Halpert v. Manhattan Apts: Employer May Be Liable for Contractor’s Discriminatory Acts

The Second Circuit U.S. Court of Appeals has held that under the federal Age Discrimination in Employment Act, employers may be held liable for discriminatory employment actions taken by their independent contractors. In Halpert v. Manhattan Apartments Inc., 580 F.3d 86 (2nd Cir. 2009), the Court found that the question of the employer’s liability turns on whether the independent contractor was acting as the agent/ apparent agent for the employer or not – if so, then the contractor’s discriminatory acts could be imputed to the employer. The opinion should sound a warning bell for all employers that outsource human resource functions to take steps to protect themselves from unlawful actions by those contractors.

BACKGROUND

In 2001, Plaintiff Michael Halpert (then 44 years old) interviewed for a position to show rental apartments for Manhattan Apartments Inc. (MAI). The interview was conducted by Robert Brooks, an independent contractor/ broker, who was arguably acting as the hiring agent for MAI. During the interview, Brooks allegedly told Halpert that he was “too old” for the position, and Halpert subsequently filed suit under the Age Discrimination in Employment Act (ADEA). The ADEA, which protects individuals who are at least 40 years old, makes it unlawful for any employer “to fail or refuse to hire or to discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s age.” 29 U.S.C. section 623(a)(1).

The district court granted MAI’s motion for summary judgment and dismissed Halpert’s case on the basis that Brooks was an independent contractor, not an employee of MAI, and the ADEA “does not apply to independent contractors.” The district court specifically relied upon the previous Second Circuit decision in Robinson v. Overseas Military Sales Corp., 21 F.3d 502 (2nd Cir. 1994), which found that the ADEA does not apply to claims brought by independent contractors against the entity that hires that independent contractor.

Halpert appealed the grant of summary judgment. Halpert v. Manhattan Apartments Inc., 580 F.3d 86 (2nd Cir. 2009).

Employers may be liable for the discriminatory acts of an independent contractor

The Second Circuit distinguished the Robinson holding and reversed the district court’s grant of summary judgment. The Court found that Robinson does not inform the result of this case, because in Robinson, an independent contractor was suing an entity that was clearly not his “employer” as that term is defined by the ADEA. “’The ADEA prohibits employers from discriminating on the basis of age against their employees’ and therefore does not cover claims brought by independent contractors.” 580 F.3d at 87 (citing Robinson, 21 F.3d at 509) (emphasis in original).

In Halpert, by contrast, if Brooks was acting as the hiring agent – or “apparent” hiring agent – for MAI, Brooks’ acts could be imputed to MAI under agency principles. The Court explained: “If a company gives an individual authority to interview job applicants and make hiring decisions on the company’s behalf, then the company may be held liable if that individual improperly discriminates against applicants on the basis of age.” 580 F.3d at 88.

The real question of MAI’s liability turned on whether Brooks was in fact acting as agent for MAI when he interviewed Halpert, or whether Brooks interviewed Halpert as part of a process to hire his own employee. Id. The Court noted that MAI sponsored the training program for individuals hired to show the apartments and paid commissions to successful applicants, and that the interview took place in MAI’s offices. Moreover, the person who sent Halpert to the interview testified that she believed he was being interviewed for a position with MAI. On the other hand, some evidence was presented that Halpert, if hired, would have been paid by Brooks, not MAI. Because the determination of whether Brooks was acting as MAI’s agent when he interviewed Halpert required an analysis of disputed issues of fact, the case could not be dismissed on summary judgment. Id. at 88-89.

The Court made it clear that only if Brooks was acting as MAI’s agent or apparent agent during the interview could MAI be liable for Brooks’ acts. If it is determined that Brooks conducted the interview in order to hire his own employee, MAI would not be liable: “A company is not, of course, liable for the hiring decisions made by independent contractors who are hiring on their own behalf.” Id. at 88.

Employers should take steps to protect themselves from independent contractors’ acts

The Halpert case should make it clear to all employers who outsource administrative or human resources functions to independent contractors that they need to take steps to insulate themselves from the potential wrongful acts of those contractors. This is especially true in the current market, where more employers use outsourced HR contractors than ever before due to the improved efficiencies with this outsourcing… but also, due to the economic downturns, rejected applicants with limited job prospects may be more tempted to file suit.

There are several simple steps an employer can take. First, any independent contractors who conduct interviews or influence the compensation, terms, and conditions of an employee’s employment should be trained in equal employment opportunity practices – they need to know what they cannot ask or say to an applicant. Second, any agreement between the employer and the contractor should contain an indemnification clause whereby the contractor agrees to indemnify the employer from any of its acts that may expose the employer to liability. Finally, the employer needs to be careful not to ratify any unauthorized or unlawful activity by the contractor, or contribute to an applicant’s confusion over the contractor’s role. It’s in an employer’s best interest to have a qualified employment attorney review any contractor agreements and the terms and conditions of any such relationship to ensure that the employer is adequately protected.

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Jeremy J. Gray

Also See:

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