SI Review: November/December 2014

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Benefit of Counsel: Beyond the Temp Term Limit

Letting your clients rely too heavily on term limits to mitigate co-employment can put them at further risk

By Eric H. Rumbaugh and Mark Lotito

Limiting assignment length — known as “term limits” — is widespread in the contingent workforce world. It is also widely misunderstood and misused as a means to mitigate co-employment risks. Generally, these policies provide a definite end date for a worker’s services and sometimes a waiting period before the individual can again be engaged at the client company. But their benefits often are outweighed by the costs such as by delaying projects while qualified replacements are found.

While limiting term lengths can make sense for a variety of business reasons, they usually are not an effective tool to avoid employer liability.

Co-employment confusion. The widespread misconception over term limits began nearly 20 years ago with the Vizcaino v. Microsoft case, in which contingent workers sued Microsoft for benefits, arguing they were in fact “employees.” The case settled for millions of dollars and put many businesses in a panic over their long-term temporary workforce usage. Term limits emerged as a popular response. But co-employment is a complex problem, and limiting assignment duration is not a catch-all to avoid liabilities.

In fact, administering term limits does not eliminate most forms of co-employment. Government agencies that enforce these laws have become increasingly aggressive in finding co-employment. Furthermore, under state workers’ compensation laws, joint employment normally exists between the staffing agent and its client, to the benefit of both parties. And the tests to determine whether a worker is an employee or a co-employee vary widely depending on the state or the enforcement agency.

Controlling factors. What is a crucial consideration under nearly every employment test — and often the most important factor — is the level of control the company exercises over the worker. The more control a company exercises over the worker on a day-to-day basis, the more likely the entity will qualify as an employer or a co-employer. In the changing world of the contingent workforce, the ways in which companies may be exercising control over workers and their performance of services — potentially creating a co-employment relationship — is endless. Other factors that affect employer status are whether the workers are:

  1. fully integrated into the workforce;
  2. supervised in the same manner as regular employees;
  3. on the company worksite;
  4. using the company’s resources, equipment or tools; and
  5. required to receive training with experienced employees.

Also a factor is whether the company has the right to command the worker’s schedule and place of work. In many cases, a contingent worker is in a client company’s building doing its work, under the client company’s direction and control, and using the client company’s equipment. In these (common) contingent workforce structures, co-employment usually exists from inception — a term limit of any duration makes no difference.

There are sound reasons for companies to implement term limits, but to avoid co-employment in many cases is not one of them. Businesses considering the costs and benefits of term limits should actually consider and understand whether a term limit would make any difference in a co-employment analysis; and then decide on whether to retain or adopt a term limit in the light of day.

Given the high risks associated with misclassification and inadvertent co-employment, staffing firms and their clients need to be aware of the myriad laws construing various employment relationships and corresponding obligations and liability. Rather than using term limits in an attempt to avoid legal liabilities, companies need to take affirmative steps to evaluate and minimize their misclassification risks. The first step should be promptly evaluating whether the company is exercising control over the worker and the worker’s services potentially creating an employment or co-employment relationship. Term limits have valid uses, but businesses should resist allowing co-employment to serve as a justification in all cases, especially in the many cases in which they do not affect co-employment.

Attorney Eric H. Rumbaugh can be reached at ehrumbaugh@michaelbest.com. Attorney Mark Lotito can be reached at malotito@michaelbest.com