Margarita M. Phillips 
When a California jury returned a record verdict against Tesla for racial discrimination on October 4, it sent shock waves through the business world, but especially among the ranks of companies that regularly hire contractors.
The $ 137 million judgment, which will be closer to $ 180 million with interest, is subject to appeal and could be reduced, but the damage to Tesla and other companies at the contract labor are nonetheless substantial.
The black elevator operator who faced repeated racist treatment, including frequent use of the n-word, was employed by a third-party recruitment agency. The workers who subjected him to continuous denigration were also paid by another company. Most of the workers at the Tesla factory in Fremont, where the incidents occurred, were supplied by an independent company.
Yet it will be Tesla, not the recruiting agency, who writes the huge check when all the calls are over and the dust settles. Because it controlled the workers and directed their work at its site, Tesla was a joint employer, with the agency, and is jointly and severally liable for the amount of the verdict.
Companies that employ a large external workforce must now start to question themselves. What does Tesla’s verdict mean to them? Can they escape their responsibility by distancing themselves from workers who are not on their payroll?
Tesla’s verdict says companies that hire temporary workers in the hope of firing them or evading responsibility when they sustain injuries or file complaints will be held accountable, even if the contract with the employer third party claims to attribute all responsibility to this agency.
No escape from liability by calling on external contractors
There are undoubtedly good reasons – taxes, economy, flexibility – for using outside labor, but avoiding lawsuits for discrimination and harassment in the workplace is not one of them, at least in California. . Tesla, who calls the Golden State its headquarters but intends to move, has already settled at least one discrimination complaint and faces a number of other such lawsuits.
These might just be the tip of the iceberg of racial discrimination. Since the Black Lives Matter pandemic summer, there has been an increased awareness of inequalities in the workplace and it is likely that there will be a concomitant increase in race-related employment cases. Companies that use outsourced labor would do well to review applicable laws on joint labor.
According to the DOL rules which came into effect on September 28, vertical joint labor exists under the Fair Labor Standards Act where “an employee has a working relationship with an employer (usually a recruiting agency, a subcontractor). , a labor supplier or other intermediary employer), “another employer” receives the benefit of the employee’s labor “and” economic realities show that the employee is economically dependent on, and therefore employed by, , The other employer.
California law defines “employee” as “”[a]any natural person under the direction and control of an employer by virtue of an appointment or a rental or apprenticeship contract, express or implied, oral or written. If a worker can demonstrate that the contracting company – in this case Tesla – exercised direction and control over the worker, the “keystone of the employment relationship†under common law, an employment relationship is established.
This can be demonstrated, among other factors, by the fact that the employee must obey the instructions of the employer and whether “there was a right to terminate service at any time”.
Texas case law, which will govern Tesla after his planned move to Austin, holds that “the test for determining whether a person is the employee of the original employer or of the borrowing employer is whether the employee is. subject to the specific direction and control of the lender or borrower employer.
PEO insurance may not cover punitive damages
Professional employers’ organizations (PEOs), which include the recruitment agencies ADP TotalSource and TriNet, typically identify themselves as joint employers, with the job site or the hiring employer. PEOs may maintain insurance coverage both for themselves and for these companies, but these policies may not cover a claim for punitive damages, especially one as high as in the Tesla case. Under the doctrine of joint and several liability, the hiring company could pay the entire bill at a disproportionate price.
It should be noted that $ 130 million from the Tesla judgment was punitive damages. Bad actors weren’t just coworkers; there has been malice, oppression or fraud on the part of a Tesla “managing agent”, a senior executive with sufficient opportunity to end the harassment who did not . The staffing agency, even though it had been made aware of the violations, had little ability to witness or stop the ongoing harassment.
Train and treat hired staff like employees
In an article titled “Best Practices for Temporary Recruitment Companies and Professional Employer Organizations,†the Texas Workforce Commission offers PEOs these tips, and more, to protect the hiring company:
- Reserve the right in the customer service agreement to exercise as many of an employer’s prerogatives, at least on paper, as possible i.e. hiring, firing, reassignment, training, compensation, benefits , etc.
- Ask employees to fill out job applications.
- Give them company policy manuals.
- Have them sign clear acknowledgment forms indicating the temporary help company or PEO as the employer.
- Remember who the employer is throughout the employment relationship and at the end of the mission.
What Tesla’s verdict tells us is that these guidelines are just words on paper. The company for which the work is done is ultimately in the driver’s seat. He has an obligation to police workers, to train them in acceptable behavior and to put an end to activities which would be contrary to company policies if carried out by employees.
Ultimately, in most cases, the workers in the employment agencies are also employees of the company.
This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.
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Jonathan lacour is the founder and managing counsel of Employees First Labor Law. He represents plaintiffs in labor law cases, dealing with claims of unfair dismissal, sexual harassment, unpaid overtime and wages, FMLA violations and discrimination in the workplace.
