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If You’re Leasing Employees, You May Still Be an Employer

Leasing some or all employees is a common business practice. The National Labor Relations Board estimates that temporary staffing agencies supplied 2.87 million workers in 2017. This will increase to almost 4 million by 2022.

Staffing agencies assume an employer’s administrative tasks. These include payroll handling, tax withholding, and so on. States vary in how their laws treat these situations. Some consider the firm supplying the workers to be the employer. Others take the opposite view.

In some situations, multiple organizations are considered to be “joint employers.” This means that both firms assume the employer’s obligations. Joint employer status can affect both firms’ legal responsibilities and insurance programs.

NLRB decisions and court precedents have defined joint employers.

Such organizations “share, or codetermine, those matters governing essential terms and conditions of employment.” An organization is an employer if it has certain rights. These include the right to:

  • Fire workers
  • Set wages
  • Determine working hours
  • Approve overtime
  • Set the size of the workforce
  • Dictate how the work is to be performed
  • Inspect and approve the work
  • Exercise other employer rights.

A contract between a staffing firm and its customer may give both these rights. For example, both may have the right to terminate employees. Both may be able to set the number of workers to be supplied. If they have these rights for the same group of workers, they are joint employers. However, traditionally an organization is an employer only if it actually exercises these rights.

An August 2015 NLRB ruling changed this.

A recycling company in California had its own unionized workforce. It also leased non-union employees from a staffing company. The staffing contract allowed the recycler to set qualifications for employment; reject workers; cap workers’ wages; control shifts and operating hours; and more.

The union sought to represent the staffing company’s workers. It argued that the recycler and staffing company were joint employers. The recycler rejected the request, and the dispute went to the NLRB.

The board ruled that the recycler is the joint employer of the staffing firm’s employees. An organization that has rights over the conditions of employment, the board said, is a joint employer.

This applies even if the firm does not exercise its rights. If it has the authority, then it is a joint employer. This ruling may create many more joint employers.

This ruling affects both organizations’ insurance coverage. Both employers may have to provide Workers’ Compensation benefits.

Individual state laws vary on this. Also, both are vulnerable to the lawsuits covered by employment practices liability insurance. Workers could accuse both of discrimination. Both could be accused of wrongful termination or  discipline. Both will need EPLI coverage. Underwriters crafting policy terms and setting premiums will have to analyze the specific exposures for each.

Companies should give careful consideration before leasing workers. They should consult with professional insurance agents to ensure that they have the coverage they need. Under the new rules, they may be joint employers – with all the rights and obligations that implies.

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