Court ruling empowers subcontractor employees to sue primes

Subcontractor employees now have  legal recourse against their prime contractors, thanks to a recent court decision.

In July, the Fourth Circuit U.S. Court of Appeals ruled that an employee can have more than one employer for the purposes of liability.

The court ruled in favor of ResourceMFG employee Brenda Butler, who sued her prime contractor Drive Automotive Industries on allegations that a supervisor sexually harassed her.

Terry O'Connor
Terry O’Connor

A federal district court in South Carolina threw out the case Butler v. Drive, arguing that Butler was only the employee of her temp agency, not the prime contractor Drive.

“Although [subcontractor] ResourceMFG disbursed Butler’s paychecks, officially terminated her, and handled employee discipline, it did not prevent Drive from having a substantial degree of control over the circumstances of Butler’s employment. Accordingly …  Drive and ResourceMFG are Butler’s joint employers,” the court said in its opinion.

Terry O’Connor, director of government contracts at the law firm Berenzweig Leonard, told Federal Drive with Tom Temin that primes will have to tinker with the standard contract language it uses with its subcontractors.

“I would say that the primes have the real problem here because the subcontract agreements that we see here typically have boilerplate provisions that say subcontractors are independent employees, and that the employees of one party are not employees of the other,” O’Connor said. “And the court, in this case, acknowledged those kinds of provisions in subcontracts and basically ignored them.”

The appeals court’s decision impacts Washington, D.C., Maryland, Virginia, West Virginia, North Carolina, and South Carolina. O’Connor said the Fourth District is one of the last of its kind to make this type of ruling.

“The theory is here and they’ve got to deal with it,” O’Connor said. “And besides, why wouldn’t the prime want to take care of and refuse to tolerate the sexual harassment of its supervisors against anybody? Not just against their employees, but against anybody.”

O’Connor said primes  can protect themselves by purchasing  Employment Practices Liability Insurance.

The ruling, he said, works both ways: A  prime contractor employee could, in theory, sue a subcontractor for employee misconduct, but such a case seems unlikely.

“In reality, the prime is pretty much the driving force of subcontractor employees,” O’Connor said. “We have cases where the subcontractor employees wear the uniform of the prime, they work at the prime’s location… so that control is really top-down. I don’t see the control going from the bottom up. And that was basically the holding of the court.”

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