California Labor &
Employment Law Blog

Apr. 22 2008

“Joint Employers” of Staffing Agency Employees Liable for FMLA Violations

Topics: Court Decisions, Discrimination, Harassment & Retaliation

The Sixth Circuit of the U.S. Court of Appeals recently ruled that an employer who hired an employee through a staffing agency may be liable for violations of the federal Family Medical Leave Act (FMLA). In Grace v. USCAR and Bartech Technical Services, LLC, --F.3d--, 2008 WL 782470 (6th Cir. 2008), Plaintiff Rosalyn Grace was a long-term "contractor" who provided information technology (IT) services to Defendant USCAR through a couple of different placement agencies for a period of eight years. In the fall of 2004, Grace developed a respiratory disability (asthma) that eventually resulted in her hospitalization, whereupon she took a leave of absence through her staffing agency, Bartech. In late December 2004, just days before Grace's original anticipated date of return to work, Bartech informed Grace that USCAR had decided to outsource its IT duties and that, as a result, her position was terminated.

USCAR contended that its management decided in the fall of 2004 to restructure its IT division to switch from using full-time contractors to contracting directly with individual providers on an as-needed basis. Grace's position was allegedly targeted for restructuring. While Grace was on FMLA leave in December 2004, USCAR decided to use the services of another Bartech contractor, Spolarich, to handle regular IT maintenance issues due to Grace's absence. In May 2005, USCAR contracted directly with Spolarich for a 20-hour per week job to permanently fill the new IT position at USCAR.

Grace filed suit against Bartech and USCAR in federal district court, alleging among other things, violations of the FMLA for failing to return her to her pre-leave (or comparable) position and retaliation, and for gender discrimination under Title VII and Michigan's civil rights law. The district court granted both employers' motions for summary judgment. The Sixth Circuit Court of Appeals reversed the district court's ruling with respect to the FMLA claims but affirmed the grant of summary judgment as to Grace's Title VII claim.

The Court recognized that the FMLA is silent about the issue of joint employment. However, the Department of Labor (DOL) has promulgated regulations such that liability could attach to Bartech and USCAR under either an "integrated employer test" or "joint employment" test under 29 C.F.R. § 825.104(c)(1). The Court found that the integrated employer test did not apply because there was not sufficient interrelation between the operations of the staffing agency and client employer. However, the Court found sufficient evidence under a joint employment test because each employer exercised a sufficient level of control over Grace's work or working conditions. Specifically, 29 C.F.R. § 825.106(a) describes three employment relationships where joint employment will "generally . . . be considered to exist:" (1) "where there is an arrangement between employers to share an employee's services or to interchange employees;" (2) "where one employer acts directly or indirectly in the interest of the other employer in relation to the employee;" or, (3) "where the employers are not completely disassociated with respect to the employee's employment and may be deemed to share control of the employee, directly or indirectly, because one employer controls, is controlled by, or is under the common control with the other employer." Under specific regulations pertaining to cases involving staffing agencies and client employers, Bartech was determined to be Grace's primary employer because it had the ultimate decision to hire and fire, the sole ability to assign Grace, and was the entity in charge of her payroll and benefits. USCAR was determined to be a secondary employer because it supervised Grace's day-to-day work and determined her salary and hours. Although only the primary employer is responsible for giving required notices, providing FMLA leave, and maintaining health benefits, both primary and secondary employers must honor the FMLA leave and not engage in "retributory action." Significantly, the Court notes that the anti-retaliation provisions applicable to secondary employers apply even if the secondary employer may not be covered by FMLA. Under 29 C.F.R. § 825.106(e), the secondary employer is responsible for "accepting the employee returning from FMLA leave in place of the replacement employee if the secondary employer continues to utilize an employee from the temporary or leasing agency."

The Court ruled that Grace produced sufficient evidence to raise triable issues of fact as to whether USCAR's decision to restructure its IT functions was unlawful discrimination or retaliation for Grace's exercise of her FMLA rights. Grace contended that the replacement employee, Spolarich, performed functions similar to those performed by her before her FMLA leave. While Spolarich was contracted for fewer hours, he was paid at a higher rate such that the cost savings to USCAR was not significant. Most damning was evidence of meetings notes where USCAR's Director of Operations inquired as to Grace's termination, and when apprised of a need for a "legitimate business reason" to avoid the risk of being sued, asked "can lawyers construct a way to make it [Grace's termination] doable?" The Court held these facts warranted a trier of fact to determine the true motive behind USCAR's decision not to reinstate Grace after the expiration of her FMLA leave.

Employers who rely on staffing and placement agencies for its personnel needs are advised to review their policies with respect to FMLA compliance in relation to its "contracted" personnel. If you have any questions about FMLA compliance with respect to an employee employed through a staffing agency, please contact us.

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About the Editor

Robin Largent has a regular presence in California state and federal courts and has been lead defense counsel and appellate counsel for large and small California employers in litigation (and arbitration) ranging from individual discrimination and harassment claims to complex wage and hour representative and class actions. She also leads the firm’s appellate practice, having substantial experience and success handling appeals, writ petitions, and amicus briefs in both state and federal court on issues such as class certification (particularly in the wage and hour arena), manageability and due process concerns associated with class action trials, exempt/non-exempt misclassification issues, meal and rest break compliance, trade secret/unfair competition matters, and the scope of federal court jurisdiction under the Class Action Fairness Act.
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