Contingent Workers

Michele Miller

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The use of leased, temporary and other contingent workers has grown as both employers and employees seek greater flexibility in their working arrangements. But non-traditional workers can create a host of legal and practical problems.

Employee Leasing Versus Temporary Staffing Firms

Employee leasing usually involves the use of a Professional Employer Organization ("PEO"), which hires your employees and handles all aspects of employee administration, such as providing health insurance and workers' compensation, and maintaining payroll. The same employees are then "leased" back to you and perform their regular job duties under your supervision and direction. The PEO usually doesn't recruit or hire employees itself.

Another variation is the temporary staffing firm. It recruits, screens and hires individuals, who are then placed with client companies on either a temporary or project-specific basis. Temporary staffing firms typically train their employees, set wages and provide workers' compensation coverage. The client firm controls the employee's work during the assignment.

Hidden Dangers

Transferring responsibility to an outside company doesn't automatically relieve an employer from employment-related liability for leased or temporary workers, including:

• Discrimination claims
• Tax penalties
• Financial risks should the leasing firm or temporary staffing firm go bankrupt

Disability, Harassment and Discrimination Claims

Most contingent workers are protected by federal laws against discrimination and harassment.

The Equal Employment Opportunity Commission ("EEOC") has issued guidelines about the application of the American Disabilities Act to temporary, contract and other contingent workers.

Some of the specific issues include:

• Who is the employer? If both the hiring firm and the staffing firm have a "right of control" over the worker, both will be considered employers for discrimination purposes. But if the leasing company only pays your employees, and has no authority over these workers, it is probable that you- not the leasing company- would be considered the employer.
• Which employees count for coverage purposes? For purposes of figuring out coverage under anti-discrimination laws, both the staffing firm and the client must count every employee for whom it is a joint employer, even if that worker isn't actually on the company's payroll.
• When are you responsible for discrimination? As a joint employer, you may be held responsible for discrimination against a leased employee at your workplace if you either participated in the discrimination or knew or should have known about it and failed to take corrective action.
• Who is responsible for reasonable accommodations for the disabled worker? If you and the staffing agency are joint employers, you're both responsible for providing a reasonable accommodation to a disabled contingent worker. But you can split accommodation responsibilities with the staffing agency, as long as all the bases are covered.

Benefit Plans

You can exclude contingent workers from your benefit plans. But if a court decides your contract or contingent workers are in fact "common law" workers, you could find yourself on the hook for paying expensive employee benefits.

To avoid unexpected problems, always carefully draft your benefit plans. You'll want to clearly state that only employees on your payroll are considered regular employees entitled to benefits. It's also a good idea to have all contingent workers sign agreements acknowledging that they're not employees and not entitled to receive any employee benefits.

Because the way you classify your benefit plans can have tax implications, it's important to talk to a tax expert before making changes.

Doing Your Homework

The key to avoiding problems with staffing agencies is to do your homework in advance:

• Thoroughly investigate the staffing company and check references
• Ask for specific information about their employment practices
• Review workers' compensation coverage and ask for copies of their insurance certificates
• Make sure you're notified of any changes in the staffing company's insurance
• Notify your insurance carrier to see what additional coverage you may need

With proper planning and a clear understanding of the benefits and risks, using contingent workers can be a sensible choice.

Michele Miller is an employment attorney with the law firm of Miller Law Group. She may be reached at mbm@millerlawgroup.com.

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