Joint Employer Liability: Sexual Harassment Claim Ensnares General Contractor

October 18, 2016 Firm News

A Laurie & Brennan article featured in the Construction Law Corner Winter 2014 eNewsletter.

by Daniel Brennan

General contractors and subcontractors have long faced legal entanglements based on the joint employer doctrine.   The joint employer doctrine can make an upstream contractor potentially liable for the sins of its downstream contractors (or joint venture partners) if the upstream contractor has and exerts a certain measure of control over the activities of an employee of the downstream contractor.

In a recent case out of Tennessee, a federal appeals court extended the application of the joint employer doctrine to claims of racial discrimination and harassment arising under Title VII of the Civil Rights Act, 42 U.S.C  § 2000e et seq.   While other federal courts have applied the joint employer doctrine in Title VII cases, this latest decision is a reminder of the potential risks that await a contractor who infiltrates itself, even with good intentions, into the affairs of the employer-employee relationship of its subcontractors.   This article will look at the facts of this recent case, examine the scope of joint employer liability from other cases, identify some lessons learned and suggest some preventive measures to avoid problems from the application of the joint employer doctrine for claims under Title VII.

EEOC v. Skanska USA Building, Inc.

In the decision, EEOC v. Skanska USA Building, Inc., the Sixth Circuit U.S. Court of Appeals found that Skanska, the construction manager for a hospital in Memphis, Tennessee, exerted sufficient control over the activities of the employees of one of its subcontractors to be considered a joint employer and therefore potentially liable for the racial discrimination inflicted upon the complaining parties that prompted the EEOC to bring suit.

On the project, Skanska was the general contractor for the construction of a new hospital.   Skanska hired C-1, Inc. to provide operators for temporary hoists.   C-1 hired a number of African-American workers to serve as operators of the hoists.   In the subcontract between Skanska and C-1, C-1 was to supervise the operators but Skanska retained the right to terminate the operators if their performance was incompetent or otherwise unsatisfactory.

As sometimes happens, reality did not match the contract language.   C-1 did little supervising of the operators.   Skanska did.   Skanska instructed the operators on how to use the hoists, established their work hours, directed their daily assignments and responsibilities, collected their time sheets and Skanska carried workers compensation and liability insurance to cover the operators.   The person from C-1 who was to supervise the operators was rarely on site.   When Skanska requested that a C-1 employee be removed, it was done with little or no inquiry by C-1 — essentially rubber stamping Skanska’s decision.   Skanska also recommended the hourly wage that C-1 should pay the operators.

One of the African-American hoist operators was Maurice Knox.   Shortly after beginning work on the site, Knox was the target of racial slurs from other workers. Racist graffiti appeared on the job site.   Knox (and other African-American operators) complained to C-1 and to Skanska managers.   The Skanska managers took no action in response.

The situation worsened.   Certain African-American operators reported hearing racial slurs on the walkie-talkies used on the project.   Knox was specifically targeted when liquid from a porta-potty was dumped on him.   Soon after, Knox was involved in a physical altercation at the site.

Skanska then terminated all of the hoist operators.   After C-1 appealed to the hospital owner, Skanska rehired all of them.   When the hoist operators returned to the job site, a Skanska executive met with them and reportedly told them that the operators “represented” Skanska and that fighting and tension had to end.   Skanska distributed a written document that outlined the duties of the hoist operators.   A short time later, Skanska fired Knox for using a cell phone on the job site.

The EEOC (and later Knox) sued Skanska claiming that Skanska was the joint employer of the African-American hoist operators, had created or permitted a hostile work environment and retaliated against Knox for complaining about the harassment all in violation of   Title VII of the Civil Rights Act,   42 U.S.C  § 2000e et seq.   Both Skanska and the EEOC moved for summary judgment.   The district court ruled in favor of Skanska but the court of appeals reversed.

The Sixth Circuit based its decision on the joint employer doctrine.   The court observed that it had mentioned the applicability of the joint employer doctrine in dicta in earlier decisions arising under Title VII.   The Sixth Circuit took this case as the opportunity to hold clearly that joint employer liability was applicable under Title VII.   The court stated that entities are joint employers if they “share or co-determine those matters governing essential terms and conditions of employment.”   Factors to consider include: (1) the power to hire, discipline and fire employees; (2) the ability to affect compensation and benefits; and (3) the authority to direct the employees’ activities.   Skanska had — and exercised — all of these.   C-1 was, as noted by the court, a “nonentity” on the project.   The court easily swept aside the subcontract’s allocation of a supervisory role to C-1 as “besides the point.”   The Sixth Circuit sent the case back to the district court for further proceedings.

Other Examples of Joint Employer Liability

Joint employer liability has been applied in a variety of circumstances including wage claims, overtime disputes, wrongful termination and others.   The Skanska decision is simply the latest application of the joint employer doctrine in the Sixth Circuit in the context of racial harassment claims under Title VII.   Several other federal circuits have already recognized that Title VII harassment claims can be brought under a joint employer theory.

In Virgo v. Riviera Beach Associates, Ltd., 30 F.3d 1350 (11th Cir. 1994), the U.S. Court of Appeals for the Eleventh Circuit upheld a district court’s finding of liability for sexual harassment against a hotel partnership that contracted out the management of the hotel.   The victim of the harassment was an employee of the management company.   The perpetrator of the harassment was also an employee of the management company.   Nevertheless, both the district court and the Court of Appeals found that the partnership had the right to and, in fact, did exercise sufficient control over the terms and conditions of the employment of the management company’s workers to be considered a joint employer.   Like in Skanska, the Eleventh Circuit focused on the control that the partnership exerted over the terms of employment and specifically borrowed from factors that the National Labor Relations Board examines to determine joint employer liability.   The Eleventh Circuit observed as follows (quoting from another decision):

[t]he basis of the finding is simply that one employer while contracting in good faith with an otherwise independent company, has retained for itself sufficient control of the terms and conditions of employment of the employees who are employed by the other employer. Thus the joint employer concept recognizes that the business entities involved are in fact separate but that they share or co-determine those matters governing the essential terms and conditions of employment. (citation omitted).

Id.  at 1360.

The U.S. Court of Appeals for the Third Circuit likewise allowed a sexual harassment claim to proceed based on allegations by court clerks that they were jointly employed by both the judicial branch of the Commonwealth of Pennsylvania and the local county.   In Graves v. Lowery, 117 F.3d 723 (3rd Cir. 1997), the district court granted the county’s motion to dismiss the complaint but the Court of Appeals reversed.   The Court of Appeals, taking all well-plead allegations as true, concluded that the plaintiffs had alleged sufficient facts regarding the county’s funding, actions and policies regarding the clerks’ employment to survive a motion to dismiss.

Lessons Learned, Preventive Measures and Insurance Options

For owners, contractors and subcontractors, the realities of executing a construction project will, at times, place them in a position of interceding into the activities of downstream parties.   These efforts usually amount to only managing an arms-length contract relationship; at other times, such as in Skanska, the involvement may be much more.   In circumstances where a party exerts a high degree of control over the activities of another party’s employees, joint employer liability can be both alleged and proven for claims of harassment (and for other claims).

The most common sense preventive measure is to adequately train employees on harassment issues.   This training, if done correctly and repeated at appropriate intervals, will go a long way to create a culture that recognizes inappropriate behavior and avoids such behavior.   While this training will usually focus on relations among employees of the same company, a cultural change in workers’ attitudes will sensitize workers to recognize issues on the jobsite and work through the appropriate contracting parties to rectify problems before they grow into legal liabilities.

Anyone who has been through litigation recognizes the cost of litigating (aside from whether a party is ultimately found liable) can be significant.   The cost to litigate is often reason enough to settle a claim.   Aside from what that says about the civil justice system in the U.S., the risk of costly litigation from joint employer liability cannot be ignored.   There are, however, insurance products available to provide both defense and indemnity against employment-related claims.

Employment practices liability insurance (“EPLI”) is one such product.   EPLI protects employers from liability for wrongful employment practices.   Most EPLI policies cover claims for sexual harassment, discrimination, and wrongful termination.   E. Blomquist, B. Kahn & P. Palmer, Employment Practices Liability Coverage: Updates and Strategies in Addressing Employment-Based Claims, ABA Section of Litigation Insurance Coverage Litigation Committee CLE Seminar, March 4-6, 2010.    Employers can obtain coverage for employment practices liability by either (a) purchasing a stand-alone policy such as an EPLI policy or a Management Liability Policy or (b) by endorsement to an existing policy, such as a CGL or D&O policy.   Id.   The biggest difference between stand-alone policies and coverage by endorsement may be the breadth of coverage.   Another important difference involves policy limits.   Stand-alone EPLI policies come with their own separate policy limits.   Id. Additionally, carriers ordinarily write EPLI policies on a claims-made basis.   CGL policies are usually occurrence-based coverage.   Id.

The Skanska decision is a reminder of the potential pitfalls of managing workers that are employed by downstream contractors.   There may be compelling reasons to intercede in the employment relationships of downstream contractors but it does carry certain risks.   Owners, contractors and subcontractors should be vigilant in conducting their relationships with all workers on a project in accordance with applicable laws that govern the employer/employee relationship.   The extent of employment-related liabilities may not end when work is contracted to others.