Secondary employer can be liable to contract employee for violation of the FMLA

For the week of March 31, 2008

The Department of Labor’s recent Notice of Proposed Rule Making has heightened interest in and awareness of the regulations that underpin the enforcement of the FMLA. However, employers also should be aware of a recent opinion issued by the 6th U.S. Circuit Court of Appeals that covers a number of important FMLA issues for companies that employ contract or temporary employees. Grace v. USCAR and Bartech Technical Services, LLC, 6th Cir., No. 06-2509, March 26, 2008.

In that case, a contract employee sued both the temp agency and the company to whom she was assigned, claiming that both entities violated the FMLA by not reinstating her to a position with the company after return from an FMLA leave. The Sixth Circuit overturned a lower court’s dismissal of the claim, allowing the case to go forward against both companies.

Rosalyn Grace was a contract employee who worked at USCAR for eight years, beginning in 1996. All individuals working for USCAR either are contract employees or are on "loan" to USCAR from Ford, DaimlerChrysler, or GM. USCAR is a general partnership of the three auto-makers, and was formed to facilitate research and development programs for those companies.

During the eight years of Grace’s employment, USCAR used various employment agencies. In 2003, Grace was employed by temp agency DGE and was being contracted to USCAR to do IT work. When DGE filed for bankruptcy in December 2003, USCAR interviewed four agencies about assuming the DGE contracts for USCAR’s employees. Bartech assumed those contracts in January 2004, and Grace continued to work at USCAR, through Bartech.

In November 2004, Grace was hospitalized for an asthmatic condition and requested an FMLA leave through Bartech, with an expected return date of January 3, 2005. On December 30, 2004, Bartech told Grace that because USCAR was restructuring its IT division, Grace’s position was being terminated, and that no position remained for her. Evidence ultimately showed, however, that the work being done by Grace continued to be done by another individual contracted for by USCAR.

Grace filed suit against both companies, alleging violation of the FMLA based on the companies’ failure to return her to work at USCAR. The lower court dismissed the claims against both defendants holding that: (1) USCAR was not an "employer" for purposes of the FMLA, since it had no real "employees" of its own; and (2) Bartech had not employed Grace for the requisite 12 months prior to her leave and that therefore, Grace was not entitled to FMLA protection.

The Sixth Circuit reversed the lower court in a detailed opinion that provides insight and direction to employers that regularly use contract employees.

First, the Court addressed the issue of "joint employers," finding that Bartech and USCAR both had some measure of control over Grace’s work or working conditions. Unlike "integrated" employers, which are treated as a single entity, joint employers can be distinct entities, each with some measure of FMLA liability. The regulations that interpret the FMLA specifically state that "joint employment will ordinarily be found to exist when a temporary or leasing agency supplies employees to a second employer."

While the Court found Bartech to be Grace’s "primary" employer, it held that USCAR also was directly liable for complying with the FMLA as Grace’s "secondary" employer. A secondary employer who interferes with an employee’s return to work after a qualified FMLA leave violates that Act. This liability occurs whether or not the secondary company has the 50 employees necessary to bring it within the FMLA definition of "employer." The Court’s decision to ignore the 50 employee requirement and replace it with an "employment relationship" test for secondary employees is especially noteworthy, and could become problematic if the rationale is applied to small employers in future decisions.

Bartech argues that because Grace only had been its employee fort 11 months after its replaced DGE as USCAR’s temp agency, Grace did not fulfill the eligibility requirement of 12 months of employment necessary to qualify for FMLA leave. However, the Sixth Circuit found that Bartech was a "successor in interest" to DGE, and that Grace’s periods of employment with both agencies could be conflated to satisfy the 12-month eligibility requirement.

This decision is of importance to employers that use contract/temporary employees. According to this case, a company that uses contract employees may be considered a secondary employer - with potential liability under the FMLA - by reason of its working relationship with an employee, whether or not it has the ability to hire and fire him or her. Such companies should be aware of this possibility and understand the Act’s interplay when considering reinstatement for individuals returning from FMLA leave.