Court Bars Employer from Shifting Title VII Liability to Staffing Agency

When companies use staffing agencies to hire employees, who is liable for alleged discrimination?

In a recent case in Alabama federal court, a company was accused of discriminating against women by directing its staffing firms not to refer female candidates for laborer jobs.

In its agreement with the company, the staffing firm agreed to comply with applicable law and to indemnify the company for breaching the agreement.

The company therefore argued that the staffing firm had to indemnify the company for the alleged discrimination: The company claimed that if the allegations were true—that the company had instructed the staffing firms not to refer women—then the staffing firms’ compliance with that instruction was itself unlawful and violated Title VII, and therefore that the staffing firms should indemnify the company for its own unlawful actions.

The court rejected the argument, holding that allowing such an indemnification claim to proceed would undermine public policy, violate Title VII, and improperly allow the company to escape liability for its conduct. In dismissing the company’s claim against the staffing firms, the court noted that “Title VII creates a ‘comprehensive remedial scheme’ designed to eradicate discriminatory conduct based on protected characteristics like sex” and that Title VII’s primary goal would be thwarted if a company were permitted to contract around its obligations and shift its entire responsibility for compliance to a third party.

While the central allegation in this case—that a company specifically instructed its staffing agency to discriminate—is particularly egregious and, hopefully, uncommon, the decision serves as an important reminder that using a staffing agency for temporary or other employment needs does not insulate a company from liability. A company may be deemed a joint employer of staffing agency employees and attempts to eliminate liability through indemnification provisions may not be effective.

If you have questions about the use of staffing agencies, agreements with staffing agencies, or obligations with respect to staffing agency employees, your D+G counsel can help.