Companies that use staffing agencies to hire temporary workers are facing new liabilities as courts increasingly determine that the temporary workers qualify as employees of the company, not just the staffing agency.

In a recent court case, a discount retailer used a staffing agency to help it fill available positions in its stores. At one of the company’s Pennsylvania stores, a temporary employee said he and other African-American workers were subjected to racist comments and discriminatory working conditions. Eventually, the store fired the African-American temporary workers.

The temporary employee then filed discrimination claims against the retailer under Title VII of the federal Civil Rights Act of 1964 and the Pennsylvania Human Relations Act. The retailer, however, said that as a temporary worker from an agency, the worker did not meet the definition of an employee and therefore could not file a claim.

The federal district court agreed with the retailer, and dismissed the worker’s claims. On appeal, however, the Third Circuit Court of Appeals carried out a closer examination of the employment relationship to determine whether the retailer was actually an employer and vacated the district court’s dismissal.

There is no strict standard that determines whether a company that hires a temporary worker through a staffing agency qualifies as the worker’s employer. Typically, courts examine factors such as which company pays the workers, hires and fires them, and supervises daily activities.

In the agreement between the staffing agency and the retailer, the staffing agency agreed to be responsible for hiring and paying “temporary employees” and workers reported to the agency if they were unable to make it to work for a scheduled shift. Once the temporary employee showed up to work at the retailer, however, the retailer was responsible for assigning appropriate duties to the worker and had full supervisory authority over him. Typically, the retailer assigned temporary workers to perform the same type of work as regular employees. If the retailer was unhappy with a temporary worker’s performance, it could notify the agency to send an immediate replacement.

The Third Circuit Court decided that a reasonable jury might determine that the retailer was a joint employer with the staffing agency, and therefore would be liable for the discrimination claims.

Companies should keep in mind that the court’s decision in the case is part of a larger trend of defining companies that hire temporary workers through a staffing agency as joint employers. Earlier in 2015, the National Labor Relations Board issued a decision in which it broadened the definition of joint employer to include a larger number of employment relationships involving staffing agencies.

Companies should also carefully review their relationships with temporary workers and staffing agencies to see whether they may qualify as the workers’ employer, which opens up companies to many new liabilities. In some cases, companies may want to re-structure their relationships with temporary workers to avoid such liability. If the relationship with the temp worker is restructured, companies should be prepared that they will likely have to give up significant control over the temporary workers’ activities if they want to avoid the liabilities of being an employer.

For more information about the legal hurdles of hiring temporary workers and other employment law matters, contact Beth Slagle, or any other Meyer, Unkovic & Scott attorney with whom you have worked.