Traditionally, questions of worker classification as employee or independent contractor focused on tax and payroll issues, relying on case law developments and enforcement of the Internal Revenue Service’s "20 Common Law Factors" test.  The focus of legal compliance in employment discrimination claims has traditionally paid little attention to temporary and other contingent workers.

        All that is changing as new, often vague and confusing legal requirements replace traditional rules governing employment relationships. Temporary staffing agencies, employee leasing companies and businesses of all sizes are facing new risks and potential liabilities as federal agencies aggressively enforce the law and growing numbers of temporary and other contingent workers are bringing legal claims. 

            Consider one example, enforcement of the Americans with Disabilities Act (ADA). The Equal Employment Opportunity Commission (EEOC) recently found  a "rampant" pattern of disability discrimination under the ADA by temporary staffing firms across the country. The agency is making temporary staffing firms a priority target in its ADA enforcement activities. Combine this  aggressive enforcement strategy with the explosive growth of temporary /contingent workforce (now estimated at 20% of the American workforce, and up to the 30% or higher in high-tech firms), and it is not surprising that questions of legal rights, responsibilities and risks have become front burner issues for all parties who hire, place, lease, work, consult or counsel clients in temporary employment relationships.

Determining Worker Status

          As the nation's chief employment discrimination enforcement agency, 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 which it enforces (ADA, ADEA, Title VII of the Civil Rights Act, and EPA) should be applied to temporary, contract and other contingent workers.

        The Guidance explores four issues which arise when temporary and other contingent employees bring employment discrimination claims:

1) Worker status/classification: distinguishing employee and independent contractor

        The EEOC has its own 15 factors list to determine worker status. However, all the factors, not even a majority, are required to be met. As if this weren’t vague enough, the Guidance 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 is an "employer" and therefore potentially liable in an discrimination claim?

        This question often arises when workers bring employment discrimination claims. Temporary staffing agencies are generally presumed to be employers of workers they hire and place with clients on temporary assignments, and their staff to be employees. This often comes as a surprise to staffing firms that they are not legally accountable for discrimination or harassment of their workers while on assignment at their clients’ work sites.

        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 create potential liability despite any contracts specifically identifying their workers as independent contractors. The EEOC considers the actual overall relationship to be more important an employment contract.

         Businesses utilizing temporary workers are also often deemed "employers" of temporary workers if they have significant supervisory control over the worker and his environment, applying the same vague standards.  The length of time a temporary employee spends at a particular business will also play a role. This is where the new term "permatemp" often comes into play.

3) What About Independent Contractors and other non-employees?

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 a company with enough employees to qualify as an employer under a particular employment statute can be liable for discriminating against an individual who is not its employee. 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). Small Business Exemptions and "Counting Heads"

                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 does not provide minimum employee exceptions.

        This minimum employee coverage requirement has produced its own controversies, particularly when companies involved in litigation argue that the law does not cover them because they do not 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. The best solution is meeting workforce’s growing need to know.

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