Fourth Circuit Opinion – Increased Possible Liability with Joint Employer Doctrine Under Title VII

In a recent Fourth Circuit opinion, Butler v. Drive Automotive Industries of America, Inc., No. 14-1348, 2015 WL 4269615 (4th Cir. 2015), the Court found that two parties/companies can be considered joint employers under Title VII. In reaching its conclusion, the Fourth Circuit adopted a new employee-friendly “test” to determine whether a company qualifies as an employer. Businesses in the Fourth Circuit need to be aware of this ruling, especially those businesses that use temporary staffing companies. While there are many benefits to hiring temporary employees and using temporary staffing companies and placement services, under this new hybrid test, these arrangements will not allow an entity that exercises control over a worker, as defined by the new test, to avoid liability under employment discrimination laws.

In Butler, Resource MFG, a temporary employment agency, hired the plaintiff, Brenda Butler, to work at Drive Automotive in Piedmont, South Carolina. Butler filed suit against Resource MFG and Drive Automotive alleging sexual harassment under Title VII of the Civil Rights Act. She alleged that her supervisor made continuous inappropriate and unwanted comments about her body. She additionally alleged that after she reported an altercation with her supervisor, in which he called her an inappropriate name and told her to go home, her supervisor then referred her to Resource MFG for termination. Further, Butler alleged that her supervisor called her before Resource MFG terminated her and suggested that he could save her job if she performed sexual favors for him. Soon thereafter, she was terminated by Resource MFG.

The key issue in the case was not whether the staffing agency, Resource MFG, was Butler’s employer, but whether Drive Automotive was also considered her employer.

The South Carolina District Court dismissed Butler’s claims against Drive Automotive, finding that Drive Automotive was not Butler’s “employer” under Title VII because it did not “exercise sufficient control over Butler’s employment.”

On appeal, the Fourth Circuit formally adopted the joint employer doctrine for Title VII claims. The Fourth Circuit stated that two parties can be considered joint employers and therefore both be liable under Title VII if they “share or co-determine those matters governing the essential terms and conditions of employment” over the same employee. Additionally, the Fourth Circuit adopted a nine-factor “hybrid test” to determine who qualifies as an “employer” for Title VII. The nine factors are:

1. Authority to hire and fire the individual;
2. Day-to-day supervision of the individual, including employee discipline;
3. Whether the potential employer furnishes the equipment used and the place of work;
4. Possession of and responsibility over the individual’s employment records, including payroll, insurance, and taxes;
5. The length of time the individual has worked for the potential employer;
6. Whether the potential employer provides the individual with formal or informal training;
7. Whether the individual’s duties are similar to a regular employee’s duties;
8. Whether the individual is assigned solely to the potential employer; and
9. Whether the individual and potential employer intended to enter into an employment relationship.

According to the Fourth Circuit, the first three factors are most important. However, the Court added that no one factor is determinative and courts can alter the test to fit specific industry contexts.

After setting out the new test, the Fourth Circuit concluded in Butler’s case that Drive Automotive was responsible for determining Butler’s work schedule, training Butler, and supervising Butler’s work. In a footnote, the Court stated that the use of a form which disclaims an employment relationship will not defeat a finding of a joint employer relationship.

If you have any questions about this case or would like to discuss your business’s use of a staffing agency, please do not hesitate to contact us.