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WASHINGTON -- A federal appeals court said the state can be sued by an Arizona inmate contracted out to a private company that he said violated his rights by failing to accommodate his disability on the job.

The 9th U.S. Circuit Court of Appeals said Tuesday that William Castle could not sue Eurofresh for violating the Americans with Disabilities Act because Castle, a contract inmate laborer, was not an "employee" of the produce company.

But a three-judge panel of the court also said state officials could not "contract away their obligation to comply with federal discrimination laws," and it ordered a lower court to reconsider whether workplace discrimination had occurred.

An attorney for Castle declined in an email to comment and a spokeswoman for the Arizona Attorney General's office said Tuesday that the office was "still reviewing the case" and would not comment at this time.

Castle, 48, was in prison on a Maricopa County theft conviction in July 2008 when he was contracted through Arizona Correctional Industries to work for Eurofresh, which describes itself as "America's largest greenhouse operation," according to the court ruling.

Under state law, all able-bodied inmates are required to "engage in hard labor for not less than 40 hours per week." That is typically done through the Department of Corrections' Work Incentive Pay Program, which pays inmates 10 to 50 cents per hour.

But contract work through ACI is more lucrative - Castle was earning more than $2.25 an hour picking tomatoes at Eurofresh, the court said. It said he was on his feet for his entire seven-hour shift and had to push a 600-pound cart for the "strenuous" job.

By late August, Castle began experiencing "intolerable pain and swelling" in his left ankle, which had been injured decades earlier while he was in the Army Airborne School. But a supervisor told him he would be fired if he took breaks to rest his ankle.

Castle's medical provider suggested that he ask for a job change or accommodation. But after meetings with Eurofresh and ACI officials, he said he was told there were no other positions for him and there would be no accommodations. The state and Eurofresh claim he was offered another job that he turned down.

Eventually, Castle was transferred out of the ACI contract program and back to a WIPP job in the prison motor pool, where his pay dropped to 50 cents an hour.

Castle filed a discrimination claim charging that Eurofresh and the state violated his rights under the Americans with Disabilities Act and the Rehabilitation Act of 1973 by "failing to accommodate his disability."

A federal district court dismissed Castle's ADA claim against the company, as he "did not have an employment relationship with Eurofresh." And it said that the Rehabilitation Act did not apply because Eurofresh did not receive federal financial assistance.

The district court later held that Castle could not sue the state, since he was ultimately given another job, even if it was at a lower salary.

Castle, who was released from prison in April, appealed.

While the appeals court agreed that Eurofresh could not be sued, it overturned the lower court on the state's liability. The panel said that the state is obliged to ensure that Eurofresh, the contractor, complies with federal laws prohibiting discrimination on the basis of disability.

The question of whether discrimination actually occurred, however, was a question that needed to be determined by the district court, said the appeals panel, which remanded the case with instructions to answer that question.

Jeffrey Willis, an attorney for Eurofresh, said the company was "pleased" that the court agreed that inmates contracted for work through the Department of Corrections "are not considered employees or members of the industry."

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