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Third Circuit holds that temporary employee can proceed with discrimination lawsuit against retailer

12/4/2015

As the holiday shopping season descends upon us, many retailers are gearing up for sales by hiring temporary employees. While some temporary employees will be hired directly by the retailer, others will be provided by a staffing agency. A recent ruling by the Third Circuit could have a significant impact on the practice of hiring temporary workers from a staffing agency. In a case involving the national retailer Tuesday Morning, the Third Circuit held that temporary workers hired by a staffing agency and placed at Tuesday Morning can be considered employees of the retailer and therefore are entitled to the protection of federal and state employment laws, specifically Title VII of the Civil Rights Act and the Pennsylvania Human Relations Act. Both laws prohibit discrimination against employees who fall into certain protected categories. However, in the past, temporary employees often have been found to be employees of the staffing agency rather than the employer with whom they are placed.

In making the determination of which entity is the employer for the purpose of the federal and state employment laws, courts rely upon a number factors such as the skill required to perform the work, which entity provides tools and equipment, which entity directs the work of the employee, the manner in which the employee is paid, and which entity hires and fires the employee. But, generally speaking, the entity that hires and fires the employee, pays the employee, and controls the daily activities of the employee has been found to be the employer. In some cases, the staffing agency and the retail establishment have been found to be joint employers.

In the Tuesday Morning case, an African-American individual alleges that he was discriminated against because of his race while he was working at the store in violation of Title VII and the PHRA. Because he was a temporary employee, the question arose whether he was able to file a lawsuit against Tuesday Morning as his employer. The facts show that the employee was hired by a staffing agency and assigned to work at a Tuesday Morning store. The staffing agency provided the employee with a time card on which he was required to record his hours and submit to the staffing agency for payment. The staffing agency set the pay rate, paid the wages, and withheld employment taxes. Tuesday Morning’s managers trained the employee and assigned the employee his daily work. While Tuesday Morning could not fire the employee, it could request that the staffing agency remove him from the assignment.  Based upon these factors, the Third Circuit held that the individual was an employee of Tuesday Morning and, thus, could proceed with this lawsuit against the retailer.

In reaching this decision, the court downplayed the fact that Tuesday Morning paid the staffing agency rather than the employee, finding the distinction “functionally indistinguishable from direct employee compensation” and, instead, placed significant importance on the level of control that Tuesday Morning had over the employee’s work, stating that the store’s control over the employee’s daily activities overwhelmingly favored a finding that he was an employee of the retailer. For example, the store manager testified that he trained the temporary employees and assigned them the same tasks that he assigned to Tuesday Morning employees. The Court found that Tuesday Morning’s extensive control of the employee’s activities was sufficient to make him an employee of Tuesday Morning despite the fact that the staffing agency paid him and had the ultimate power to fire him.

The Third Circuit acknowledged that its decision will affect a substantial number of temporary employment arrangements and may increase potential liability for employers who utilize temporary employees.