New Risks Appear for Temp Staffing

May 3, 2001
Just as staffing industry members and their business clients were digestingthe $97 million settlement in the Microsoft employee misclassification case, theEEOC issued its "Enforcement Guidance Applying the ADA to TemporaryStaffing Agencies."

    While Microsoft and related misclassification cases based liability onviolations of tax and employee benefits law, the EEOC Guidance focuses onemployment liability. It opens a new door of legal risk: compliance with theADA.

    In many ways the Guidance casts a larger net of legal risk than the highlypublicized Microsoft case. First, it covers all temporary workers (and temporaryworker candidates), not just "permatemps" -- the significant butrelatively small segment of the multi-million member temporary workforce whowere the plaintiffs in Microsoft and related employee misclassification cases.The pool of potential litigants is far larger than the potential "permatemp"plaintiffs filing Microsoft-type misclassification cases.

    Second, it combines the ADA's stringent and controversial legal requirementswith the broad reach of co-employment -- the legal theory imposing liability onmultiple businesses as "joint" or "co-employers" for legalviolations by any one business against any worker -- and applies them to thediverse contingent workplace.

    Temporary staffing agencies and their business clients, as well as outsourcefirms providing payroll, recruitment and other administrative functions all comeunder the Guidance's broad umbrella. With the industry's own statistics showing90% of businesses nationwide use temporary staff, few businesses will be immunefrom this new law enforcement salvo. The result is a legal landscape filled withrisk for all parties who manage, counsel, and otherwise service the growingcontingent workforce.

    This article explores how and why this Guidance poses these legal risks, andwhat employers can do to reduce them. The first step is to understand how broadthe law's scope really is and learn whether your company or firm is covered.Second is to learn how to manage a contingent workforce in this changing legallandscape to avoid legal risks when hiring, assigning or managing temporaryworkers.

Is My Company Covered?
    The Guidance's scope goes beyond traditional employment discrimination lawsin three ways:

  1. The federal government is covered as an employer.
        Federal laws, including employment discrimination laws, usually exclude thefederal government from coverage. Not this time. This Guidance covers thefederal government as an employer under the 1992 amendments to theRehabilitation Act. The ADA already covers all businesses with 15 or moreemployees (and state/local government units of any size). Add our country'slargest employer, the federal government, and the scope of coverage growsdramatically.

  2. Both disabled and non-disabled workers are covered.
        Employment discrimination laws traditionally protect members of specificallyidentified population groups, based on race, gender, religious preference,national origin or other designated criteria. This EEOC Guidance covers allemployees and job applicants, whether or not they have a disability. Forexample, the ADA's requirements covering pre-employment disability-relatedinquiries and medical examinations apply to all applicants and employees,whether they have disabilities or not.

  3. Co-employment extends liability for ADA violations far beyond staffingagencies.
        By incorporating the legal theory of co-employment, the Guidance can beapplied by courts to include client businesses and other third-party vendorfirms with which the agency does business. If a temporary worker brings a legalclaim under the ADA against a business or staffing agency, both firms can beliable for costs of reasonable accommodation and other ADA violations. Federalcourts have applied co-employment to hold both staffing agencies and theirbusiness clients liable for each others' violations of employment laws inseveral recent landmark cases.

        Given this broad scope of coverage, the answer to "am I covered?"is likely "yes" -- whether your firm is a staffing agency or businessclient, and whether or not the employees or potential employees you hire are"disabled." Unless you operate a small business with less than 15employees, you face the risk of unexpected legal claims for ADA violations.

        Smaller businesses with more than 15 employees who don't have in-housecounsel need to be especially alert when dealing with staffing agencies. Legalreview of contracts with staffing agencies can be expensive, yet these costs canpale compared to the costs of potential ADA claims against staffing agencies.

Reasonable Accommodation Plus Co-employment Equals Increased Risk

    The ADA's reasonable accommodation requirement is a cornerstone of the lawand one of the most controversial issues in ADA claims. For staffing agenciesand their clients it raises critical questions about who must provide reasonableaccommodation (agency or client) and when. Add co-employment and the foundationis laid for disputes over "who pays the reasonable accommodationsbill" between agencies, business clients and other parties. Two generalrules apply:

  1. Staffing agencies and their business clients are responsible for providingreasonable accommodations to disabled workers, and

  2. Both parties can be sued if either knows that the other has violated thelaw.

    Consider this example:

    Company X (business client) hires a temporary worker from a staffing agency.The staffing agency violates the ADA's reasonable accommodation requirements.Even if Company X complies with the ADA, it may be a joint employer of staffingfirm workers and held liable for the staffing agency's ADA violations if itknows or should have known that the staffing firm is not providing reasonableaccommodations but fails to take corrective action within its control.

    Furthermore, even if Company X does not qualify as a staffing firm worker'semployer, it may be liable if it interferes with the worker's ADA rights (unlessit is a Federal agency). This is because the ADA protects an"individual" from discrimination. Therefore, an employer is prohibitedfrom interfering with a person's employment opportunities with another employerwhether or not the person is its employee.

    The EEOC recognized the significance of this requirement and its potentialimpact on staffing agencies and their business clients. In one of its mostcontroversial provisions, the EEOC suggests that "the staffing firm andclient may wish to set out in their contracts how reasonable accommodations willbe provided and who will pay for them."

    This suggestion raises significant questions of "who pays the bill"for reasonable accommodation for all parties, and provides further fuel forlegal disputes. It led some prominent employment law attorneys to warn thatagency contracts would have to be redrafted to protect them against the newrisks created by the Guidance.

    As described earlier, the greatest impact may be on small businesses withmore than 15 employees who have contracts with large temporary staffingagencies. They can't afford in-house counsel, but need to protect themselvesfrom the costs of ADA-related claims which temporary workers (and candidates)may bring against the agency.

Disability-Related Inquiries and Medical Examinations
    A second major area of concern for staffing agencies and their clients is theADA's stringent regulation of disability-related questions during three timeperiods: 1) before an offer (even a conditional offer) of employment is made toa prospective candidate; 2) after an offer is made; and 3) during employment.Again, these are complex and controversial legal issues in the"traditional" workforce. Applying them to complex contingent workforcearrangements only exacerbates the confusion, risks, and potential for legaldisputes.

  1. The Pre-Offer Stage
        The ADA prohibits employers from asking disability-related questions orrequiring medical examinations by prospective employees before a job offer ismade. This can create some difficult legal questions for staffing agencies,since an employment offer occurs when the worker receives an assignment with aspecific (business) client, NOT when a staffing agency places someone on itsroster for future assignments.

        For example, if a candidate goes directly to a staffing agency first and islater assigned to a business client, the staffing agency alone is responsiblefor providing reasonable accommodations. However, when a business sends a jobapplicant out to a staffing firm for payroll or other administrative purposes,both the staffing firm and the client business are responsible for providingreasonable accommodations during the application process. Both are at risk ifeither fails to comply.

  2. After an offer is made
        Presuming a worker has been assigned to work with a business client, eitherthe staffing firm or its business client may ask any disability-relatedquestions or require medical examinations it chooses. However, it must treat allapplicants equally. That is, ask the same disability-related questions to allapplicants for the same job.

        Consider this tricky -- yet typical -- scenario facing a temporary staffingagency:

    A worker signs up with a staffing agency. No offer yet; therefore, nodisability-related questions or medical exams. Then an assignment comes up veryquickly. An offer is made and accepted before there is time for pre-employmentinquiries or medical exams.

        In other words, the "post-offer" stage, with its required questionsand exams under the ADA -- is skipped. Or is it?

        Not according to the EEOC! The Guidance permits either agency or businessclient to withdraw the offer if disability-related questions or medical examinations tests show theapplicant either: (1) cannot perform the essential functions of the job, evenwith a reasonable accommodation; or (2) would pose a direct threat (i.e., asignificant risk of substantial harm).

        The ADA allows the agency or client to withdraw an offer based on the answersto these questions or the results of medical examinations, if it can meet the ADA's stringent test: Beable to show the applicant either: (1) cannot perform the essential functions ofthe job, even with a reasonable accommodation; or (2) would pose a direct threat(i.e., a significant risk of substantial harm).

        A post-offer medical examination may disqualify an individual if the employercan demonstrate that the individual would pose a "direct threat" in the workplace. While itshould be noted that our Courts continue to struggle and disagree over themeaning of these terms, disqualifying an individual under this Guidance requiresthat a significant risk of substantial harm to the health or safety of theindividual or others that cannot be eliminated or reduced below the directthreat level through reasonable accommodation must be shown. Such adisqualification must be "job-related and consistent with businessnecessity." This post-offer medical examination cannot be based onspeculation that the disability may pose such a risk in the future.

        To avoid further confusion, the EEOC suggests that: "a staffing firmshould consider telling an applicant what medical information will be needed before a particular assignment ismade. That way, the applicant can obtain the needed information and provide itquickly if a particular assignment becomes available on short notice." Remember, this is only a suggestion from the agency -- the staffing firm orbusiness client's right to withdraw the offer is very real.

  3. During the work assignment
        After being hired, both the agency and the business client may ask workersdisability-related questions if either has a reasonable belief that a medicalcondition will make the worker unable to do the job or will result in a directthreat. (The meaning of "direct threat" has itself been the subject ofconsiderable controversy, dispute and litigation.)

        If an individual is not hired because a post-offer medical examination orinquiry reveals a disability, the reason(s) for not hiring must be job-relatedand consistent with business necessity (another term subject to considerablelegal dispute and interpretation). The employer also must show that noreasonable accommodation was available that would enable the individual toperform the essential job functions, or that accommodation would impose an unduehardship.

Increased Litigation?
    Will the Guidance ignite an explosion of new litigation? The ingredients arein place. Consider the growing numbers of workers with disabilities seekingemployment. Consider the expenses of providing reasonable accommodations at atime when cost-cutting has become a necessity for most employers. Consider othervague yet stringent requirements for ADA compliance. Consider heightened EEOCenforcement efforts targeting temporary staffing agencies.

    Temporary workers have been motivated by recent high-profile cases likeMicrosoft and are learning how to assert their legal rights, aided byplaintiffs' lawyers who recognize the power of co-employment and the far reachof liability it provides.

    These issues sound like fodder for hungry lawyers representing all parties inthe diverse contingent workforce. Some lawyers have already warned of thelitigation explosion we can expect when the various parties bringing theirworkplace disputes to the legal arena -- which brings us back to where we started- the Microsoft controversy.

    Since the Microsoft case raised legal risks of hiring temporary workers intolegal concern for employers, many business leaders have voiced the fear ofbecoming "the next Microsoft" and paid tax and employee benefitslawyers for advice on how to avoid such a scenario. The Guidance shifts thefocus tolabor and employment lawyers. This time they have a long record of ADAlitigation and a larger pool of potential claimants. They may be very busy.

Conclusion: The Best Antidote is Education
    I am not a practicing lawyer, and I don't own a temporary staffing agency ora business that hires temporary workers. However, I do know that balancing thegoals of minimizing risk and avoiding costly litigation while complying with thelaw and meeting the rights of workers with disabilities is unquestionably adelicate balancing act. This delicate balance requires effective education andtraining -- the best antidote for all parties to reduce legal risks and complywith the ever-changing law.