Third Circuit Adopts Narrower Darden Test to Determine Joint Employer Status for Purposes of Title VII

In a prior post we discussed the new test adopted by the National Labor Relations Board for determining when two entities can be deemed “joint employers” equally liable for unfair employment practices in violation of the National Labor Relations Act.  Now, the Third Circuit Court of Appeals (with jurisdiction over federal courts in NJ, DE and Eastern PA), has announced the test for determining when two entities can be deemed “joint employers” equally liable for violations of federal anti-discrimination laws.

The bad news is that the Third Circuit’s decision in Faush v. Tuesday Morning, Inc., D.C. Civ. No. 2-12-cv-07137 (Nov. 18, 2015) may significantly impact companies who secure workers through staffing agencies or other third party providers. The good news is that the Tuesday Morning court rejected a broad test that would have made it easier for employees to establish “joint employer” status in favor of a narrower test that may make it easier for an employer to resist “joint employer” status.

The Facts: Matthew Faush, African American, was employed by Labor Ready, a staffing agency providing temporary workers to retailer Tuesday Morning, Inc.  Following his termination, Rauch filed suit against Tuesday Morning claiming race discrimination in violation of Title VII and the Pennsylvania Human Relations Act (PHRA). Tuesday Morning moved for summary judgment, claiming that Faush was not its “employee” and thus it could not be liable for employment discrimination under Title VII or the PHRA.  The court below agreed and dismissed the case.   Rauch appealed.

On appeal, the parties disagreed about the proper test to be applied by the court to determine “employee” status under Title VII and the PHRA.  Faush advocated for the broader “economic realities” test announced by the Third Circuit in In re Enterprise Rent-A-Car, 683 F.3d 462 (3d Cir. 2012), used to determine employee status under the Fair Labor Standards Act (FLSA).  Tuesday Morning advocated for the narrower master-servant agency standard announced by the United States Supreme Court in Nationwide Mutual Ins. Co. v. Darden, 503 U.S. 318 (1992), utilized to determine “employee” status under ERISA and the NLRA.

The Third Circuit’s Analysis:  The court began its analysis by noting the sparse definition of “employee” under both the ERISA and Title VII statues.   Whereas common-law agency principles were utilized to construe the definition of “employee” under ERISA in the Darden case, the court concluded that the same common-law test governed in the Title VII context as well.   The court contrasted the Enterprise test applied when determining employee status under the FLSA, a statue whose definition of “employee” is of “striking breadth” and “cover[s] some parties who might not qualify as such under a strict application of traditional agency law principles.”

The court then turned its focus to assessing whether Tuesday Morning could be deemed Faush’s employer under the narrower master-servant principles of the Darden test.   As in Darden, the court considered the extent to which Tuesday Morning exercised the “right of control” over the manner and means by which Faush performed his services. The court reviewed the various control factors to be considered, cautioning that the inquiry is not which of the two entities in question is the employer, but rather, whether they can be deemed joint employers of one employee for the purposes of Title VII.

In finding that Faush offered sufficient evidence of control by Tuesday Morning, the court pointed to the following facts:

  • While Labor Ready set its temporary employees’ rates of pay, paid payroll taxes and maintained workers’ compensation, the parties’ contract obligated Tuesday Morning to notify Labor Ready if these employees were not being paid in compliance with wage and hour laws.
  • Rather than being paid a fixed rate for employees provided to Tuesday Morning, Labor Ready was paid an hourly rate that reflected its overtime, wages, taxes and insurance costs, payments that were “functionally indistinguishable” from direct employer compensation with a mark-up for administrative services.
  • Although Tuesday Morning did not have the power to hire or fire Labor Ready’s employees, it had control to eject a temporary employee and demand a replacement from Labor Ready, and there was no evidence that the ejected employee would get an alternate assignment from Labor Ready.
  • Tuesday Morning provided Faush with assignments, directly supervised his work, provided training, furnishing and equipment, and verified his hours worked, with no direct oversight by Labor Ready.
  • Labor Ready workers were a mere “stop gap” measure who performed the same unskilled tasks as Tuesday Morning’s employees.
  • The parties’ agreement obligated Tuesday Morning to assume the responsibility for compliance with Title VII and other employment laws.

The Bottom Line:  Notwithstanding the fact that the Third Circuit has adopted a narrower test for determining “joint employer” status, the Tuesday Morning case nevertheless highlights the risks associated with securing temporary workers through a third party provider.  Despite efforts by employers to dodge an employer-employee relationship, the courts are increasingly scrutinizing these relationships and finding that both the temporary staffing agency and the employer it is staffing are on the hook for compliance with a wide range of labor and employment laws.

Companies using these temporary workers should develop appropriate safeguards to ensure that the staffing company does not surrender control over its employees.  So long as the “right of control” over such matters as hiring, firing, compensation, job performance and other matters are rests with the staffing agency, the company utilizing its workers can avoid “joint employer” liability.  We at Lindabury are available at any time to answer any questions regarding the use and classification of temporary workers or any other employment questions that may arise during the normal course of your business.

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