly answer is … it depends.
Under Title VII of the Civil Rights Act of 1964, which prohibits discrimination in the workplace, the general rule is that an actual or prospective employment relationship must exist in order for liability to attach.
If, however, a nonemploying entity controls or can substantially affect the terms and conditions of another employer’s employee, that entity may be considered a “joint employer” for Title VII purposes.
This means that a non-employing entity could be held equally responsible for any discrimination or harassment that may occur. This is referred to as de facto or joint employment liability, and often appears in situations in which you have a staffing firm, placement agency or outsourcing company.
Many, but not all, jurisdictions apply de facto or joint employer liability in Title VII cases. In those jurisdictions that do, liability generally only attaches in situations where “the putative defendant [while not the actual employer] is so extensively involved with the plaintiff’s day to day employment that the putative defendant is the ‘real’ employer for all intents and purposes, including Title VII liability.” Kerr v. WGN Continental Broadcasting Co., 229 F.Supp.2d 880, 886 (N.D. Ill. 2002).
In analyzing whether an alleged defendant is “extensively involved,” de facto or joint employer liability cases examine the amount of control a putative defendant exercises over a plaintiff. Factors considered include, but are not limited to, whether the “nonemploying” entity has authority to discipline; is able to assign work; routinely supervises day-to-day activities; furnishes tools, equipment and materials; sets work schedules; and is able to apply and enforce work rules.
Each item stated above need not be present for a joint employer relationship to exist. Further, no one factor is dispositive or necessarily carries more weight than the other. Courts will look at the totality of circumstances to determine whether a nonemploying entity has exercised enough control over another’s employee for joint employer liability purposes.
If the circumstances at hand do not lend themselves to a finding that a joint employer relationship exists, a nonemploying entity still can be held liable for employment discrimination. In addition to prohibiting employers from taking unlawful action against their own employees, Title VII prohibits employers from interfering with the employment opportunities of individuals who work for others. This is known as “third party interference” liability and would likely apply in situations where, for example, a non-employing entity makes a knowingly false report against an employee (which is found to be motivated by some discriminatory animus) that results in an adverse employment action being taken against the employee by his/her actual employer. In this scenario, the nonemploying entity could be held liable for the adverse employment action.
In both joint employer and third party interference cases, both employers can be held jointly and severally responsible for the unlawful activity alleged. This means that if liability is found, the employee can collect from both or any one of the employers. This may include collection for back pay, attorney fees, and compensatory and punitive damages, all of which can be quite substantial.
In light of what is at stake, employers should make every effort to reduce the likelihood of being held responsible for what happens to the employees of another company.
To help minimize risks, employers should take steps to ensure that they are not controlling, and cannot be construed as controlling, the terms and conditions of another employer’s employee. Not only should any contract between a primary employer and a contracting agency clearly articulate that the agency is solely responsible for the management of their own employees, but in practice the primary employer should endeavor to not control any meaningful aspect of the contracting employee’s work.
To further reduce risk, employers should consider placing in their contracts indemnification clauses, whereby the parties agree to indemnify and hold each other harmless for any costs/liability associated with each other’s treatment of common employees.
At the end of the day, actions speak louder than words, and contracts. As in other contexts, employers should make sure managers and supervisors are current on the law and their expectations, and are treating all individuals, employees or not, fairly and consistent with the law.