Staffing Management

Employment Discrimination and the Contingent Workforce

Ron Rosenberg

01 November 1999

Bias is a potential workplace issue even with a contingent workforce.

Traditionally, classification of workers as employees or independent contractors were based on tax and payroll issues, relying on the Internal Revenue Service’s “20 Common-Law Factors” test. Employment-discrimination law compliance has usually focused on regular employees, paying little attention to temporary and other contingent workers. Yet all that is changing.

The explosive growth of temporary and other contingent workers has raised new legal questions and quandaries for business owners and managers. A temporary worker’s status as employee or independent contractor depends on the statute involved and regulatory agency administering it. An employer’s liability also depends on the legal scheme, how many employees it has and whether it has correctly classified all its employees. For both employers and their contingent employees, the changing contingent employment landscape has replaced many of the traditional rules with a maze of new, often vague and confusing legal requirements.

A good example is guidance recently issued by the Equal Employment Opportunity Commission (EEOC), the agency charged with administering and enforcing our federal anti-discrimination laws, including the Americans with Disabilities Act (ADA). The EEOC’s “Enforcement Guidance on the Application of EEO Laws to Contingent Workers Placed by Temporary Employment Agencies and Other Staffing Firms” illustrates how non-discrimination statutes should be applied to temporary, contract and other contingent workers.

The EEOC’s Guidance explores four issues that arise when temporary and other contingent employees bring employment discrimination claims:

  1. worker status: employee vs. independent contractor
  2. who is potentially liable if the temporary worker is an employee
  3. who is potentially liable if the temporary worker is not an employee
  4. whether an employer is covered by the laws, regardless of the temporary worker’s status.

1.  Worker Status/Classification.
The EEOC provides its own list of 15 factors to determine worker status [see list below]. They’re vague.Even worse, the EEOC states that “all aspects of the employment relationship are considered.” Generally, all factors are based on questions of control, and a worker is generally considered an employee if the right to control the worker or working conditions lies with the staffing firm and/or its business

2.  Who’s Liable if the Worker Is an Employee?
If a worker is an employee, the question of “who is the employer” often arises when the worker brings an employment discrimination claim. For employment discrimination claims, temporary staffing agencies are generally considered to be employers of the workers they hire and place with clients on temporary assignments.

The agency usually hires the worker, determines when and where the worker should report to work, pays the wages, is itself in business, withholds taxes and social security, provides workers’ compensation coverage, and has the right to discharge the worker.

Significantly, this classification can come despite agency contracts that specifically identify their workers as independent contractors. The actual overall relationship is more important than the employment contract. Temporary staffing agencies are generally presumed to be employers, and their staff to be employees. This often comes as a surprise, with many staffing firms assuming they aren’t legally accountable for discrimination or harassment of their workers at their clients’ work sites.

Businesses that use temporary workers are also often deemed “employers” of temporary workers if they have significant supervisory control over the worker and his or her environment, applying the same vague standards.

3.  Who’s Liable If the Worker Isn’t an Employee?
Anti-discrimination statutes not only prohibit an employer from discriminating against its own employees, but also prohibit an employer from interfering with an individual’s employment opportunities with another employer.

The EEOC’s policy is that a company with enough employees to qualify as an employer under a particular employment statute can be liable for discriminating against an individual who isn’t one of its employees. For example, a temporary-staffing firm that discriminates against its client’s employee can be held liable for unlawfully interfering in the individual’s employment opportunities, even if the worker is not the firm’s employee.

Conversely, a business charged with discrimination by a temporary worker can be liable even if the worker is not the company’s employee.

4.  Whether a Business Is Covered or Not
Many federal anti-discrimination employment laws exempt small businesses by limiting coverage of the law to employers with a minimum number of employees. For example, the ADA and Title VII apply to any employer with 15 or more employees for a period of 20 weeks or more. The Age Discrimination in Employment Act (ADEA) has a 20-employee minimum requirement for 20 or more weeks. An exception is the EPA (Equal Pay Act), which doesn’t provide minimum-employee exceptions.

This minimum employee-coverage requirement has produced its own controversies, particularly when companies involved in litigation argue that the law doesn’t cover them because they don’t have enough employees. In some instances, firms may have fewer than 15 full-time permanent employees, with large staffs of contingent workers.

While employers may point to the number of employees on their payroll, the EEOC’s position is that an employer must count every worker with whom it has an employment relationship. For example, a worker assigned by a staffing agency to a business client may be listed on the business client’s payroll. However, both the business client and the staffing agency must count the worker as an employee if the other employee-classification criteria have been met.

The array of employment discrimination requirements, growing use of contingent workers and increased outsourcing of business functions have raised new, complicated and controversial legal issues when temporary workers bring employment liability claims.

As workforce managers learn more about the laws affecting contingent employment, they are recognizing their need to practice more proactive management. As temporary workers learn their legal rights, they are turning to lawyers and the courts to enforce those rights. For now, the only certainty is change.

EEOC Employee vs. Independent Contractor Criteria:
The following are the 15 factors provided in the EEOC’s Guidance to determine worker status under federal employment discrimination laws. (For more information, see the IRS’s explanation.)

  • The firm or client has the right to control when, where and how the worker performs the job.
  • The work does not require a high level of skill or expertise.
  • The firm or client—rather than worker—furnishes the tools, materials and equipment.
  • The work is performed on the premises of the firm or client.
  • There ‘s a continuing relationship between the worker and the firm or client.
  • The firm or client sets the hours of work and duration of the job.
  • The worker is paid by the hour, week or month, rather than for the agreed cost of performing a particular job.
  • The worker has no role in hiring and paying assistants.
  • The work performed by the worker is part of the regular business of the firm or client.
  • The firm or the client is itself in business.
  • The worker is not engaged in his or her own distinct occupation or business.
  • The firm or client provides the worker with benefits such as insurance, leave or workers’ compensation.
  • The worker is considered an employee of the firm or the client for tax purposes (i.e. the entity withholds federal, state and Social Security taxes).
  • The firm or client can discharge the worker.
  • The worker and the firm or client believe that they are creating an employer-employee relationship.

Written by Ron Rosenberg


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