Temporary Services, Staffing Companies and Their Customers: Are They Joint Employees or Not?

(The Voice, An Industry Bulletin, California Association of Temporary Services, No. 2, 1995)

Whether temporary services or staff leasing companies are joint employers of temporary and leased workers can determine legal liabilities for everything from errors in tax withholdings to sexual harassment. Unfortunately, there has been little uniformity in answering this question with respect to the numerous state and federal laws governing the employment relationship. A federal court recently addressed this question in Astrowsky v. First Portland Mortgage Corp., Case No. 94-260-P-C (D.Me.1995). If anything, the court's treatment of the issue illuminates the difficulty courts encounter in distinguishing temporary services from employee leasing. This difficulty will lead to inconsistent rulings by our various court systems under the diverse labor and employment laws regulating the industry.

Astrowsky involved an employee leasing arrangement. Employees of First Portland Mortgage Corporation, including plaintiff Astrowsky, were terminated and rehired by a staffing firm, Atlantic Staff Management. Atlantic Staff Management provided payrolling services. The employees' supervisors worked for First Portland, and employee commission rates, daily work schedules, and vacation benefits were all determined by First Portland.

Astrowsky sought time off, claiming that he was entitled either to vacation or medical leave time. First Portland allowed Astrowsky four days off, and told him he would be disciplined if he failed to return to work after that time. Three and one-half weeks later Astrowsky tried to return to work and was terminated. Astrowsky sued First Portland and Atlantic Staff Management under state and-federal laws for age discrimination, retaliation, violation of the family medical leave acts, and additional state tort claims.

The court held that Atlantic Staff Management was not Astrowsky's joint employer because it did not exercise any control over his work environment. Because Atlantic Staff Management was not a joint employer with First Portland, the court ruled that it was not liable under Title Wl, the Age Discrimination in Employment Act, and the state and federal Family Medical Leave Acts.

First Portland was held to be Astrowsky's sole employer in principle. Without the combined payroll of Atlantic Staff Management, First Portland employed too few employees to meet the legal definition of "employer" for purposes of these statutes.

The court may have been influenced by the fact that the IRS in a separate case determined that First Portland, and not Atlantic Staff Management, was Astrowsky's employer for tax purposes. In this regard, Astrowsky reflects a growing sense that the legal relationship between the parties should be the same under all employment laws. This point was forcefully made in a recent report issued by the "Dunlop Commission," a commission created to report to the U.S. Department of Labor and Department of Commerce on the future of labor-management relations. See U.S. Department of Labor/U.S. Department of Commerce, Commission on the Future of Worker Management Relations, Report and Recommendations (December 1994).

On the other hand, the court distinguished a similar case from the U.S. Court of Appeals which held that a temporary service firm and its customer employer were joint employers for purposes of Title Vll. Without offering a detailed explanation, the Astrowsky court reasoned that temporary services provided in the Court of Appeal decision were factually distinguishable from an employee leasing arrangement. Despite its apparent effort to reach a single consistent result, Astrowsky paves the way for inconsistent treatment of temporary services and staff leasing firms. The case illustrates how little the courts understand the rapid developments within the industry, and how difficult it has been for them to create a legal climate in which the industry can be predictably and fairly regulated.

In order to minimize the risk of joint employer liability, temporary service firms and their customers may structure their relationships to determine who will control the temporary employees' work environment. Such arrangements should be clearly spelled out in the temporary service contract. The parties may also allocate many of the risks of joint employment through the use of carefully drafted indemnity agreements. These precautions will increase the likelihood that courts will rely on the realities of the relationship between the parties rather than their own assumptions about how the industry works.

The authors advise that the legal update above is intended as general educational information only and must not be relied upon as legal advice. Legal issues should be presented to legal counsel for an opinion considering changes in law, risk analysis, and the unique facts and circumstances of your organization. This advisory must be included in any duplication or other provision of the above update.

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