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Treatment of Independent Contractors under Discrimination Laws
There are a host of federal and state
discrimination laws which may be applicable to independent contractors.
Most of these statutes have similar definitions of who is an
"employee," and it is possible under any of these statutes that
circumstances can arise where someone who is labeled as an "independent
contractor" may be found to be a covered "employee" for the purposes of
the statute. Hence, all employers who use contract workers (including
leased workers) should exercise caution to avoid inadvertent liability
under these statutes.
A. Title VII and state FEP laws
Under Title VII (42 USC 2000e), as well
as Oklahoma FEP laws (25 OS 1101), an employer is defined as a person
who employs fifteen or more employees in 20 or more calendar weeks in
the current or preceding calendar year. The term "employee" is not
defined by the state FEP laws, and only loosely defined by Title VII as
"an individual employed by an employer."
Both statutes contain broad language
which prohibit discrimination by an employer against any "individual"
(not just an employee) with respect to the terms, conditions or
privileges of employment. Thus, once a Company reaches the status of an
"employer," the Company faces potential liability if it discriminates
or retaliates against anyone in any type of employment-related context
on the basis of race, color, religion, sex or national origin. This
liability frequently extends to independent contractor relationships.
For example, in Paradazi
v. Cullman
Medical Center, 896 F.2d 1313 (11th Cir. 1988), the Eleventh
Circuit
held that a hospital which denied staff privileges to a physician
(clearly an independent contractor in any normal sense of the term)
could be sued under Title VII because its actions essentially deprived
the physician of the ability to obtain employment. Similarly, a private
duty nurse who was denied the opportunity to work with patients at a
hospital was able to bring a Title VII action, even though she actually
worked through a registry and would be employed directly by the
patients themselves. Sibley
Memorial Hospital v. Wilson, 488 F.2d 1338
(D.C. Cir. 1973). Likewise, manufacturers' representatives were held to
be "employees" under Title VII, even though they worked purely on
commission; set their own hours; and were considered by the Company to
be independent contractors. Armbruster
v. Quinn, 711 F.2d 1332 (6th
Cir. 1983).
The Armbruster
decision outlines the
usual approach taken with respect to Title VII (as well as Wage/Hour)
claims in determining whether an individual is an "employee" for the
purposes of the Act. According to the Court, the "economic realities"
of the relationship must be assessed to see if the individual in
question is functionally an employee because the individual performs
most of his work for the employer and derives most of his income from
the employer. In this context, a plumber who occasionally comes to fix
a broken faucet for a company would be an independent contractor, while
plumbers who were always at the facility and did most (or all) of their
work for the company would be considered to be functional employees.
Some courts have disagreed with the use
of this "economic realities" test, and employ the broader common law
standard in deciding whether a person is an "employee" for the purposes
of Title VII. Under this standard, the primary emphasis is on the
degree of control and autonomy of the individual over hours of work,
methods to perform the work, and materials used for the work. See,
e.g., EEOC v. Johnson &
Higgins, Inc., 92 F.3d 1529 (2nd Cir.
1996); Dixon v. Burman, et
al., 742 F.2d 1459 (7th Cir. 1984).
Ultimately, the issue of the proper definition of who is an employee
for Title VII purposes will have to be decided by the Supreme Court.
However, it seems quite likely that, in cases such as the above example
of sporadic plumbers versus full-time plumbers, the Supreme Court
ultimately will find Title VII coverage. A good rule of thumb to apply
is the old-fashioned "Duck" rule (if it looks like a duck, walks like a
duck, quacks like a duck, then it is probably a duck).
This is the precise issue which tripped
up Microsoft in a recent case before the Ninth Circuit. Microsoft
routinely brought in outside "contractors" to do programming work on
various software programs. These individuals had assigned desks, phone
numbers, and were treated essentially like regular Microsoft employees
- the only difference being that they did not receive any company-paid
benefits. Many worked for years in this role. Ultimately, suit was
brought under ERISA to try to recover lost pension and other benefits.
Microsoft protested that these individuals were "independent
contractors," not employees. Not surprisingly, it lost the case. See Vizcaino v. Microsoft
Corp., 97 F.3d 1187 (9th Cir. 1995), aff'd. en
banc 120 F.3d 1006 (9th Cir. 1997).
Title VII is not the only federal law
which governs employment discrimination, however. In addition to this
statute, there are a number of other laws which forbid various types of
discrimination.
B. Section 1981 Claims
An old Civil Rights law passed during the
post-Civil war era (42 USC 1981) forbids discrimination upon the basis
of race in making and enforcing contracts. The First Circuit recently
upheld a lower court's ruling in favor of an independent contractor who
filed a claim under Section 1981, alleging race discrimination when his
parking lot maintenance contract was terminated following several
incidents of racial slurs. Danco,
Inc. v. Wal-Mart Stores, Inc., ___
F.3d ___, 79 FEP Cases 1737 (1st Cir. 1999).
C. Equal Pay Act and FLSA claims
In addition to claims under 1981 and
Title VII, claims also may be brought under the Equal Pay Act (29 USC
206(d), which amends the Fair Labor Standards Act (FLSA). Under the
"economic realities" test usually applied to Wage/Hour claims, where a
woman "contractor" is paid less than a male "contractor" (or even a
male employee), the employer might be liable for an EPA claim if this
woman were to be found to be the functional equivalent of an employee.
Companies also may be liable under the FLSA where the contractor does
not receive minimum wage or applicable overtime pay.
D. Age Discrimination in Employment Act
(ADEA)
The Age Discrimination in Employment Act
(29 USC 621) uses similar definitions to the Title VII definitions of
who is an employer (except that coverage is limited to employers who
employ 20 or more employees for each working day in 20 or more calendar
weeks in the current or preceding calendar year). Once again, an
employee is defined as "any individual employed by an employer", and
discrimination is forbidden against "any individual" (albeit coverage
is limited under the act to those who are 40 or over).
E. Americans With Disabilities Act (ADA)
The Americans with Disabilities Act (42
USC 12101) also is patterned after Title VII, and defines an employer
as any person who employs 15 or more employees in 20 or more weeks in
the current or preceding calendar year. Employee is not defined. Once
again, discrimination is broadly prohibited against "individuals" with
disabilities, provided that they are otherwise qualified for the
position.
F. Veterans' Reemployment Rights Act
The Veterans' Reemployment Rights Act (38
USC 4301) defines an employer as any person or entity "that pays salary
or wages or work performed or that has control over employment
opportunities." An employee is defined as "any person employed by an
employer." Discrimination is prohibited against applicants, as well as
persons who are employees, due to their absences for service-related
reasons.
G. Family & Medical Leave Act (FMLA)
The Family & Medical Leave Act (29
USC 2601) defines an employer as any person who employs 50 or more
employees for each working day in 20 or more calendar weeks in the
current or preceding calendar year. Employees are defined by reference
to the FLSA, as is the term "employ", although eligibility of leave is
restricted to those who perform 1250 hours of service and have worked
for the company for at least 12 months. Because of the incorporation of
the FLSA definitions, the same rules applicable to FLSA and EPA claims
would apply in determining whether a person was an "employee" (so the
economic realities test likely would be used).
H. Special Concerns With Leased or
Temporary Workers
In addition to potential liability to
workers who are labeled as "contractors", companies also may not
realize that they can be liable to "temporary" workers who are employed
through third parties (such as personnel agencies). Under Title VII, as
well as most state FEP laws, the temporary agency is often considered
to be only the nominal employer of the individual, with the end-user
company being considered the true employer and/or the "joint employer"
of the individual. See, e.g., Hodgson
v. Griffin & Brand of
McAllen, Inc., 471 F.2d 235 (5th Cir. 1972), cert. denied 414
U.S. 819
(1973), in which a fruit company was found to be a joint employer of
harvest workers, along with the persons who supplied them and actually
supervised their work. See also Amarnare v. Merrill Lynch,
611 F.Supp.
344 (SDNY 1984), where the temporary agency and Merrill Lynch were
found to be joint employers of a temp.
On the other hand, where the agency is
merely leasing back employees to the company and has no meaningful
contact with them, only the end-user company will be found to be the
employer. See, e.g., Astrowshy
v. First Portland Mtge. Corp., 887
F.Supp. 332 (D. Me. 1995), holding that leasing company which had no
direct contact with the leased employees and only served as payroll
processor was not the true employer or a joint employer of the leased
employees. However, where a shipping services company provided
personnel to unload ships to various customers, and the ship owner had
only incidental control over the employees (although it did provide
guidance and assistance to them in the unloading process, mostly
through contact with the foremen of the services company), the ship
owner was not found to be a joint employer with the services company. Rivas v. Federacion de
Asociaciones Pecuaries, 929 F.2d 814 (1st Cir.
1991). Obviously, in the latter situation, the services were provided
sporadically (not continuously), and the overall relationship was
comparable to a typical contractor relationship which a company might
have with a trucking or moving firm.
I. Vicarious liability if contractor is
an "agent" of the employer
The EEOC Guidelines on the Contingent
Workforce (found in the EEOC Compliance Manual) make it clear that the
EEOC will find liability (either individual or joint) if an "agent" of
the employer engaged in discrimination which can be imputed to the
employer. This can be especially troublesome in situations where the
company may be a joint employer with some third party. For instance, in
EEOC v. Sage Realty,
507 F.Supp. 599 (SDNY 1981), a cleaning contractor
which supplied a lobby attendant to a building operator was found to be
jointly liable for harassment against the attendant by building
visitors which occurred because the building operator required her to
wear revealing clothing while on the job. The cleaning contractor was
held to have acquiesced or condoned the discrimination by the building
operator when it failed to act after she complained of the harassment.
The converse situation also may arise.
For instance, a temporary agency may decide to pay a female employee
less than a male employee who is doing the same work at the Company. If
the Company is aware of this pay differential and does nothing, the
Company could end up liable for EPA violations (unless the EEOC decided
that the Company had no ability to influence the compensation paid by
the temp agency to its employees).
CONCLUSION
As can be seen, use of "independent
contractors" contains a host of pitfalls for the unwary employer.
Before entering into any contractual relationship with someone who is a
non-employee (especially if an individual who is performing work
regularly done by your own employees), a careful review should be
undertaken to determine whether the relationship will flunk the "Duck"
rule (as it may make better sense to simply place the individual on
your own payroll). In situations where outside contractors will be
performing regular daily work on your premises, efforts should be make
to have such work performed after hours, under the supervision of the
contractor's own staff (with no interference by your company other than
to set the times when work is to be done and to approve the end
results), in order to avoid joint employer liability.
Finally, when using outside contractors
who will interface with your own employees (even on a sporadic basis),
it is necessary to carefully train your staff to avoid any conduct
towards these outside individuals which would violate EEO laws if done
by regular employees. Otherwise, like Wal-Mart, you might end up with
liability for harassment of the staff of the contractor by your own
employees. You also should provide avenues for complaints by your
employees about conduct of outside contractors and customers (or, as in
the recent EEOC lawsuit against the Hooters restaurant chain, you might
find yourself facing a claim that you required that your employees
endure harassment as a condition of employment).
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