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7th Circuit Judgment Reinforces Employer Liability for Temporary Workers

Many organizations believe hiring temporary workers from staffing agencies will absolve them of legal obligations that arise during the course of their employment. Unfortunately, as seen in the Scheurer v. Fromm Family Foods LLC decision, this is very rarely the case. Though the Scheurer decision dealt specifically with an arbitration clause, liability can and will come in all shapes and forms. All organizations should be wary when hiring from staffing agencies, as courts have repeatedly ruled that employers will be held liable for issues relating to a temporary employee ranging from wage and hour disputes to discrimination claims. It is essential that all organizations that utilize staffing agencies update their contracts and policies relating to temporary employees in order to insulate themselves from liability.

In the most recent example of courts reinforcing employer liability, the Seventh Circuit Court of Appeals affirmed a district court’s ruling that an employer cannot compel arbitration under a temporary employee’s contract with a staffing agency. In Scheurer, plaintiff employee signed an agreement containing an arbitration clause with a staffing agency, which ended up placing her at Fromm Family Foods. While at Fromm, Plaintiff alleged that she was sexually harassed by her supervisor which led her to file a Title VII sexual harassment and retaliation suit against Fromm. The employer did not have a written arbitration agreement with the temporary employee, and was therefore facing a long and costly court battle with the aggrieved employee. However, the employer learned that the employee’s contract with the staffing agency that employed her and directed her to Fromm included an arbitration clause. Fromm then moved to compel arbitration based on the contract between the staffing agency and the temporary employee. The district court denied Fromm’s motion and Fromm appealed.

On appeal, Fromm claimed that under Wisconsin law the employee should be compelled to arbitrate against Fromm based on the contract principle of equitable estoppel, which requires reasonable reliance. The Seventh Circuit found that Fromm could not establish reasonable reliance because there is no evidence that Fromm even knew of the fact that the employee had signed an agreement with an arbitration provision when it accepted her assignment from the staffing company. Fromm could not have relied upon an agreement of which it was unaware. Therefore, the Seventh Circuit affirmed the decision of the district court denying Fromm’s motion to compel arbitration, thus allowing the plaintiff to litigate her Title VII claims.

Fromm’s attempt to skirt their obligations in relation to a disgruntled employee is by no means a cutting-edge strategy. In fact, outsourcing the hiring of employees to staffing agencies is an efficient strategy utilized by many organizations nation-wide. But it is important to remember that although hiring temporary employees from staffing agencies may serve to minimize legal exposure in a few cases, that exposure is never completely eliminated.

If you hire temporary employees and believe your policies and practices are out of date, or if you have any questions or concerns, please contact Dan Vliet at dvliet@buelowvetter.com or 262-364-0259, Matt Derus at mderus@buelowvetter.com or 262-364-0266, or your Buelow Vetter Attorney.

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