Civil Rights Laws

Federal fair employment laws—and their state equivalents—prohibit employment practices that discriminate on the basis of factors such as age, race, color, gender (including sexual harassment and pregnancy issues), national origin, religion, or disability. Nearly all public and private employers are subject to some, if not all of these provisions. Under the legal doctrine of "respondeat superior" (i.e., vicarious liability), employers are responsible for discriminatory acts of supervisors and managers, and other employees. Prohibitions applicable to employers are equally enforceable against hiring agencies of various kinds, such as temporary help firms and leasing companies.

Title VII

The principal antidiscrimination law, Title VII of the U.S. Civil Rights Act of 1964 (42 U.S.C. ? 2000-e et seq.), applies to employers who employ 15 or more employees for each working day in each of 20 or more calendar weeks in the current or preceding year. Title VII makes it an unlawful employment practice for an employer to fail or refuse to hire or discharge any individual or otherwise discriminate in terms and conditions of employment because of an individual's race, color, religion, sex, or national origin. A companion federal law, the Age Discrimination in Employment Act (ADEA), 29 USC ?621 et seq., prohibits discrimination against persons age 40 and over. The ADEA applies to employers with 20 or more employees.

For a person to access the rights and remedies under this—or a related—law, an employer-employee relationship generally must exist in which the business enterprise meets or exceeds the threshold number of employees. This distinction is critical because courts have no jurisdiction over employers that are too small to qualify. Nonemployers generally are not subject to the court's jurisdiction either.

Individuals claiming discrimination under Title VII must file a charge with the U.S. Equal Employment Opportunity Commission (EEOC) within a specified time period. The EEOC administers Title VII and various other antidiscrimination laws. In those states having an enforcement agency similar to the EEOC—such as a commission on human rights—the employee typically files with the state agency as well.

Smaller-employer coverage. In a precedent-setting case, the U.S. Supreme Court has decided that part-time workers (even those who may not show up every day) can be included in calculating whether an employer has enough employees to trigger Title VII coverage.

In cases previously emerging in separate jurisdictions, federal courts had sharply disagreed over the methodology of arriving at "each working day." The case that has settled this matter (Walters v. Metropolitan Educational Enterprises, Inc., No. 95-259, 1/14/97), concerned an employee of an encyclopedia distributor who leveled charges of gender discrimination against her employer. In refusing to include two part-timers who worked four-day weeks, a lower court dismissed the lawsuit because the employer didn't have 15 employees to satisfy the jurisdictional prerequisite. The lower court, adopting the "counting method," maintained that it could count employees toward the 15-employee threshold only on days on which the employees actually performed work or were out on paid leave.

The U.S. Supreme Court, which has the final say, strongly disagreed and has adopted the "payroll" method, which it called a "fair reading of the statute" requiring minimal employer bookkeeping. The payroll method looks to an "employment relationship" between employer and worker, which is most readily demonstrated by an individual's appearance on the payroll. "Under the interpretation we adopt ... all one needs to know about a given employee for a given year is whether the employee started or ended employment during that year, and if so on. He is counted as an employee for each working day after arrival and before departure," wrote Justice Scalia for a unanimous court. The decision effectively extends the scope of Title VII jurisdiction to an estimated half-million small businesses at or near the 15-employee threshold when both full- and part-time workers are taken into consideration. The Supreme Court's decision accords with the long-standing EEOC position that all workers who have an ongoing employment relationship with an employer are counted for purposes of determining Title VII coverage.

Caution: The payroll method will also apply to claims brought under the Americans with Disabilities Act and the ADEA. Further, many employers that are too small to be covered by federal laws may be covered by similar provisions under state law. Typically, state antidiscrimination laws are modeled after the corresponding federal mandates, so adoption of the payroll method by state courts can be reasonably anticipated.

Independent Contractors and Leased Workers

Under Title VII and similar provisions, it may be possible in some cases to prevent some nonemployees from bringing discrimination charges against you, in your role as a "nonemployer"—i.e., as a client or recipient of services you may be able to escape liability. But don't blindly assume you cannot be liable. Emerging court decisions are constantly reshuffling rights and responsibilities. In addition, the EEOC has determined that temporary firms and their clients both will generally share liability for employment discrimination claims.

The label you put on a worker does not, in and of itself, short-circuit your legal obligations—the actual relationship is subject to "Monday morning quarterbacking" by the courts. A judicially imposed recharacterization from client to employer may expose you to sizable legal sanctions under these employment laws. As amended in 1991, Title VII entitles workers to compensatory and punitive damages, along with lost pay and reinstatement, from "employers" who engage in discriminatory practices. As with determining proper tax status, the common denominator is control. A finding that you control the means and manner by which the work is performed suggests employer-employee status, bringing you within the coverage of the law—assuming you employ enough workers to meet or exceed the jurisdictional threshold.

Court Cases

If persuaded by the surrounding facts and circumstances, courts will transform nonemployees into employees. For example, an independent contractor hired as a wandering mime by a Las Vegas casino received the go-ahead to sue the casino for sex discrimination under Title VII after a federal appeals court determined the casino could be the mime's employer, rather than her client. Despite a written agreement between the parties, the court reasoned that some "indicia" of an employer-employee relationship existed: The performer worked full-time for the casino, was paid weekly, and was told where on the casino premises to work and for how long. The mime won the right to a trial by jury on the issue of gender bias (Folkerson v. Circus Circus Enterprises, Inc.).

Update: A federal appeals court subsequently dismissed this case without deciding the issue of employee or independent contractor status.

Whether workers employed by a third party—such as a leasing company—should be allowed to sue both their actual employer and the "indirect employer (i.e., job-site client) for employment discrimination has not been entirely settled either.

Tip: As part of your contract negotiations, make sure your temp firm or leasing company has a formal, written complaint procedure that specifically vests the staffing vendor—not you—with the primary responsibility for promptly responding to workplace problems of this nature before they become expensive lawsuits. Many employers also include some sort of indemnification clause in a contract with a temporary or leasing agency. On-site human resources management by the staffing vendor is another approach for avoiding even the perception of control.

EEOC: Temp Firms and Clients Share Responsibility

A temporary worker will generally be considered an employee of both the temporary employment agency and the host client for purposes of federal discrimination law coverage, says the EEOC. Both entities, according to the EEOC, can be sued for front pay, back pay, and other compensatory and punitive damages.

The EEOC announcement came in the form of a detailed document called Enforcement Guidance on Application of EEO Laws to Contingent Workers Placed by Temporary Employment Agencies. The text of the policy guidance makes clear that contingent workers will generally be covered under the federal antidiscrimination laws because these workers typically qualify as "employees" of the temporary staffing firm, the client to whom they are assigned, or both. "If both the staffing firm and its client have the right to control the worker, and each has the statutory number of employees, they are covered as joint employers," the EEOC explained.

The guidance also makes clear that temporary staffing firms and their clients must treat temporary workers in a nondiscriminatory manner, and that a firm must take immediate and appropriate corrective action if it learns that a client has discriminated against one of the staffing firm's workers. According to press accounts, one senior EEOC official observed that under the guidance, hiring workers through a temp agency can no longer be used by employers as a "silver bullet" against liability. The complete text of the guidance appears in the Exhibits.

Planning Point: If you obtain workers from a temp firm, review your contract to see if it requires the firm to reimburse or indemnify you for legal fees and damages arising form any discrimination claims filed by a temporary worker. Also, check your employment practices liability policy, if you have one, to see if it provides coverage for joint agency/client discrimination claims.