Diversity & Inclusion, HR Management & Compliance

$136.9M Judgment vs. Tesla Underscores Rising Costs of Joint Employer Relationships

After less than four hours of deliberation, a jury in a California federal court recently awarded $136.9 million to a former Tesla subcontractor after finding he had been subjected to a racially hostile work environment at the company’s factory in the northern part of the state. The huge damages award demonstrates the potential dangers underlying joint employer relationships.

Facts

Owen Diaz testified he and his son suffered near-daily racial epithets (including the use of the N-word, swastikas, and racial graffiti and drawings) from coworkers and supervisors. He said his complaints to management failed to end the harassment.

Diaz had been subcontracted to Tesla and placed in the facility by a staffing agency. Nevertheless, the court found the automaker was a joint employer and responsible for its subcontractors’ environment, leading to a $130 million punitive damages award and a $6.9 million emotional damages award. Historically, Tesla has required employees to arbitrate similar claims, but contractors weren’t bound by the same agreements.

At trial, Tesla’s HR administrator testified about the company’s antiharassment policies, training, and complaints and investigation procedures, noting its staffing agencies were expected to train subcontractors on the policies and investigate when they were involved in complaints. In fact, the company had no written procedure for investigations involving contractors’ complaints and lacked any formal training for supervisors on how to conduct harassment probes.

How 4th Circuit, West Virginia Courts Handle Joint Employment

Notably, the U.S. 4th Circuit Court of Appeals (which covers West Virginia) and the West Virginia Supreme Court of Appeals have arrived at similar conclusions. When it comes to race discrimination claims, the company as well as its contracting or staffing agency often can share in the liability as joint employers.

Indeed, in West Virginia, two parties can be considered joint employers (and be liable for discrimination claims) if both exercise significant control over the same employees. Specifically, the state courts and the 4th Circuit use a nine-factor test to examine the real economic relationship between (1) the employer using and benefiting from the workers’ services and (2) the party hiring or assigning them to the company. The most important factors include:

  • Power to hire and fire the workers;
  • Authority to supervise and control their work schedule or employment conditions;
  • Authority to determine their rate and method of payment; and
  • Maintenance of employment records.

Bottom Line

When you contract with an agency to staff your workplace with workers who engage with your employees, you should have:

  • A clear understanding with the agency about training the workers on your antidiscrimination and harassment policies; and
  • An agreement about how to address discrimination and harassment complaint investigations in your workplace.

An agreement is easy to put in place and follow in the event of a complaint. Failing to do so, however, could lead to the same result Tesla faced.

Bonnie J. Thomas is an attorney with Steptoe & Johnson PLLC in Bridgeport, West Virginia. You can reach her at bonnie.thomas@steptoe-johnson.com.