Temporary Staffing Agency Relationships: Who is the employer for legal compliance?
Staffing is a critical and time consuming function for human resource professionals. To expedite the process, many employers turn to staffing agencies to assist in or even take over the staffing function. Relationships with staffing agencies can take a variety of forms including temporary placements, temp to hire arrangements, and employee leasing with a professional employer organization (PEO).
Many employers are surprised to learn that their company may have legal responsibility and even liability for temporary and leased employees. Liability arises when a company has the right to control the manner of the performance of the worker’s activities. When such a right to control is present, a company may be a joint employer with the temporary agency or PEO. Most common temporary agency relationships create joint employment because the temporary worker performs services at the company’s business location under the direction and supervision of the company.
The prime example of the joint employment principal in Pennsylvania is found in the case of JFC Temps, Inc. v. WCAB (Lindsay and G&B Packing), 680 A. 2d 862 (Pa. 1996). In JFC Temps, a worker was hired by a temporary agency, and was assigned to work for a trucking company. The worker performed his services at the trucking company, and the trucking company manager informed him of his work hours, the equipment he would be using, and the locations to which he was to drive. No representative of the temporary agency was ever at the trucking facility. The worker was injured in the course of the performance of the services for the trucking company. The injured worker sought workers’ compensation benefits from the temporary agency.
Under these circumstances, the Pennsylvania Supreme Court held that the trucking company (not the temporary agency) was the injured worker’s employer for worker’s compensation purposes because the trucking company possessed the right to control the manner of the performance of the claimant’s work. In fact, the Court noted, the temporary agency had no substantial contact with the claimant other than processing his paycheck, and, as such, could not be said to have controlled the manner of performance of the work. The Court so held despite the fact that the temporary agency had the authority to terminate the injured worker’s employment.
The obvious problem for the trucking company was that the workers’ compensation claim was likely uninsured since it did not consider the temporary worker to be one of its employees. This type of unexpected liability translates into other areas of the employment relationship like pension and medical benefits, payroll taxes, and discrimination laws.
As a joint employer, a company has compliance obligations and liability for violations of laws including the following (which are linked with case descriptions or regulations demonstrating their potential for liability):
- Income Tax and Payroll Tax Withholding
- Workers’ Compensation
- Unemployment Compensation
- Benefit Eligibility under ERISA
- Employment Eligibility Verification under IRCA
- Federal and State Discrimination laws (Title VII, ADA, and ADEA)
- Wage and Hour Laws under FLSA
- Family and Medical Leave Act (FMLA)
- Union Organizing under the NLRA
Several large companies have been found liable to temporary workers and independent contractors for employment law violations. For example, Wal-Mart paid $11 million to settle a claim against it by the U.S. Immigration Service based upon illegal janitorial workers provided to it by temporary service companies. Microsoft paid $93 million to settle two lawsuits brought by "permatemps" who claimed they should have been eligible to participate in stock purchase plans available to regular employees. Other examples are highlighted in the Temp Law Online blog detailing decisions related to all types of contingent workers.