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Use of Temporary Workers Also Invites Exposures to Lawsuits

March 17, 2010

As the use of temporary workers increases, employers need to guard against the potential liabilities and other pitfalls of bringing in such workers, experts say.

Even though a staffing agency may cut a temporary worker’s check, experts say employers remain obligated to comply with state and federal employment laws, including discrimination statutes. There also are situations in which an employer could be required to provide benefits, experts say.

After several months of declines in the number of temporary help services employees in the U.S. workforce, the figure hit a yearly low in July 2009 at 1.7 million. Since then, the number has risen, hitting an estimated 1.9 million in December on a seasonally adjusted basis, according to the U.S. Bureau of Labor Statistics. The BLS does not track temporary workers or independent contractors hired directly by employers, a much smaller number than temp workers hired through agencies.

Observers say the recent temp hiring upswing could reflect an improving economy.

“I’m hopeful this is a sign that employers are dipping their toe back into the water,” says Lorie E. Almon, a partner with Seyfarth Shaw in New York, who has seen increased client interest in hiring temporary workers.

Attorneys say temporary workers hired through staffing agencies generally are considered to be employed by both the agency and company, even though the agency pays the salary.

“Some employers don’t realize when they hire temporary employees through temp agencies they’re potentially exposing themselves to most, if not all, the same risks that are involved in directly hiring employees,” says Enzo Der Boghossian, an associate with law firm Proskauer Rose in Los Angeles.

“As long as you control those employees and you require them to adhere to your policies” and they are directly supervised by the firm, “they can be found to essentially be your employee under various employment laws,” says Mark M. Schorr, a partner with law firm Erickson & Sederstrom in Lincoln, Nebraska.

“There are elaborate agreements that dictate that the individual remains the legal employee of the temporary agency, and the temporary agency is legally bound to pay their wages and their workers’ compensation insurance and all of that,” Schorr says. But when it comes to employment, discrimination and sexual harassment claims, “a myriad of laws” protect workers even though “they’re not technically employed by that employer,” he says.

Whether workers are brought in by a staffing agency or directly, observers say employers need to be concerned about employment laws and benefits.

A major decision in this area was the 1999 federal appeals court ruling in Donna Vizcaino et al. v. Microsoft Corp., which cost the Redmond, Washington-based software giant more than $100 million in stock options when the court held that temporary workers were entitled to the same benefits accorded full-time Microsoft employees.

“Most employers have since [Microsoft] tried to address that issue by being more specific” in their employee benefit plan and employee handbook language, says Jeff Starling III, a partner with law firm Balch & Bingham in Birmingham, Alabama.

Failing to clearly define what is considered temporary employment “runs a real risk that one of those contingent workers could claim they were entitled to benefits under that plan. That’s probably the biggest source of potential liability, and one that’s generally best addressed through careful analysis of the benefit plans and the definitions used in those benefits plans,” Starling says.

Using an agency to hire temporary workers mitigates some of the potential risk of someone seeking reclassification as an employee, Almon says.

If an employer hires temp workers directly, it should be clear “that these are temporary assignments and to define in contracts or employment polices what benefits apply to the temp employee versus the full-time employees,” including clearly stating they are not entitled to health care, 401(k) plans and vacations, Der Boghossian says.

Observers say the degree to which the employer controls the job performance of the directly hired temp is important in determining his or her employment status. As result, employers should avoid situations where an independent contractor is told what hours to work and treated much the same as a regular employee, which Starling says could obligate the firm to pay benefits.

Employers also should comply with employment laws, observers say.

“Just because they aren’t on your payroll directly doesn’t mean you still don’t have to comply with most employment laws related to them,” says Benjamin P. Roach, a shareholder with law firm Nyemaster, Goode, West, Hansell & O’Brien in Des Moines, Iowa.

Employers “need to ensure that their temp employees are aware of, and following, the workplace harassment and discrimination policies that they have,” Der Boghossian says. “There is also the possibility of negligent hiring and negligent retention” liability if the temp agency is not conducting thorough background checks, he said.

Employers should seek indemnity agreements in the contracts they sign with temporary staffing agencies, “so that the temp agency retains liability for any employment-related claims and agrees to indemnify the employer for any losses they might suffer” if any claims are brought against it by a temp employee, Der Boghossian said.

Employers also must determine who at the temp agency is responsible for making accommodations for workers covered by the Americans with Disabilities Act, says Carolyn Rashby, an associate with Miller Law Group in San Francisco.

“Oftentimes it’s both, and you have to work out with the temp agency as to who’s responsible for what,” she says.

Small employers should be aware that bringing in temporary workers could inadvertently increase their employee count to subject them to laws imposed on firms with 50 or more workers, such as the Family and Medical Leave Act, Rashby says.

One advantage of staffing agencies is they generally pay workers’ compensation premiums for the worker, which provides the employer with liability protection if the worker is injured.

But employers still should adequately train temporary workers, because a staffing agency’s increased workers’ comp costs ultimately will be passed on to the employer, says Bruce Hockman, Philadelphia-based workers’ compensation practice leader for Towers Watson & Co.

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