April 21, 2016Client Alert

The Hidden Liabilities of a Temporary Workforce

The legal landscape surrounding the workplace changes constantly.  The evolving law stemming from the recent growth in employers’ use of temporary employees is a prime example.  Since 2010, employers increasingly have relied on temporary workers to supplement their own workforce, in part to reduce expenses and to maintain flexibility.  However, employers and staffing agencies must be cognizant of their respective responsibilities to reduce their exposure to potential liability.

Temporary workers are individuals whom a staffing agency hires, pays and assigns to work for a particular client company.  The first step in assessing potential liability related to temporary workers is to determine whether a joint-employer relationship exists.  Such a relationship exists where both the staffing agency and the client company have legal responsibility over temporary workers.  Courts typically examine the totality of circumstances when determining whether a joint-employer relationship exists.  No one factor is dispositive; rather, courts examine the following:  degree of supervision; skill needed to perform the work; materials and place of the work; duration of employment; method of payment; relationship between the work performed and the employer’s regular business; and the intent of the parties with respect to the relationship.  The degree of control that an employer exercises over a temporary worker is particularly significant in determining whether the employer is a joint employer. 

Employers can take steps to minimize and manage the possibility that they will be deemed to be a joint employer.  For instance, the employer may require the worker to perform the services away from the company’s premises; allow the staffing agency to handle all hiring, firing, and disciplining; report all complaints directly to the staffing agency; require on-site supervision by the staffing agency; limit the duration of the work assignment; and avoid work assignments that are integral to the company’s business.

In the event a joint-employer relationship exists, employers and staffing agencies should be aware of their respective liabilities under the applicable federal, state, and local laws.  The statutes below illustrate the significant effects of a joint-employer relationship.

Fair Labor Standards Act

On January 20, 2016, the United States Department of Labor (“DOL”) issued an Administrator’s Interpretation setting forth two tests to identify a joint-employment relationship under the Fair Labor Standards Act (“FLSA”).  Under the horizontal test, the DOL analyzes whether two or more employers are sufficiently associated with the worker to become a joint-employer.  In contrast, the vertical test focuses on the temporary worker’s level of dependence on the respective employers.  If a joint-employer relationship exists, the joint employers are responsible for complying with the FLSA, including its overtime requirements.  Further, the hours that an individual has worked for both the staffing agency and the client company are aggregated for purposes of calculating whether overtime pay is due.

Family And Medical Leave Act

The Family and Medical Leave Act (“FMLA”) is one of the few statutes that explicitly delineates the requirements for each employer in the event a joint-employer relationship exists.  Under the FMLA, an employer is viewed as the primary employer if it has the authority to hire, fire, assign the worker, and provide pay and benefits.  The staffing agency typically serves as the primary employer.   Accordingly, it is responsible for providing FMLA notices and leave, maintaining health benefits, and job restoration.  While the primary employer is responsible for the bulk of FMLA duties, the secondary employer (typically the client company) is responsible for accepting an employee returning from FMLA leave if the secondary employer has continued to accept workers from that staffing agency and the agency chooses to return the worker to that assignment.

Americans With Disabilities Act

Where a joint-employment relationship exists under the Americans with Disabilities Act (“ADA”), both the staffing agency and the client company must provide reasonable accommodations to qualified individuals with a disability.  While employers are not required to provide reasonable accommodations if doing so would present an undue hardship, such a hardship is particularly difficult to establish where a joint-employment relationship exists.  To do so, the joint employers must demonstrate that the accommodation would involve a significant expenditure, despite the combined resources of the two entities. 

Where a reasonable accommodation would have resulted in significant expense for the client company, and the client company made a good faith, but unsuccessful, effort to obtain a contribution to the cost from the staffing agency, the client company may have an undue hardship.  However, where the company’s own resources are sufficient to provide a reasonable accommodation without an undue hardship, the company must do so even if the staffing agency refuses to contribute to the cost.  The same is true for a staffing agency.  Moreover, a staffing agency or client company that refuses to contribute to the cost of a reasonable accommodation may be liable for a failure to provide an accommodation even if the other entity provides one.

These statutes are only a few examples of the potential liabilities stemming from a joint-employer relationship.  Employers and staffing agencies should examine their obligations under the Affordable Care Act, Title VII, and the Age Discrimination in Employment Act, as well as other applicable federal, state, and local laws.

Negotiating An Agreement

One way to help reduce the likelihood of a joint-employer relationship is to structure the agreement with a staffing agency as results-oriented and identify the desired results as objective measures of performance.  Alternatively, the employer may decide to agree to a joint-employer relationship for clarity and myriad other reasons.  Either way, the written agreement with a staffing agency should set forth the specific obligations of the employer and the staffing agency to avoid exposure to potential liability.  The best way for employers to reduce their potential liability arising from a joint-employer relationship is to negotiate clear, strong agreements with their staffing agencies that address the impact of the applicable laws on the relationship between the client company and the staffing agencies.  These steps should help employers and staffing agencies keep pace with the dynamic laws that govern the use of the temporary workforce.

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