Location, Location, Location:  Understanding FMLA Liability For Contract and Temporary Employees

            We've all heard that the three most important things in real estate are "location, location, location".  A recent decision from the Sixth Circuit Court of Appeals demonstrates how important "location" (i.e., where an employee works) can be in determining FMLA liability for contract and temporary employees.

It is increasingly common for employers to contract with staffing agencies to meet personnel needs.  Although these relationships are mutually beneficial in many ways, both employers and staffing agencies must be aware of how federal employment laws, like the Family Medical Leave Act ("FMLA"), apply to both parties.  The recent decision of Grace v. USCAR, et al., 2008 U.S. App. Lexis 6192 (March 26, 2008), issued by the Sixth Circuit Court of Appeals, is a perfect example of how the contract/temporary employee relationship can create FMLA liability where it would not otherwise exist.

In this case, the plaintiff, Rosalyn Grace, was a contract employee working at USCAR, a research and development firm jointly operated by Ford, DaimlerChrysler and GM.  Although she had been performing work for USCAR for eight years, USCAR was not her employer.  USCAR, in fact, directly employed no one.  Instead, Grace had been employed by a series of staffing agencies providing workers for USCAR.  Bartech, Grace's last employer, had assumed the staffing contract with USCAR in January 2004 after the previous staffing agency filed for bankruptcy.

A little more than eleven months later, on November 17, 2004, Grace was hospitalized as a result of severe asthma.  Grace sought FMLA leave from her employer, Bartech, from the date of her hospitalization until her expected return date of January 3, 2005.  Bartech informed her that her position had been eliminated due to USCAR's restructuring of its IT department.  Grace contended that this restructuring was merely a pretext for USCAR and Bartech's refusal to return her to her job.

USCAR argued that it was not an "employer" subject to the FMLA because it did not directly employ anyone.   Ordinarily, this is a correct statement of the law.  But the Sixth Circuit rejected this argument under the FMLA's "joint employment" regulation.  Under the FMLA's regulations, joint employment encompasses situations where "two or more businesses exercise some control over the work or working conditions of the employee".  29 C.F.R. 825.106(a).  The regulations specifically state that "joint employment will ordinarily be found to exist when a temporary or leasing agency supplies employees to a second employer".  29 C.F.R. 825.106(b).  Here, Bartech did qualify under the FMLA because it employed more than 50 employees within a 75 mile radius of Grace's worksite.  Thus, the Sixth Circuit held that because USCAR directed the work of Grace, USCAR and Bartech were joint employers and equally liable to Grace for any FMLA violation.

Even though both entities qualified as employers under the FMLA, Bartech argued that Grace was not an eligible employee under the Act because she had not been employed by Bartech for 12 months prior to her request for leave.  Ordinarily, this also is a correct statement of the law, but the Sixth Circuit rejected this argument as well.  The Court held that Bartech was the "successor in interest" to the previous staffing agency that went bankrupt.  Under the FMLA, an employee qualifies for leave if she works for a "covered employer" for at least 12 months.  However, an "employer" under the FMLA includes a "successor in interest" to a previous employer.  Bartech was a "successor in interest" to the previous staffing agency because Grace had worked at the same job, at the same location, and under the same USCAR supervisor for both Bartech and the previous agency.  Thus, her service in the employ of the previous staffing agency counted toward the FMLA's 12 month requirement. 

The Sixth Circuit's decision in Grace highlights the complexities that arise when determining how this nation's employment laws apply to contract employees and other alternative employment arrangements.  Understanding these issues will only become more important in the future as these arrangments, which now constitute almost 11% of all employer/employee relationships, continue to increase.  If you have any question about this, or any other, employment law issue, please feel free to contact a member of Walter & Haverfield's labor and employment practice group.
 

For more information on these or other employment law issues, please contact one of the attorneys in Walter & Haverfield's Employment and Labor Group: