United States: Has The Fifth Circuit Opened The Door For Potential Liability Of Staffing Companies?

In Burton v. Freescale Semiconductor Inc. and Manpower of Texas, LP, No. 14-50944, — F.3d —-, 2015 WL 4742174 (5th Cir. Aug. 10, 2015), the Fifth Circuit reversed the district court's grant of summary judgment for two employers in a staff-leasing/joint-employer relationship.

The Fifth Circuit's New Test for Staffing Company Liability. In Burton, the Fifth Circuit adopts the Seventh Circuit's position that a "staffing company is liable for the discriminatory conduct of its joint-employer client if it participates in the discrimination, or if it knows or should have known of the client's discrimination but fails to take corrective measures within its control." Although the Burton case dealt with the "participation" prong of the Fifth Circuit's new test for staffing company liability, it remains to be seen under what circumstances a staffing company "should have known" about a client's discrimination or what "corrective measures" will be expected of them.

Background. Freescale Semiconductor utilizes temporary workers employed by Manpower of Texas, a staffing company. Manpower hired and assigned Nicole Burton to work as one such "temp" employee beginning in 2009. She received generally positive-to-neutral performance reviews until 2011. In March 2011, she inhaled chemicals at work and eventually filed a workers' compensation claim in June 2011. About two weeks later, Freescale decided to terminate her assignment after Burton was allegedly found using the Internet – an incident Freescale has since referred to as the "final straw."

The Termination Decision. The Fifth Circuit found there was conflicting evidence about whether Freescale found out about the Internet incident before or after making the termination decision. Although Freescale decided to terminate Burton's assignment in late June, she was not actually terminated until late July (i.e., a month later). The delay apparently resulted from needing to hire and train her replacement. When the time to terminate Burton drew near, Manpower requested supporting documentation from Freescale. Freescale passed the request to its supervisors, who began "generating retrospective documentation and (in contrast to previous practices) meticulously cataloging Burton's every shortcoming." On July 25, Manpower recommended against termination based on the "paltry documentation and the recency of Burton's workers' compensation claim." But Freescale insisted. The next day, employees from Freescale and Manpower had a conference call to discuss Burton's termination and to establish a "communication plan" moving forward. After the call, Manpower informed Burton that Freescale had decided to terminate her assignment for poor performance. Manpower simultaneously terminated Burton's employment.

Burton Appeals the Dismissal of Her Case. After her termination, Burton filed a claim with the Equal Employment Opportunity Commission and subsequently sued both Freescale and Manpower for discrimination in violation of the Americans with Disabilities Act (ADA). Freescale and Manpower moved for summary judgment. The district court granted summary judgment and dismissed the case. Burton appealed.

Freescale Liable as a "Joint Employer." The Fifth Circuit rejected Freescale's argument that it was not Burton's employer, finding that Freescale had supervised Burton, had a right to demand Burton's termination from the assignment, and had actually insisted that Burton be terminated. Although Freescale argued that it did not handle payroll, withhold taxes, provide medical or workers' compensation benefits, or set the terms and conditions of her employment, the court determined that Freescale's right of control over Burton and the other Manpower temps to be the most significant factor. Nor did the court give much consideration to the staffing services agreement between Freescale and Manpower, which provided that only Manpower had the right to make hiring and firing decisions with respect to the workers assigned to work for Freescale but employed by Manpower. After finding Freescale was a joint employer, the court reinstated Burton's ADA claim against Freescale, which had papered Burton's employee file with examples of poor performance after it had made the termination decision.

Manpower Liable as a Joint Employer. The Fifth Circuit also rejected Manpower's argument that it was not liable because Freescale had made the actual decision to terminate Burton's assignment and because the staffing services agreement required Manpower to terminate the plaintiff's employment. The court determined that Manpower had "participated" with Freescale in "the creation and execution of a 'communication plan'" regarding the termination decision, and was aware that Freescale had papered Burton's employee file after the employment decision had been made to reflect additional examples of poor performance. The court also stated that a "contractual obligation to fire an employee on a discriminatory basis [i.e., per the requirements of the Staffing Services Agreement] is no defense" because an employer has an "independent obligation to comply with the ADA, and a contractual obligation to discriminate would be unenforceable."

Will Staffing Companies Always Be Liable for a Client's Discrimination? It depends on how district courts interpret the Burton opinion. In a footnote, the Fifth Circuit stated that there are "a number of scenarios in which the joint-employer client's unilateral action could violate the ADA but not trigger liability as to the staffing company." Yet the court offered no additional guidance. As a practical matter, staffing companies actually employ the temporary employees and maintain frequent contact with client companies for the duration of the staffing relationship. Thus, staffing companies find, recruit, and screen candidates based on certain criteria provided by the end client, and then present them to the client for consideration. If the client approves of the candidate, the staffing company hires the candidate, who typically is then assigned to work directly at the client's work site. If the client does not approve of the candidate, the staffing company will not hire the candidate and will begin looking for alternate candidates to present to the client. After the assignment begins, the staffing company remains the employer of record and must comply with federal and state wage and hour, benefits, and other employment laws. If the client decides to end a leased employee's assignment prematurely, it will inform the staffing company so the staffing company will know whether a new candidate is needed for the position or whether the staffing need no longer exists for the position. Throughout this process, staffing companies are keenly focused on maintaining a good business relationship with, and meeting the needs of, their clients.

So Can Staffing Companies Just Turn a Blind Eye? In theory, yes, but it is not recommended. On the one hand, staffing companies remain the employer of record for the duration of employees' assignments and remain in constant contact with client companies. On the other hand, staffing services agreements themselves often give clients robust indemnity and insurance protections. A staffing company might escape a lawsuit filed by the employee under the Fifth Circuit's test for liability by turning a blind eye to potential discrimination, but still might find itself contractually liable to the client under the indemnity or insurance protections often given to clients in staffing services agreements. If the staffing company is potentially liable either way, the most responsible business practice might be to proactively work with the client to attempt to address any potential discrimination, retaliation, or other employment issues. Doing so might help both companies avoid lawsuits filed by disgruntled former temp employees.

Three Primary Takeaways: So here are the takeaways from Burton.

(1) Terminating an employee because his/her assignment with the client company ended is a legitimate, nondiscriminatory reason for terminating employment unless the staffing company knows or should have known that the client engaged in discrimination or retaliation and fails to take corrective action within its control.

(2) If the staffing company suspects that a client is terminating an employee's assignment prematurely for potentially discriminatory or retaliatory reasons, the staffing company should be very careful about automatically proceeding with terminating the employee's employment.

(3) If a client decides to end an employee's assignment prematurely for discriminatory or retaliatory reasons, the staffing company should consider keeping the employee on payroll for at least one or two weeks to try to find the employee another assignment. However, no court would expect a staffing company to keep an employee on payroll indefinitely if there is no available project or work to which the employee could be assigned.

In sum, both client companies and staffing companies should be aware that each may be held liable for discrimination or retaliation by the other, notwithstanding the typical indemnification and insurance provisions contained in so many staffing services agreements. Wise staffing companies will carefully review – as compared to rubberstamp – such provisions, and will likewise review – not just rubber-stamp – termination decisions made by their clients.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.