From the March 1999 issue of Entrepreneur

When crunch time comes and your business is short-handed, a quick call to a temporary employment agency puts willing workers at your doorstep. So far, so good--but what if one of these temp workers turns out to be a poor match? Simply asking the agency to send a replacement might solve the problem. Then again, it might subject your business to liability for unlawful termination.

Temporary employees have the same rights as any other employee to sue over illegal discrimination, sexual harassment, ADA violations or labor disputes. "Employers mistakenly think temporary employees have fewer legal rights," says Brent Giddens, an employment attorney with the Los Angeles office of Sonnenschein, Nath & Rosenthal. Unfortunately, employers and co-workers often give temporary employees little consideration or respect, and supervisors often feel they can have these employees removed without consequence. That attitude can lead to costly lawsuits.

This may come as a surprise, because the employment agency is supposed to be the employer. After all, the agency handles the recruiting, screening, hiring, placement, payroll and benefits. But when a dispute at your workplace turns into a lawsuit, the worker is likely to sue both the employment agency and your business--plus individual supervisors at both companies. The question for the courts is: Who was the employer? Even if the temporary agency promises to take full responsibility, when both companies are named in the lawsuit, it's up to the court to decide. Typically, courts have determined that the companies are joint employers, with joint liability.

The longer the temporary employee works at your company and the more supervisory control you exercise, the more likely a court will find you to be a joint employer with the agency. In one New York district court case, a temporary agency sent an African-American woman to work as an administrative assistant for a financial services firm. After two weeks, the firm discharged her, saying her work was unsatisfactory. The woman sued the firm, claiming she was dismissed because of her race, sex and national origin. Before dealing with the merits of the case, however, the court had to rule on whether the firm was a joint employer with the temporary employment agency. Because the firm exercised complete control over her work assignments, hours and means of performance, it was ruled to be an employer, subject to the temp worker's Title VII lawsuit.

In another case, a temporary employee assigned to an auto dealership in Virginia claimed she had been sexually harassed by the general manager, then dismissed by the temporary employment agency when she complained. She sued everyone involved: the temporary employment agency, the dealership, the general manager and the car company. All but the employment agency attempted to remove themselves from the lawsuit, arguing that they were not her employers. Both the district court and the U.S. Court of Appeals for the Fourth Circuit ruled that all defendants controlled some aspect of her employment, so all were subject to her Title VII claim. The general manager and the dealership later settled with the employee, while the temporary agency and the car company were held not liable because they knew nothing of the harassment.

Shielding Your Business

The best way to insulate your company from liability in this area involves the worst business practice: avoiding control of temporary employees. Ultimately, this includes requiring the employment agency to screen and hire applicants, evaluate and discipline them, and even supervise daily work through on-site supervisors employed by the agency. To avoid your being construed as their employer, temporary workers must not be subject to your company's policies.

"Unfortunately, an arrangement that best insulates an employer is not always the arrangement that best promotes business objectives," Giddens says. "You can't let potential legal liability be the tail that wags the dog." Most companies want to retain the right to supervise their employees--even if they're temporary--and to have some options if things aren't going well. The trade-off is being considered a joint employer.

While it's difficult to avoid being declared a joint employer, you can minimize your chances of having to defend your company against a lawsuit brought by temporary employees. Consider the following guidelines:

  • Choose your temp agency with care. Get recommendations from others in your industry for an established, reliable temporary employment agency. This company will screen people who may be sent to your work site, so find out about the company's screening process and hiring criteria. The more capable the workers, the less likely you'll have trouble that leads to lawsuits. Also find out how the agency treats its employees because the organization's mismanagement could drag you into a lawsuit as a joint employer. Don't forget to ask how the agency would protect you in the event of a lawsuit. Some agencies make it a priority to get the client company removed from the lawsuit.
  • Draw up an agreement. Most companies don't bother with a written contract, Giddens says, but it can save finger-pointing and expense in case of a lawsuit. The agreement should specify which party is responsible for which aspects of the worker's employment and should allocate responsibility for any future employment claim. It should also specify which party will foot the bill for legal defense. Have the agency prepare the contract, then have your lawyer look it over. (You can use the same contract for all temps sent by the agency.) "The agreement is an acknowledgment of joint employer status," Giddens warns. But rather than spend months in court with both parties denying responsibility, it allows you to get on with how to defend your company against the claim.
  • Remember that temps are human beings. Too often, temporary employees are treated as an easily replaceable commodity. If one complains about poor treatment, the employer is likely to call the agency and ask for a replacement. "The single biggest factor in whether someone files a lawsuit is whether they feel they've been treated fairly," Giddens says. If you treat temporary workers with respect and take the same care to avoid discrimination and investigate complaints as you would for a permanent employee, you reduce your chances of being named in a lawsuit.

Steven C. Bahls, dean of Capital University Law School in Columbus, Ohio, teaches entrepreneurship law. Freelance writer Jane Easter Bahls specializes in business and legal topics.