Staffing Agency Not Liable for Conduct Beyond Its Control

Legal Alert

April 9, 2020

In a welcome piece of good news for staffing agencies, a California appellate court has reaffirmed the rule that a staffing agency cannot be held liable for alleged workplace discrimination in which it did not participate. Ducksworth v. Tri-Modal Distribution Services, (Second Appellate District, April 7, 2020).

Two employees, Ducksworth and Pollock, sued their immediate employer, Tri-Modal, along with the two staffing agencies – Scotts Labor Leasing and Pacific Leasing – that had assigned them to work at Tri-Modal, alleging that the failure to promote them was due to discrimination against them as African Americans. Scotts Labor and Pacific Leasing eventually moved for summary judgment, and in support of that, stated as a fact that “The decision to promote an employee leased to by [sic] Scotts or Pacific to Tri-Modal is made solely by Tri-Modal. Scotts or Pacific do not provide any input, have any authority or make any decision regarding the promotion of any employees leased to Tri-Modal.” Neither Ducksworth nor Pollock disputed this statement of fact.

The trial court concluded that this factual admission by Ducksworth and Pollock exonerated both Scotts Labor and Pacific Leasing. In the words of the appellate court: “Scotts and Pacific were basically innocent bystanders in this case of alleged discrimination by Tri-Modal. We affirm because Scotts and Pacific were not involved with the promotions Duckworth and Pollock attack. A company that has not discriminated cannot be held liable for discrimination.”

As staffing agencies, Scotts Labor and Pacific Leasing obviously were responsible for various aspects of the employment, including tracking and processing payroll, health insurance, workers compensation, vacation, holidays, sick pay, tax, and social security payments. The payor/employer name on the paychecks was either Scotts Labor or Pacific Leasing, but none of this had anything to do with the allegedly discriminatory failure to promote.

In reaching its decision, the court relied on, among other things, a regulation issued by California’s Fair Employment and Housing Commission that provides that an employee of a temporary service agency is an employee of the agency and of the company that contracts with the agency, but in both circumstances, only as to “such terms, conditions and privileges of employment under the control of” the temporary service agency or its customer. Cal. Code. Regs., 2 § 11008(c)(5). Thus, responsibility lies for what is within an entity’s control, but not otherwise.

For both staffing agencies and their clients, this places a premium on defining at the outset who is responsible for and who controls what. While this probably will not impact whether both the staffing agency and its client are sued together as joint employers, it will help to better define the bases (or lack of them) for liability once a lawsuit is filed.

For more information and guidance, contact your Labor & Employment counsel at Smith, Gambrell & Russell, LLP.