This book is intended as information and not legal advice. Readers requiring legal or other advice regarding the matters discussed in this book should consult with experienced legal counsel.

American Staffing Association

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© 2019 American Staffing Association

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First Edition 1992

Second Edition 1994

Third Edition 1997

Fourth Edition 2000

Fifth Edition 2003

Sixth Edition 2007

Seventh Edition 2011

Eighth Edition 2015

Contents

Introduction

1.   Staffing Services Defined

1. Temporary and Contract Staffing

a. Employer Status of Staffing Firms

b. How Staffing Firms Operate

c. Nature of Temporary Work

d. How Temporary Employees Are Assigned and Paid

e. State Regulation of Temporary Staffing

f. Temporary Distinguished From Part-Time

2. Long-Term Staffing

3. Employee Leasing (Professional Employer Organizations)

a. Tax Status of PEO Defined-Contribution Plans

b. Employer Status of PEOs for Employment Taxes

4. Payrolling

5. Managed Services

6. Search and Placement Services

7. Temporary-to-Hire

8. Independent Contractors

9. Staffing Services—Relation to Gig Economy

2.   Co-Employment Issues

A. Compensation and Benefits

1. Workers’ Compensation

a. General Employers and Special Employers

b. Client as Employer—Alternate Employer Endorsement

c. Fellow Employee Rule

d. Waivers of Client Liability

e. Special Rules for Employee Leasing Firms

2. Employment Taxes

a. Independent Contractor Issues

b. Application of Section 530 to Technical Services

c. IRS Classification Guidelines

3. Wage and Hour Issues

4. Health and Pension Benefits

a. Coverage Tests

Leased Employee Rules

Definition of Leased Employee

b. Control Test

c. Benefit Plans Affected by the Leased Employee Rules—Application to the ACA

d. Record-Keeping Exemption

e. Safe Harbor Plans

f. Coverage Testing of Leased Employees—Consequences of Failing the Tests

g. Credit for Benefits Provided by Leasing Organization

h. Prior Service Credit for Employees Hired by Client

i. The Microsoft Case

j. Operational Steps—Avoiding Control

k. Benefit Plan Exclusions Must Be Clear and Unequivocal

l. Employee Contracts and Waivers

m. Limits on Worker Assignments—Are They Necessary?

5. Family and Medical Leave

a. Eligible Employees

b. Primary and Secondary Employers

c. Duty to Restore Temporary Employee Returning From Leave

d. Application of 75-Mile Rule to Staffing Firms

B. Employment Practices

1. Equal Employment Opportunity Laws

a. Liability of Clients

b. Liability of Staffing Firms

c. EEOC Guidance on Contingent Workers

Head Count Issues Under Title VII

d. Affirmative Action, EEO-1 Reporting, and Other Record-Keeping Issues

Affirmative Action Under Executive Order 11246—EEO-1 Reporting

OFCCP Internet Applicant Rules

Exemption for “Recruitment Practices” Under EEOC and Department of Labor Rules

Client Requests for Race and Ethnic Data

Employer Obligations to Military Reservists and National Guard Members

e. Uniformed Services Employment and Re-Employment Rights Act

Internal Employees—Seniority and Position Upon Return

Hardship Exception

Temporary Employees—Reinstatement With Clients

Priority Consideration for Future Assignments

f. Job Listing Requirements Under the Vietnam Era Veterans’ Readjustment Assistance Act

g. Americans With Disabilities Act

When Medical Questions May Be Asked

Exceptions to the Rule

Clients Are Co-Employers

Undue Hardship

2. Labor-Management Relations

a. Joint Employment in Labor Relations

b. Inclusion of Staffing Firm Employees in Client Bargaining Units

c. Crediting Prior Service When Temporary Workers Are Hired by Clients

d. Liability for Unfair Labor Practices

‘Salts’

e. Staffing Firm Liability for Unfair Labor Practices of a Client

3. Work Site Safety

4. Wrongful Discharge

5. Plant and Facility Closings (WARN Act)

a. Clients Exempt FromNotice Requirement

b. Temporary Projects

c. Special Circumstances

6. Immigration and I-9 Verification

7. Privacy Protection

a. Health Information Privacy Rules Under HIPAA

Definition of ‘Business Associate’

b. Argument for Not Treating Staffing Firms or Their Temporary Employees as Business Associates

Who Decides Whether a Staffing Firm Is a Business Associate?

c. Financial Information Privacy Rules (Gramm-Leach-Bliley)

Federal Trade Commission Privacy Rules

Federal Trade Commission Safeguard Rules

Who Is the Service Provider Under the Safeguard Rules—the Staffing Firm, the Temporary Employee, or Both?

d. Background and Reference Checks Under the Fair Credit Reporting Act

Consumer Reports Obtained From Third Parties

Routine Reference Checking—Communications of Information to Clients

3.   Maintaining the Staffing Firm’s Employer Status

Conclusion

Appendices

Case Index

Subject Index

Acknowledgments

The concepts discussed in this book first appeared as a 14-page monograph published by the American Staffing Association (then called the National Association of Temporary Services) in 1992. It was the first effort to examine the subject of co-employment across the multiple substantive law areas implicated in third-party employment relationships. In 1994, it was published in expanded form in an article in the Labor Lawyer, published by the section on labor and employment law of the American Bar Association. Its current size and scope reflects the growth of third-party staffing arrangements and the increased scrutiny of those arrangements by courts and regulators.

Many distinguished practitioners have contributed to this book over the years. C. Frederick Oliphant III, former chair of the employee benefits department of Miller & Chevalier, Chartered, made early contributions to the discussion of employee benefits; Alden J. Bianchi, chair of the Employee Benefits & Executive Compensation Practice of Mintz, Levin, Cohn, Ferris, Glovsky, and Popeo, PC, advises ASA on all matters relating to the Affordable Care Act and reviewed those sections of the book. John Irving, of counsel with Kirkland & Ellis, LLP, represented ASA in the M.B. Sturgis case and has advised on a variety of labor-related issues. Gerald L. Maatman Jr., a partner with Seyfarth Shaw, LLP, oversaw the general review and update of the book. Stephen C. Dwyer, ASA general counsel, and Brittany Sakata, associate general counsel, helped compile, analyze, and edit developments since the last edition; ASA senior director of publications and marketing Marlene Hendrickson oversaw all aspects of the book’s production and design.

Edward A. Lenz

Alexandria, VA

May 2019

Introduction

The nature of work continues to evolve—and flexibility remains a prime focus for both employers and employees. A primary role of staffing firms is to help businesses optimize their use of labor by recruiting and employing individuals with the requisite skills and assigning them to augment the businesses’ core workforces on an as-needed basis.

Staffing arrangements often involve complex issues regarding the legal relationships between the staffing firm, the employees they assign to perform services, and the clients that use the services, including the clients’ potential liability to the staffing firm’s employees. The terms “contingent” or “gig” sometimes are used to describe those relationships; but those terms are often inapt and do not help in understanding the legal issues involved in staffing firm-client relationships.[1]

This book is intended to provide staffing professionals, human resources specialists, and business owners with a concise overview of the specialized legal principles and issues involved in third-party employment relationships. It also is intended as an introduction to the subject and a research starting point for lawyers, regulators, and policy makers who may be unfamiliar with the legal issues relating to third-party employment or who do not regularly deal with such issues. All readers will find useful the appendices in which we have compiled many—sometimes hard-to-find—government publications, policy determinations, and rulings specifically addressing the relationships that are the subject of this book. As third-party staffing relationships continue to assume an increasingly important role in the American economy, the legal principles relating to those arrangements continue to evolve. This new edition has been revised to reflect significant changes since the publication of the eighth edition in 2015.

Co-Employment: Employer Liability Issues in Third-Party Staffing Arrangements is a referenced textbook for the ASA Certified Staffing Professional®, Technical Services CertifiedSM, and Certified Health Care Staffing ProfessionalSM programs.

1. Contingent and alternative work arrangements were first examined by the U.S. Department of Labor’s Bureau of Labor Statistics from 1995 to 2005; the most recent study was conducted in 2018 (see bls.gov/news.release/conemp.toc.htm). According to BLS, temporary employees employed by staffing firms make up the smallest percentage of contingent workers. The broadest definition of contingent, according to BLS, includes individuals who identify themselves as self-employed, independent consultants, independent contractors, and freelance workers—the cohorts most people associate with the “gig economy.” The legal issues relating to those workers are not addressed in this book.

Chapter 1

Staffing Services Defined

In this book, “staffing services” is used as a generic term for a broad range of employment-related services, including temporary staffing, long-term contract staffing, search and placement, and managed services. Temporary staffing has existed since the 1920s, but the volume and scope of those services have changed dramatically. Staffing services also have become more sophisticated, with staffing firms becoming strategic partners with their clients to help fill a broad range of human resource needs. The following discussion describes the major staffing services discussed in the book.

1. Temporary and Contract Staffing

Temporary and contract staffing firms play a vital role in the U.S. economy by providing employment flexibility for employees and businesses.[2] The advantages of temporary work to individuals are widely recognized by employees, businesses, economists, and policy makers. Such work affords flexibility, training, and supplemental income for millions of individuals and builds a bridge to permanent employment for those who are out of work, starting out, or changing jobs. A growing number of temporary employees are highly paid and skilled accounting, technical, computer, health care, legal, and other professionals who choose temporary and contract work as a preferred employment option because of the flexibility, independence, and, in some cases, higher pay it offers.

The advantages of temporary work to businesses and the economy are no less significant. The use of temporary and contract staff gives businesses the flexibility to adjust the size of their workforce to meet business and economic exigencies quickly and at a predictable cost.[3] Labor market flexibility has long been viewed as a key factor in innovation and growth of new technologies, resulting in more jobs.[4]

a. Employer Status of Staffing Firms

The premise of any examination of the subject of co-employment in third-party staffing relationships is, of course, that the staffing firm is one of the co-employers. As the book discusses, different definitions of “employer” apply in different areas of the law. While employer status depends on the facts and circumstances of individual cases, staffing firms generally will qualify as employers under some definition of employer including, in the most cases, the definition of employer under common law principles.[5]

b. How Staffing Firms Operate

ASA defines temporary or contract staffing as a business that consists primarily of recruiting and hiring employees and assigning them to clients to support or supplement their workforces; to provide assistance in special work situations such as employee absences, skill shortages, and seasonal workloads; or to perform special assignments or projects; and that customarily attempts to reassign the employees to other clients when their assignments are finished.

As noted in the discussion of workers’ compensation and unemployment insurance in Chapter 2, variations of this definition have been adopted in a number of states to exempt temporary staffing services from laws regulating services provided by professional employer organizations (PEOs).

Staffing firms supply employees to clients in every business sector in every job category, from general labor, industrial assembly, and production work to office support and technical, scientific, health care, professional, and managerial positions. Staffing firm services include a wide range of human resource functions such as recruiting, skills assessment, skills training and upgrading, risk management, and payroll and benefits administration, allowing clients to concentrate on their core businesses.

c. Nature of Temporary Work

Temporary work generally is intermittent, highly variable, and often unpredictable. Some employees work on multiple assignments for the same client but with breaks in service that can vary from a few days to a few months. Due to the inherent uncertainties of work demands, clients often provide staffing firms and their employees little or no notice that they are ending or extending an assignment.

Staffing firms typically provide their temporary job applicants with explicit notice that work is contingent and that clients have discretion to end assignments at any time. At the same time, staffing firms and their employees do not view the end of an assignment as the end of their relationship with the staffing firm because, in the normal course, the firms assign the employees to other assignments or seek other assignments for the employees.

d. How Temporary Employees Are Assigned and Paid

Individuals seeking temporary work apply for jobs by completing an application process either by visiting a staffing firm office or filling out the application online. With the exception of so-called “day labor” operations (i.e., where work-seekers, usually general laborers, go to a central dispatching location and wait to be assigned to a job), temporary job applicants generally are not dispatched to an assignment from the staffing firm’s premises. Nor are assignments always available. Successful applicants may wait anywhere from a day to several weeks before being contacted by the staffing firm with an offer of work. In some cases, no assignment becomes available. Except for day laborers, who generally are transported back to the staffing firm’s dispatching location at the end of the day to be paid, temporary employees who apply for work at a staffing firm office rarely have occasion to return to the staffing firm’s premises.

When a staffing firm receives a client order for temporary help, it reviews its applicant database to determine which individual’s skills and preferences best match the client’s needs. The firm contacts the employee and describes the prospective assignment, the pay rate, and the expected length of assignment. If the individual accepts the assignment, he or she reports directly to work at the client’s premises. Upon completion of the assignment—or, in the case of longer assignments, at the completion of each pay period—the employee’s work hours are recorded, verified by the client, and submitted to the staffing firm. The staffing firm uses the record of hours worked to generate employee paychecks and client invoices. Based on the time record, the staffing company pays the employee and bills the client for the services performed. The amount billed covers the employee’s wages and benefits, unemployment insurance, and workers’ compensation; the staffing firm’s selling, general, and administrative expenses; and a profit element. The staffing company’s obligation to pay its employees is not dependent on being paid by its clients.

e. State Regulation of Temporary Staffing

Regulation of temporary and contract staffing services per se is relatively minimal. Three states—Massachusetts, New Jersey, and North Carolina—require temporary staffing firms to register prior to conducting business. Four states— California, Massachusetts, New York, and Rhode Island—require staffing firms to provide temporary employees with written notices regarding job assignments. Rhode Island also imposes a bonding requirement. Six states—Arizona, Florida, Georgia, Illinois, New Mexico, and Texas—as well as certain municipalities have local laws governing the provision of unskilled, industrial temporary labor, or “day labor.” Thirteen states and the District of Columbia, either through laws or regulations, regulate health care staffing services in which nurses and allied health professionals are placed on temporary assignments. (See Appendix A.) Staffing laws and regulations are periodically updated in the Law & Advocacy section of the ASA website: americanstaffing.net.

f. Temporary Distinguished From Part-Time

Temporary work is sometimes confused with part-time work. There are two key differences. First, part-time employees, by definition, work less than a full-time workweek whereas temporary employees, when they do work, generally work full-time workweeks.[6] Second, part-time employees generally work on a regular schedule. The schedule may change, but the employment relationship generally is ongoing and indefinite with no inherent or implicit limitation on the length of the relationship.

In contrast, temporary work generally is sporadic and intermittent and is not governed by a fixed or regular schedule. Temporary assignments generally are expected to end at some definite point in time, but that often is undetermined at the outset.

The second difference is that part-time employees generally are hired directly by the business for which the services are performed whereas temporary employees generally are hired by firms that specialize in providing temporary staffing services and are then assigned to the clients of those firms. Of course, some businesses and government agencies hire their own temporary employees directly instead of using an outside firm.

2. Long-Term Staffing

Many staffing firms also supply employees to work on long-term, indefinite assignments. Employees are recruited, screened, and assigned in essentially the same manner as described previously in the case of temporary employees. Long-term staffing can involve just one or a few individuals, or it can involve a significant portion of the staff required to operate a specific client function on an ongoing basis. Long-term staffing arrangements generally involve higher skilled and higher paid professional and technical positions in fields such as information technology, health care, legal, and accounting.

As explained in Chapter 2, co-employment issues may arise under both temporary and long-term staffing arrangements to the extent the client exercises supervision and control over the employees.

3. Employee Leasing (Professional Employer Organizations)

The term “employee leasing” is the subject of considerable confusion. It is sometimes used as a generic term to describe all forms of service arrangements involving the furnishing of labor. That is the broad sense in which it is used in the federal tax code. (See discussion of Internal Revenue Code Sec. 414(n) dealing with “Leased Employees” in Chapter 2, p. 27.)

Employee leasing also is a distinct business service that does not involve supplying labor but rather offers a human resources outsourcing service in which the leasing firm assumes certain legal and administrative responsibilities of an employer for payroll, benefits, and other employer-related functions on behalf of all or substantially all of another firm’s regular, full-time workforce.[7]

Unlike staffing firms, employee leasing companies—or “professional employer organizations” (PEOs), as they also are called—do not recruit employees from the general labor market and assign them to their clients. Because PEOs do not supply staff, some do not view PEOs as staffing services.

PEO arrangements appeal primarily to small and midsized employers that find it cost effective to contract out their human resources functions rather than hire in-house staff to perform those functions. PEOs and their clients generally enter into written agreements that allocate employer responsibilities between the PEO and the client. Co-employment issues also arise in that type of relationship. Typically, PEOs charge a service fee, which is generally based on a percentage of the client’s total payroll costs.

PEOs are subject to significant regulation at the state level. Such regulation includes laws requiring general licensing or registration of employee leasing organizations and laws dealing specifically with workers’ compensation and unemployment insurance. Services of leased employees for the purposes of health and pension benefits are also subject to special treatment under federal tax law. (See discussion of Internal Revenue Code “Leased Employee Rules” beginning on p. 30.) Currently, 36 states have enacted licensing, registration, or other laws that, among other things, impose financial disclosure and reporting requirements on employee leasing organizations.

The definition of employee leasing or a PEO under state laws varies, as do the provisions addressing how workers’ compensation insurance and unemployment insurance will be provided. Arkansas and Florida, for example, provide that the leasing company is the employer for workers’ compensation purposes. Other states, such as Texas, recognize the employee leasing company’s employer status but require the client’s experience modification to be used for a specified period of time. Utah’s statute recognizes only the leasing company’s client as the employer for workers’ compensation purposes. Pennsylvania provides that the PEO client is the sole employer for unemployment insurance purposes. Because of these variations, each statute must be carefully reviewed to determine what rules apply in a given state.

As noted in the discussion of workers’ compensation (see Special Rules for Employee Leasing Firms in Chapter 2, p. 17), several states also have adopted regulations to prevent so-called “mod-swapping” by requiring employee leasing firms to maintain separate workers’ compensation policies for each client. In 2007, the National Association of Insurance Commissioners published Guidelines for Regulations and Legislation on Workers’ Compensation Coverage for Professional Employer Organizations (Guideline #1950, July 2007). To help PEOs, the insurance industry, and state regulators adopt rules consistent with the Guidelines, the NAIC’s Property and Casualty Committee adopted a white paper—Implementation Commentary: Guidelines for Regulations and Legislation for Workers’ Compensation Coverage for Professional Employer Organization Arrangements (March 2010).

a. Tax Status of PEO Defined-Contribution Plans

After deferring action for several years in the expectation that Congress might deal with the issue, the Internal Revenue Service issued Revenue Procedure 2002-21 to provide guidance to PEOs on the tax status of the defined-contribution retirement plans maintained for employees covered under such arrangements. The guidance outlines the steps that PEOs can take to ensure that their 401(k) or other defined-contribution plan remains tax qualified.

The guidance was issued because of ongoing uncertainty about whether, under common-law principles, PEOs are employers of the employees covered under PEO 401(k) plans. Employer status is a critical issue because the Internal Revenue Code requires as one condition of tax qualification that retirement plans be maintained for the “exclusive benefit of employees.” If a PEO cannot establish that it employs the employees covered under its plan, the plan could lose its tax-qualified status, resulting in taxes and possible penalties to the PEO and the loss of tax benefits to the employees. The guidance explains how PEOs can avoid having a 401(k) or other defined-contribution retirement plan that covers work site employees disqualified for violating the exclusive benefit rule.

The IRS gives any PEO that has such a retirement plan the option of either converting it to a “multiple-employer” plan (under which each PEO client with employees covered by the plan must sign on as a plan cosponsor if it wants its employees to stay in the plan) or terminating the plan according to the procedures specified in the guidance.

A PEO must decide which option to elect with respect to a defined-contribution retirement plan and notify its clients of its decision within 120 days after the first day of the plan year beginning on or after Jan. 1, 2003, or, in the case of a calendar year plan, by May 2, 2003. Once an option is elected, the PEO generally must complete the steps required under that option by the last day of the first plan year beginning on or after Jan. 1, 2003, or, for a calendar year plan, by Dec. 31, 2003.

It should be noted that most laws and regulations enacted so far define “employee leasing” quite broadly. Potentially, such laws could be construed to cover non-PEO staffing arrangements involving employees on long-term, indefinite assignments. Although these laws generally have been narrowly construed, it is important to be aware of how and for what purpose employee leasing is defined in a particular jurisdiction.

b. Employer Status of PEOs for Employment Taxes

Culminating an effort that began in 1997, the PEO industry was successful in including long-sought PEO provisions in the Small Business Efficiency Act (SBEA), which was signed into law December 19, 2014. The legislation’s primary achievement is the establishment of a certification process under which certified PEOs were granted explicit statutory authority to collect and remit federal employment taxes. The law also eliminated the wage base restart for PEO clients that join or leave a PEO relationship; and codified that clients of certified PEOs will qualify for specified federal tax credits that the customers would be entitled to claim if there were no PEO relationship. Guidance on the PEO certification process is available on the IRS website.

4. Payrolling

Many staffing firms offer a service sometimes referred to as “payrolling.” Here, the client, not the staffing firm, recruits the employees but asks the staffing firm to hire them and assign them to perform services for the client. For example, this might occur when the client has specialized needs and is in the best position to screen applicants for the required skills. Another form of payrolling involves individuals currently employed by the client whom the client places on the payroll of the staffing firm. For example, an employee near retirement may be working on a project that is expected to continue beyond his or her scheduled retirement date. This employee can be payrolled until the project is completed without disrupting the normal retirement schedule.

Payrolling is functionally distinguishable from employee leasing if the individuals are on temporary assignments or projects and the arrangement does not involve a substantial percentage of the client’s total workforce or the employees at a particular work site. But depending on the degree of control the staffing firm exercises over the terms and conditions of the workers’ employment, it may be considered employee leasing under the federal and state laws previously discussed, especially if the employees work on a long-term, ongoing basis.

5. Managed Services

Managed services, a form of outsourcing sometimes called facilities management, are services provided by a business that has expertise in operating specific functions. Under these arrangements, the staffing firm contracts with the client not just to provide and supervise staff (as in temporary and long-term staffing) but also to take full operational responsibility for performing the function—generally peripheral to the client’s core business—on an ongoing basis. Examples include operating a mailroom or data processing center or supplying cafeteria, landscaping, guard, or building maintenance and janitorial services. Co-employment issues should be minimal under such arrangements because the client generally does not supervise or control the details of the work performed by the contractor’s employees.

Managed services are distinguishable from PEO services in that PEOs do not assume operational responsibilities, and PEO clients retain day-to-day control over the work performed by employees.

6. Search and Placement Services

Search and placement firms, such as employment agencies and executive recruiting firms, charge clients’ fees for recruiting qualified job candidates seeking regular, full-time employment. A significant number of states require such firms to be licensed. Because search and placement firms do not employ the individuals they recruit and place, co-employment issues do not arise.

7. Temporary-to-Hire

Temporary-to-hire combines elements of both temporary staffing and search and placement services. Because staffing firms have a high level of expertise in recruiting, screening, and training, many clients use those services to help find individuals for regular, full-time positions. In such cases, the staffing firm assigns the job candidate to a client for a trial period during which the client and candidate can evaluate the relationship.

During the trial period, the staffing firm employs the individual and pays the wages, employment taxes, and required benefits. If the client hires the worker, the relationship with the staffing firm ends and the client pays the firm a fee for the successful placement. Clients also may be given the option of maintaining the worker on the staffing firm’s payroll for an additional period, in which case the placement fee may be reduced or eliminated.

The co-employment issues discussed in this book may come into play during the temporary trial period. The search and placement component may also bring into play the laws and regulations that apply to employment agencies—requirements that do not apply to temporary staffing services standing alone.

8. Independent Contractors

Issues relating to the self-employed, independent contractors, freelancers, and the like, and in particular the legal rules for distinguishing those workers from employees, are beyond the scope of this book. Those rules are varied and complex and have led to confusion and uncertainty about how workers should be classified. Most workers assigned under staffing arrangements can properly be classified only as employees under current laws because they perform their work under the supervision and control of either the staffing firm or the client, and the work performed generally is of a nature that does not require the employee to exercise a substantial degree of independent judgment.

With growth of the professional and technical segments of the staffing industry, however, it is not unusual to find some staffing arrangements in which workers assigned in higher skill categories, in which a high degree of independent judgment is exercised, may be lawfully classified as independent contractors. In addition, the federal tax code contains special provisions relating to the classification of technical services workers for income and employment-tax purposes. These rules are discussed in the section on Employment Taxes (Chapter 2, p. 17).

It is important to remember that the legal principles designed to distinguish between employees and independent contractors do not address the question that is the focus of this book; that is, assuming a worker should be classified as an employee, which is the employer: the staffing firm, the client, or both?

9. Staffing Services—Relation to Gig Economy

There is much debate and little consensus on how to define or measure the so-called “gig economy.” Much of temporary employment with staffing firms does, of course, have certain attributes, such as job flexibility and short tenure, commonly associated with the term “gig.” However, without an understanding of staffing firms’ role as employers, conflating temporary employment with the gig economy can lead to confusion in formulating public policy.

The policy issues surrounding the gig economy focus mainly on workers who are classified (or misclassified) as independent contractors and therefore do not enjoy the legal protection afforded to employees. Those issues typically do not arise in the staffing industry because the great majority of temporary and contract workers assigned by staffing firms are classified as W-2 employees and thus are fully protected by the nation’s employment laws. In the relatively limited situations where they are classified as independent contractors—temporary physicians, for example—their lawful status as such is unambiguous.

2. In this section, the term “contract” staffing services describes work performed by higher-skilled employees assigned by staffing firms, especially in the engineering and information technology areas. But “contract services” is sometimes used more broadly to include all types of services provided on an outsourced basis, such as building security, cleaning, landscaping, and cafeteria services. See, e.g., Equal Employment Opportunity Commission Guidelines on Application of EEO Laws to Contingent Workers (Appendix H). The U.S. Bureau of Labor Statistics uses a similarly broad definition of “contract worker” in its analysis of contingent work. See Sharon R. Cohany, Workers in Alternative Employment Arrangements, Monthly Labor Review (October 1996) p. 40. From the view of the staffing industry, such services are more accurately described as “managed services,” which generally are distinguishable from temporary and contract services, as used in this section primarily in that the client does not directly supervise or control the work performed by the contract employees. See p. 10.

3. The Conference Board, HR Executive Review: Contingent Employment (Vol. 3, No. 2, 1995); Peter F. Drucker, They’re Not Employees, They’re People, Harvard Business Review (2002).

4. See e.g., U.S. Senate Committee on Banking, Housing, and Urban Affairs, Hearing on the Nomination of Alan Greenspan (Jan. 26, 2000) S. Hrg. 106–526 at p. 21; see also Greenspan, Global Economic Integration: Opportunities and Challenges (Aug. 25, 2000), Remarks at a Symposium Sponsored by the Federal Reserve Bank of Kansas City at pp. 2–3.

5. For a comprehensive discussion of the employer status of staffing firms, see Alden J. Bianchi and Edward A. Lenz, The Final Code §4980H Regulations; Common-Law Employees; and Offers of Coverage by Unrelated Employers, BloombergBNA Tax Management Memorandum (Sep. 8, 2014).

6. The definition of full-time varies. Most employers consider a full-time week to be 40 hours, beyond which overtime wages must be paid under the Fair Labor Standards Act. But other rules may apply. For example, federal tax law defines part-time for certain purposes as less than 35 hours per week, 26 CFR §1.105-11(c)(2)(iii)(C); the Affordable Care Act defines full-time as 30 hours per week.

7. See T. Joe Willey, The Business of Employee Leasing (2nd ed., 1993).

Chapter 2

Co-Employment Issues

Simply defined, co-employment is a commercial relationship between two or more businesses in which each has actual or potential legal rights and obligations as an employer with respect to the same employee or group of employees. The law imposes employer duties on an entity whenever the facts and circumstances establish a sufficient connection with a worker to warrant imposing a legal duty to the worker. Staffing firms and their clients often have enough contact with assigned employees that each will be viewed as an employer. The staffing company pays the employee, pays and withholds payroll taxes, provides workers’ compensation coverage, has the right to hire and fire, receives and acts on complaints from the employee about working conditions, and so forth. Clients generally supervise and direct the employees’ day-to-day work, control conditions at the work site, and determine the length of the assignment. Thus, in most staffing arrangements, co-employment is an inherent aspect of the relationship between the staffing firm and its clients.

Courts and statutes generally do not use the term co-employment to describe the relationships discussed in this book. The terms most often used are “joint employers,” “general and special” employers, and “primary and secondary” employers, depending on the subject matter. Although there are technical distinctions among these terms, co-employment is used in the staffing industry, and in this book, as a nontechnical, shorthand way of collectively referring to the various relationships and legal issues involved.

The co-employment issues discussed in this chapter are grouped into two broad categories: (A) compensation and benefits, and (B) employment practices. In general, liability for compensation and benefits is governed primarily by the relationship between the individual and the employer (e.g., the degree of direction and control over the employee and the nature of any agreements), whereas liability for employment practices is governed primarily by the employer’s acts or omissions as they affect the employee (e.g., unlawful discrimination and unsafe working conditions).

A. Compensation and Benefits

1. Workers’ Compensation

Co-employment issues often arise in the context of workers’ compensation. Staffing firm clients may benefit significantly from being a co-employer in this context because, in most states, that status protects them from tort liability for workplace injuries sustained by a staffing firm’s employees.

a. General Employers and Special Employers

State workers’ compensation laws provide benefits on a no-fault basis to employees accidentally injured on the job. The basic premise of these laws is that in return for such protection, employees are barred from suing their employer for damages. In other words, workers’ compensation generally is the employee’s exclusive remedy for workplace injuries.

Although staffing firms almost always are viewed as the “general employer” for workers’ compensation purposes, courts in most jurisdictions have treated staffing firm clients as “special employers,” thereby conferring immunity on the client from tort liability under the exclusive remedy principle.[8] At least 13 states have codified this principle in their state statutes.[9] (For a listing of court cases and statutes by state, see Appendix C.)

In determining whether a client is a special employer, courts apply the common-law “loaned” (or “borrowed”) servant doctrine, which generally requires a showing that the client supervises the individual’s work, that the assigned employee has consented to the arrangement, and that the work is essentially that of the client. All three elements generally can be established in the typical staffing arrangement. Thus, the exclusive remedy defense is usually available to clients in suits brought against them by staffing firm employees for negligence in work site injury cases. The defense will not, however, protect a client that injures an employee intentionally. Courts also may not protect a client if its written contract with the staffing firm expressly disclaims any employment relationship with the employees assigned to them.[10] Similarly, courts have allowed suits against clients with managed services arrangements (see Chapter 1, p. 10) in which the client has no day-to-day control over the employees’ activities[11]—expressly distinguishing those arrangements from temporary services where the client does have control.[12]

On the other hand, some courts have denied a temporary employee’s claim against a client based on the negligence of the client’s employee where the client’s payment to the staffing firm included an amount for workers’ compensation coverage.[13]

Even in cases where the employee is allowed to sue the client, staffing firms still can protect the client through contractual indemnification provisions backed by appropriate liability insurance coverage.

b. Client as Employer—Alternate Employer Endorsement

Some states have taken the view that a client’s control of an employee’s activities at the work site is grounds for holding the client directly liable for paying workers’ compensation claims, even when the staffing company has expressly agreed to provide the coverage.[14]

In those states, staffing companies should consider adding a temporary service contractor or alternate employer endorsement to their workers’ compensation policies. Such endorsements require the staffing firm’s carrier to provide benefits directly to clients in the event that state law prevents payment of benefits to the employee. They also preclude the staffing firm’s carrier from seeking reimbursement from the client’s carrier.

In the few states where the client is viewed as the sole employer for workers’ compensation, the staffing company may be exposed to liability for negligence if sued by its own employees injured on the job because it cannot claim immunity as an employer.[15] But most states treat both clients and staffing companies as employers for workers’ compensation purposes.[16]

c. Fellow Employee Rule

In addition to protecting employers from tort liability, most state workers’ compensation statutes contain a “fellow employee” rule that bars employees from suing each other for job-related injuries. (See 10 Larson’s Worker’s Compensation Law, ch. 111.) Under such a rule a temporary employee who negligently injures a client’s employee on the job cannot be sued by the client’s employee because the temporary worker is a special employee of the client and therefore a fellow employee of the client’s employee. The question is whether the client’s employee has any recourse against the staffing firm.

Several courts have allowed a client employee to sue a staffing firm on the ground that there was no employment relationship between the staffing firm and the client’s employee, and therefore the staffing firm is not immune from suit.[17] But to recover damages from the staffing firm in such cases, the client employee must show that the staffing firm is liable under the principle of respondeat superior (i.e., that the staffing firm had a right to control its temporary employee’s activities at the work site or that the employee was performing work primarily for the staffing firm, not the client). This burden may be more difficult to meet in some states[18] than in others.[19] At least two courts have held that a staffing firm or labor contractor automatically enjoys the same immunity conferred on its employees and therefore cannot be sued by a client’s employees.[20] In 1999, North Dakota codified protection for staffing firms against suits by employees of the client.[21]

d. Waivers of Client Liability

Courts in Arkansas, Massachusetts, and Pennsylvania have upheld the validity of waivers executed by staffing firm employees in which the employees gave up their rights to sue clients for injuries covered by state workers’ compensation laws.[22] In these states, a properly drafted and executed waiver may protect clients from liability for workplace injuries caused by negligence. Waivers may be viable in other states, and staffing firms should consult with legal counsel regarding their use.

e. Special Rules for Employee Leasing Firms

Specific state regulations may apply to employee leasing firms with respect to workers’ compensation. See Appendix B, and see also Guidelines for Regulations and Legislation on Workers Compensation Coverage for Professional Employer Organizations (National Association of Insurance Commissioners Guideline #1950, July 2007).

Employers considering participating in an employee leasing arrangement should check with their counsel to determine how the state workers’ compensation authorities will treat such arrangements for workers’ compensation purposes. Most employee leasing licensing and registration laws provide that a leasing firm and its clients are protected from injury suits by the workers’ compensation exclusive remedy rule.

2. Employment Taxes

Staffing firms are generally recognized as the sole employer for the payment and withholding of employment taxes. Employment taxes (sometimes called payroll taxes) include all taxes employers withhold or pay on behalf of employees, such as federal and state income taxes, Social Security and Medicare taxes, and federal and state unemployment insurance taxes.

Although staffing firms are generally the sole employer for payment and withholding of employment taxes, there are exceptions in certain states. In Arizona, for example, clients of temporary staffing firms can be held jointly liable as co-employers for any unpaid unemployment insurance premiums. Rhode Island holds clients jointly liable for certain employment taxes if they use the services of a staffing firm that is not certified with the state tax department.[23]

In addition, 40 states have special unemployment insurance rules for employee leasing organizations (see Appendix B). Some provisions expressly recognize the employer status of employee leasing companies (PEOs) for unemployment insurance purposes,[24] which means that claims filed by leased employees will be charged to PEOs, not their clients. In some states (e.g., Delaware, Illinois, Kentucky, Mississippi), the rules expressly deny employer status to employee leasing firms.

In Minnesota, Missouri, and Nebraska, clients of employee leasing firms can be held jointly liable as co-employers for any unpaid unemployment insurance premiums.[25] Clients in these states can protect themselves by dealing with reputable, financially sound firms—good advice when using any outside service. (For state statutes and administrative code references to these provisions, see Appendix B.)

Staffing firms generally are viewed as having sole liability for payment of employment taxes despite the clients’ control of the employees’ activities at the work site—provided that the staffing firm is the common-law employer or controls payment of the wages.[26] Moreover, clients generally should not be held liable as co-employers, even if staffing firms default on their obligation to withhold taxes. But some courts, in considering client arrangements with a PEO or employee leasing firm, have questioned the client’s ability to avoid liability if the tax withholdings are not paid by such firms.[27]

A case supporting the exclusive liability of staffing firms for employment taxes is General Motors Corp. v. United States.[28] GM contracted with a technical services staffing firm to supply it with design engineers. Neither GM nor the staffing firm paid employment taxes for the staffing firm’s employees. The IRS assessed both firms for the taxes owed. GM paid under protest and filed suit for a refund. In its motion for summary judgment, GM argued that it had no obligation to withhold taxes because it did “not have control of the payment of the wages” within the meaning of section 3401(d) of the Internal Revenue Code. The IRS asserted that GM controlled the employees on the job and that the staffing firm was no more than a “disbursing agent.” Citing the Supreme Court’s decision in Otte v. United States,[29] the U.S. District Court for the Eastern District of Michigan observed that under Otte, “the responsibility for withholding employment taxes is directed toward the person who pays the workers and not the person who has control over the workers’ duties” (emphasis added). The court found no evidence that GM was responsible for making payments to the staffing firm’s employees and that its only responsibility “was to make payments to [the staffing firm] pursuant to services rendered under the contract.” Although the court found that the staffing firm’s responsibilities to the employees were much more than those of a “disbursing agent,” whether GM or the staffing firm controlled the employees at the job site was deemed irrelevant.

a. Independent Contractor Issues

Staffing firms that classify the workers they assign to clients as “independent contractors” expose themselves, and possibly their clients, to liability for unpaid employment taxes if the workers do not meet IRS or DOL definitions of independent contractors.[30]

Over the years, the IRS and the Social Security Administration compiled a list of 20 factors used in court decisions to determine employee status for federal employment tax purposes. (See Revenue Ruling 87-41, 1987-1 C.B. 296 in Appendix D), which the Supreme Court subsequently reduced to 13 factors.[31] The IRS has since modified Rev. Rul. 87-41 for training purposes in its “Worker Classification Training Guidelines: Employee or Independent Contractor” (Oct. 1996).[32] Instead of 20 or 13 factors, the training guidelines prescribe three, broad standards—behavioral control, financial control, and relationship of the parties—for determining whether a worker is an independent contractor or an employee. In any case, the tests should be viewed primarily as analytical tools for determining whether there is a right to direct and control the means and details of the work.

In 1978, Congress enacted section 530 of the Revenue Act of 1978, which provides “safe harbor” protection to taxpayers that classify workers as independent contractors for employment tax purposes, even if they cannot meet the multi-factor common-law employee classification test, provided there is a reasonable basis for such treatment and the taxpayers meet certain consistency and reporting requirements. A reasonable basis for treating a worker as an independent contractor exists if the taxpayer reasonably relies on published rulings or judicial precedent, past IRS audits of the taxpayer, long-standing practice of a significant segment of the industry, or some other reasonable basis.

The Small Business Job Protection Act of 1996 modified the section 530 safe harbor rules. Some of the changes make it easier for taxpayers to defend their classification of workers as independent contractors. Some, however, make it harder. For example, one provision that makes it easier for employers to defend their classification of workers shifts the legal burden of proof to the IRS if the taxpayer establishes a prima facie case—based on published rulings or cases, a prior IRS audit, or industry practice—that it was reasonable not to treat a worker as an employee. Furthermore, a worker no longer has to first be determined to be an employee under the common-law test before section 530 can be applied. In addition, the industry-practice safe harbor rules were liberalized by providing that the taxpayer’s classification practice need not be followed by more than 25% of the industry. A lower percentage may suffice, although the act does not specify such a percentage. Moreover, the industry practice need not have been in effect before 1978, as required under the previous rule.

However, the 1996 law makes it harder for employers to claim protection under the “past audit” safe harbor. Employers seeking to rely on audits after 1996 now have to show that the past audit specifically included an examination (without a resulting assessment) of whether the worker (or a person holding a substantially similar position) should have been treated as an employee or an independent contractor for employment tax purposes.

b. Application of Section 530 to Technical Services

Section 1706 of the 1986 Tax Reform Act provides that section 530 does not apply to staffing firms that provide the services of an “engineer, designer, drafter, computer programmer, systems analyst, or other similarly skilled worker engaged in a similar line of work.”[33] Under this exception, individuals who are retained by firms and who provide technical services will be classified for income and employment tax purposes as employees or independent contractors under the common-law test without regard to the safe harbor provisions of section 530.

c. IRS Classification Guidelines

At the same time that Congress enacted the section 530 changes, the IRS issued new guidelines to its audit staff on the issue of employee classification. In a memo dated July 15, 1996, the IRS pledged that in the future training of auditors, it would “assure that both businesses and workers, whether under the withholding rules or under the rules governing the self-employed, pay the proper amount of taxes.” In other words, there should be no bias in favor of either employee or independent contractor status. Rather, the memo stated, “The examiner has a responsibility to the taxpayer and to the government to determine the correct tax liability and to maintain a fair and impartial attitude in all matters relating to the examination.”

Although legislation has been introduced in recent years to modify the criteria used to classify employees for employment tax purposes, the IRS audit training manual continues to rely on the traditional common-law standard, which focuses on the right to direct and control the worker. However, the agency’s guidelines make clear that the published factors are not the only relevant factors. According to the guidelines, “Every piece of information that helps determine the extent to which the business retains the right to control the worker is important.”

3. Wage and Hour Issues

The federal Fair Labor Standards Act establishes minimum wage, overtime, equal pay, payroll record-keeping, and child labor requirements for most employers. The FLSA applies to any business on which an employee is dependent as a matter of “economic reality.”

The courts have established a five-part economic reality test for determining the existence of an employment relationship under the FLSA—(1) the degree of control exercised by the service recipient over the employee, (2) the employee’s opportunities for profit or loss and his or her investment in the business, (3) the degree of skill and independent initiative required to perform the work, (4) the permanence or duration of the working relationship, and (5) the extent to which the work is an integral part of the employer’s business.[34]

In addition, DOL regulations expressly impose joint employment obligations in specified circumstances. For example, if an employee is employed jointly by two or more employers during a workweek, all of the employee’s work during the week is considered one employment, and all employers are responsible for compliance with the wage and hour provisions for the period worked for each employer.[35]

In a 1968 opinion letter, the DOL applied these regulations in a case involving temporary staffing (see Appendix E). The DOL made two key points. First, temporary staffing companies, not their clients, have primary responsibility for keeping records of hours worked and for paying the proper amount of overtime. At the same time, the DOL asserted that temporary employees assigned to work for various clients are typically employed jointly by the temporary staffing company and its clients, and clients may be held jointly responsible for overtime and minimum wage obligations.

More recently, and pursuant to the DOL’s so-called “fissured industries” initiative,[36] the DOL’s Wage and Hour Division (WHD) has pursued the joint employment and liability theory against temporary staffing firms and their clients.[37] Between 2009 and 2013, WHD conducted approximately 1,000 investigations of temporary staffing firms.[38] After one such investigation, a client settled with WHD for nearly $500,000 in back wages and liquidated damages after WHD determined that the client jointly employed the temporary workers who worked at its storage and packing facility, and the client was jointly liable for failure to pay the temporary workers for all hours worked.[39]

In the case of overtime, a client is jointly liable with the temporary staffing firm for the payment of overtime only if the temporary employee worked more than 40 hours in the week for that client.[40] If the staffing firm exercises no control over the employees (i.e., has no right to hire or fire, set pay, or determine assignments) and is simply a payroll agent, the client may be considered the employer for FLSA purposes.[41] Moreover, if a temporary employee is placed with a client by several staffing firms and works over 40 hours in a week for the client but not more than 40 hours for any one of the staffing firms, the client may be solely liable for overtime.[42]

Apart from federal law, California law imposes joint liability on clients of labor contractors for failure to pay proper wages and maintain valid workers’ compensation insurance.[43] The term “labor contractor” is defined as any entity that supplies workers to perform labor within a client’s usual course of business, including staffing firms. California clients historically have been treated as joint employers with staffing firms for wage and hour and other employment law purposes, and this law codifies the joint employment principle. The law also requires claimants to provide clients with 30 days’ notice prior to filing a lawsuit. This requirement will give clients the opportunity to refer matters to staffing firms for resolution before litigation.

In some circumstances, staffing firm clients may be exempt from overtime requirements given the nature of their business. In addition to the so-called white-collar professional, executive, and administrative exemptions, the FLSA also contains other, less familiar, exemptions that focus on the nature of the establishments that employ the employees. These exemptions may apply to staffing firms when they place temporary and contract employees with clients that qualify for the exemptions.

For example, in Tidd v. Adecco, a Massachusetts federal court held that temporary employees were jointly employed by FedEx and the staffing firms that assigned them, and thus the staffing firms shared FedEx’s exemption from all overtime pay requirements under the federal Motor Carrier Act.[44]

The court found that if the Motor Carrier Act did not apply to jointly employed workers, the law’s purpose would be frustrated because such workers would not be subject to the safety requirements of the law and the U.S. Department of Transportation. Conversely, the court noted, extending the Motor Carrier Act overtime exemption to joint employers prevented circumvention of DOT’s authority. As a result, the court held that the staffing firms were exempt from paying the assigned employees overtime.

The DOL’s joint employer guidance has been in flux in recent years. Guidance issued in 2016 expanded the circumstances under which a business could be held jointly liable for wage and hour violations by adding “economic dependence” of the worker as a factor. This guidance was rescinded in 2017. On April 1, 2019, DOL issued proposed regulations designed to revise and clarify the joint employer criteria. As we went to press, the new rules have not been finalized. While they are expected to result in fewer findings of joint employment, we do not anticipate that they will have a material impact on staffing firm-client relationships.

4. Health and Pension Benefits

The primary co-employment concern in the benefits area is whether a staffing firm client has a legal obligation to provide benefits to a staffing firm’s employee. The answer is generally no, but this area of law is highly fact specific. (A quick-reference guide to the most frequently asked questions in this area is included in Appendix F.)

San Francisco law requires certain employers to contribute to employee health care, and the federal Patient Protection and Affordable Care Act (ACA) requires certain employers to either provide health insurance coverage or pay a tax penalty to the government, but no law (except in Hawaii) requires employers to provide health or pension benefits to employees. Federal tax law does, however, require employers to include “leased employees” in their head count for the purpose of “coverage tests” that apply to certain employer benefits plans.

To understand how the leased employee rules work, it is essential to understand the tax policy behind the coverage tests.

a. Coverage Tests

Federal law does not require employers to provide their employees with benefits such as pensions and health insurance. However, it does provide incentives designed to encourage employers to offer benefits to certain rank-and-file employees. For example, businesses may deduct the cost of the benefits, which generally are not included as taxable income to employees. To qualify for favorable tax treatment, however, plans must cover employees fairly (i.e., they cannot discriminate in favor of higher-paid employees).[45]

To ensure that employer-provided retirement plans do not discriminate in favor of higher-paid employees, the law establishes tests that require plans to cover a minimum percentage of lower-paid employees.[46] To determine if they pass the coverage tests, employers have to count their employees and make a number of calculations. Plans that pass the tests and meet other requirements qualify for the tax benefits described in the previous paragraph (hence the term “qualified” plan). Because substantial adverse tax consequences can result if a plan fails the coverage tests, staffing firms and their clients should seek professional tax advice concerning the specific application of the tests to their benefit plans.

Beginning with plan years after Dec. 31, 1988, the 1986 Tax Reform Act imposed much stricter coverage tests for retirement plans. Under the act’s amendments, one of two tests must be passed: A plan must cover (1) a percentage of rank-and-file employees equal to at least 70% of the percentage of higher-paid employees benefited, or (2) a nondiscriminatory classification of employees based on objective standards and provide lower-paid employees an average benefit that is at least 70% of the average benefit provided to higher-paid employees.

Since the new coverage tests became effective, employers can no longer provide qualified retirement benefits simply by covering a nondiscriminatory classification of employees (e.g., full-time salaried employees). Staffing firms, for example, must apply more stringent tests that require counting their temporary employees. This makes it virtually impossible for them to maintain their plans’ tax-qualified status because the relatively large numbers of temporary employees excluded from the plans practically guarantee that the plans will fail the tests. Consequently, many staffing firms were forced to terminate their qualified retirement plans as a result of the new coverage tests.

The new coverage tests apply to retirement plans but not to other kinds of benefit plans such as self-insured group health plans and group life insurance. Those plans remain subject to pre-1986 coverage tests, which permit employers to provide benefits to nondiscriminatory classifications of workers (e.g., home office staff or employees assigned to particular clients). It is not entirely clear, though, to what extent the determination of what is a nondiscriminatory classification is affected by the new objective standards applicable to retirement plans.

Insured health plans historically were not subject to any nondiscrimination coverage tests, either pre-1986 or post-1986.[47] However, the ACA enacted in 2010 provides that, effective Jan. 1, 2011, all insured group health plans are subject to nondiscrimination rules similar to the rules applicable to self-insured health plans but those rules have not been implemented.[48]

Leased Employee Rules

As noted above, the tax code requires employers to satisfy applicable coverage tests by taking into account workers who are their common-law employees. When applying the tests, the tax code also requires employers to include in their head count certain employees, who are not their common-law employees, supplied by third-party contractors. These rules, sometimes referred to as the “leased employee rules,” are set forth in section 414(n) of the Internal Revenue Code, which applies to tax years after Dec. 31, 1983.[49]

Section 414(n) was enacted to address the practices of certain small professional groups that fired their entire staffs, transferred them to the payroll of leasing organizations, and then set up pension plans only for themselves, thus circumventing the coverage tests. Section 414(n) dealt with this practice by requiring employers to treat certain outside employees as leased employees who must be counted along with their own employees when applying the coverage tests. (For the full text of section 414(n), see Appendix F.) As the following definition indicates, section 414(n) is very broad. Employees supplied by many traditional service providers, including long-term employees supplied by staffing firms, may have to be counted as leased employees, even though clients do not use them to replace full-time employees or to circumvent the coverage tests.

Definition of Leased Employee

Section 414(n) defines a leased employee as any person furnishing services to a recipient if the following conditions are met:

■     The person must perform services under an agreement between the recipient employer and the leasing organization.

■     The person must perform services under the primary direction and control of the recipient.

■     The person must perform services on a substantially full-time basis for a one-year period. Under IRS guidance, this test is met if one of the following conditions is met during a consecutive 12-month period: The employee performs at least 1,500 hours of service for the client (or related entities), or the employee performs a number of hours of service for the client (or related entities) that is equal to at least 75% of the average number of hours customarily worked by the client’s own employees performing similar services.

The “substantially full-time” test under section 414(n) is different from the “year of service” test under the Employee Retirement Income Security Act, which uses a 1,000-hour standard for participation, benefit accrual, and vesting. ERISA and section 414(n) have different purposes and requirements. ERISA sets forth rules for an employer’s benefit plans, but they apply only to the employer’s own employees. Section 414(n) applies to an employer’s use of outside employees.

b. Control Test

The “primary direction and control test” of section 414(n), enacted as part of the Small Business Job Protection Act of 1996, replaced a test under prior law that looked to whether services performed by employees for a recipient were of a type historically performed by employees in the recipient’s field of business. This test was widely criticized as being too broad in its application. The control test significantly narrows the scope of the leased employee rules.

Effective Jan. 1, 1997, clients do not have to count third-party employees as potential leased employees when their work is directed and controlled primarily by a staffing firm and not the client. Whether an individual performs services under the primary direction or control of the client depends on the facts and circumstances. Relevant factors include whether the client has the right to direct where, when, and how the employee performs services; whether the client has the right to direct that services be performed by a specific person; whether the client supervises the worker; and whether the employee must perform services in an order set by the client.

The legislative history of the control test indicates that professionals (e.g., attorneys, accountants, actuaries, doctors, computer programmers, systems analysts, and engineers) are not considered leased employees if they regularly use their own judgment and discretion on matters of importance in the performance of their services and are guided by professional, legal, or industry standards. They do not have to be counted by the client, even though the staffing firm does not closely supervise them on a continuing basis and even though the client requires their services to be performed on site and in accordance with client-determined timetables and techniques.

The control test may benefit clients using professional services and managed services arrangements in which the staffing firm exercises actual day-to-day direction and control of employees at the work site. Office and clerical staffing services could also be exempt, but clients claiming exemption from the head-counting rules will have to satisfy a heavy burden of proof on the issue of control because the legislative history provides that clerical and similar support staff generally are considered to be subject to the client’s primary direction or control and would be leased employees if the other requirements of section 414(n) are met.[50]

c. Benefit Plans Affected by the Leased Employee Rules—Application to the ACA

Section 414(n) leased employee rules come into play when applying coverage tests to retirement, life insurance, and cafeteria plans and when determining whether group health plans are subject to the Consolidated Omnibus Budget Reconciliation Act (COBRA) and certain Medicare coordination-of-benefit rules. But section 414(n) rules do not currently apply to the coverage tests relating to group health plans.

The Affordable Care Act addresses the treatment of leased employees in two specific contexts. First, the law expressly provides that leased employees must be included by any employer claiming a small business tax credit under the law.[51] This was to ensure that clients of PEOs with less than 25 employees do not lose their ability to claim the small business tax credit provided by the ACA. But it also is intended to prevent larger employers from improperly claiming the tax credit by shifting employees to PEOs to lower their headcount. Second, the final regulations make clear that recipients do not have to count leased employees as employees for purposes of compliance with the employer shared responsibility rules.[52]

Hence, staffing firm clients should have no obligation to include staffing firm employees for purposes of ACA compliance unless the client is determined to be the common-law employer based on the facts and circumstances. Based on historical practice and legal precedent, staffing firms generally should be viewed as the common-law employer, not the client.

Nonetheless, some clients, out of an abundance of caution, ask the staffing firm to comply with a special ACA rule designed to protect the client in the unlikely event that the client is viewed as the common-law employer. The rule allows the staffing firm to offer coverage on the client’s behalf, thus protecting the client from potential penalty.[53] ASA has developed a model general staffing agreement reflecting the staffing firm’s common-law employer status. The agreement, available on the ASA website, includes optional language designed to comply with the special rule if a client asks.

d. Record-Keeping Exemption

The 1986 Tax Reform Act directed the Treasury Department to issue regulations to minimize employer record-keeping under section 414(n).[54] According to the legislative history of this provision, Congress contemplated that employers do not have to maintain records of outside employees for coverage testing purposes unless the total number of such individuals performing 1,500 hours or more of service exceeds 5% of the employer’s total lower-paid workforce. To take advantage of this exemption, a client’s benefit plans must not be top heavy under IRS rules and must specifically exclude leased employees.[55]

e. Safe Harbor Plans

Employees will not be treated as leased employees for pension plan purposes if they participate in a safe harbor pension plan provided by the leasing organization that meets the following conditions:

■     The leasing organization must contribute at least 10% of the employee’s compensation to the plan.

■     The employee must be 100% vested in the contribution.

■     In general, all leasing organization employees who provide services to clients must participate in the plan without any waiting period. This provision prevents a leasing organization from providing safe harbor plans that cover only the employees assigned to certain clients.

If, for any plan year, leased employees constitute more than 20% of an employer’s nonhighly compensated workforce, all of the leased employees furnished to the recipient will have to be counted, notwithstanding the existence of a safe harbor plan. Of course, a safe harbor pension plan does not relieve recipients of the obligation to count leased employees for any other benefit plan subject to coverage testing. Few, if any, safe harbor plans exist.

f. Coverage Testing of Leased Employees—Consequences of Failing the Tests

Generally, under the record-keeping exemption described above, if an employer’s use of outside employees working 1,500 hours in a year or more is 5% or more of its lower-paid workforce, it will have to maintain records, and those employees meeting the definition of “leased employee” will have to be counted as leased employees for coverage testing purposes.[56] Plans that continue to satisfy the coverage tests after leased employees are counted will remain qualified. However, plans that fail the tests will lose some or all of their tax benefits, depending on the type of plan.

For example, if a retirement plan fails the coverage tests, the employer stands to lose its tax deduction for all contributions made to the plan. Higher-paid employees will be immediately taxed on the value of their vested plan benefits, and the income of the retirement trust will become taxable. Consequently, clients should keep careful track of any outside employees working 1,500 hours or more to ensure that their retirement plans do not fail the coverage tests. Clients that do not maintain tax-favored benefit plans need not be concerned with the leased employee rules.

g. Credit for Benefits Provided by Leasing Organization

Even if a client must count a staffing firm employee for coverage tests, the client is entitled to a credit to the extent that the employee receives benefits from the staffing firm. The law states that “contributions or benefits provided by the leasing organization that are attributable to services performed by the recipient shall be treated as provided by the recipient.”[57] Hence, to the extent that benefits provided by the staffing firm are fully comparable to those provided by the client, the client may be entitled to full credit under the coverage tests. Comparability must be determined case by case, and certain technical requirements must be satisfied. The fact that a staffing firm covers its assigned employees under a benefit plan does not exempt the client from having to take those employees into account when applying the coverage tests.

Any plan covering staffing firm employees must meet the IRS’s 50-employee rule, which requires that plans cover at least 50 employees or 40% of the employer’s total workforce, whichever is less.[58] In the case of a staffing firm plan, this means that, assuming a staffing firm has more than 200 employees (including all of its temporary employees), at least 50 employees must be covered under any plan established for those assigned to a particular client. As a result of changes enacted as part of the Small Business Job Protection Act of 1996, this 50-employee requirement does not apply to defined-contribution plans such as profit-sharing and 401(k) plans, effective for plan years beginning in 1997.

In addition, of course, any plan established for temporary employees must satisfy the coverage tests, which will not be a problem if the plans maintained by the staffing firm do not cover highly compensated employees and only cover common-law employees of the staffing firm.

h. Prior Service Credit for Employees Hired by Client

Employees who perform services for a client through a staffing firm and are later hired directly by the client are entitled to credit under the client’s pension plan for hours of service performed for the client as an employee of the staffing firm. Section 414(n)(4)(B) requires a client to take into account, for the purpose of determining an employee’s years of service under ERISA, “any period for which such employee would have been a leased employee but for the requirements of paragraph 2(B)” (i.e., the 1,500-hour test). This requirement may have the effect of accelerating the entry and vesting of the hired employee in the client’s plan.

Section 414(n) requires only that leased employees be treated as employees for the purpose of including them in the client’s head count for coverage testing purposes. They are not required to be treated as participants in the client’s benefit plans.[59] Indeed, leased employees may be excluded as a class from participating in the client’s plan.[60] However, as the following discussion illustrates, it is critically important to use clear and unambiguous language to exclude them.

i. The Microsoft Case

Section 414(n) simply requires businesses to count certain longer-term leased employees for coverage testing purposes. The Vizcaino v. Microsoft Corporation case, however, raised the specter that staffing firm employees may be considered a client’s common-law employees under certain circumstances and thus become eligible for the client’s benefit plans—although the facts in the case were unique in that the client, Microsoft, was held to have conceded the issue.

In 1993, a group of former Microsoft freelancers who the IRS said should have been classified by Microsoft as employees sued the company for benefits under its 401(k) and stock purchase plans. The class of workers suing for benefits involved two groups: (1) those who worked directly for Microsoft from 1987 to 1990 as independent contractors and (2) those who were employed by staffing firms after the IRS reclassified the workers as Microsoft employees for tax purposes in 1990.

Microsoft challenged the employees’ claims on the basis that their work agreements and the company’s benefit-plan language excluded them from coverage. The U.S. District Court for the Western District of Washington denied the employees’ claims, but the U.S. Court of Appeals for the Ninth Circuit ultimately sided with the employees.

The Ninth Circuit ruled that Microsoft was bound by the wording of its stock purchase plan, which referred to a provision of the tax code requiring all common-law employees to receive benefits for a plan to qualify for preferential tax treatment. That reference, the court ruled, created a legal obligation to provide benefits to any common-law employee; a client is not relieved of such obligation merely because a staffing firm can establish that it is also an employer.[61] In an earlier ruling, the Ninth Circuit found that Microsoft had conceded the employees’ common-law status and thus the company would not be permitted to reopen that issue,[62] although the Ninth Circuit did allow Microsoft to challenge particular employees’ claims if it could prove special circumstances rendering the employees ineligible. After the series of appeals, Microsoft elected to settle the case, agreeing to pay almost $97 million in damages relating to the company’s stock purchase plan.

In the wake of the Microsoft case, several lawsuits seeking benefits were filed against private-sector corporations and state government agencies. Most of the private-sector cases have been won all or in part based on plan exclusions.[63] One case involved a trial court ruling that the assigned employees were not the client’s common-law employees.[64] Other cases involved claims that were dismissed based on statutes of limitations, not on the merits,[65] and some were settled.[66] All of the public-sector defendants have lost or settled.[67]

Because the law generally does not require employers to provide benefits, or mandate that all employees be covered, businesses can take steps to reduce the likelihood that such claims will be successful.

j. Operational Steps—Avoiding Control

The Microsoft case itself provides guidance on how staffing firm clients can avoid being considered the employer of staffing firm employees claiming benefits under client plans. Microsoft and other cases have relied on criteria for determining employer status set forth by the Supreme Court in the Darden case.[68]

Clients can structure their relationships with staffing firms and assigned employees to avoid some of the contacts that might imply an employee–employer relationship. Although day-to-day supervision of workers by the client may be unavoidable in most cases, other elements of control should be the responsibility of the staffing firm. For example, the staffing firm should be responsible for recruiting and training the employee, determining the length of the employee’s assignment with the client, and reassigning the employee. A 1999 federal district court decision in California—in the case of Burrey v. Pacific Gas & Electric— recognized the substantial employer responsibilities of the staffing firm and held that it, not the client, was the employer for benefits purposes despite the client’s substantial day-to-day involvement with the employees.[69]

k. Benefit Plan Exclusions Must Be Clear and Unequivocal

Another way for clients to avoid benefits liability for the staffing firm’s employees, even if they are determined to be the client’s common-law employees, is to draft their plans to clearly and explicitly exclude those employees. The Ninth Circuit in the Microsoft case expressly held that Microsoft had the legal right to exclude the workers who were claiming benefits and could have done so had it drafted its plan more explicitly. As previously noted, this right has been recognized by a number of federal courts.[70] Hence, clients should carefully review their benefit plan documents to ensure that they are properly drafted.

Further support for the ability of staffing firm clients to protect themselves through exclusionary plan language can be found in a technical advice memorandum issued by the IRS national office and unofficially published in 2000 (see Appendix G).[71] The memorandum involved a taxpayer seeking an IRS determination regarding a plan that excluded from coverage individuals not on the client’s payroll even if the individuals were subsequently reclassified as common-law employees. The IRS upheld the exclusion. Use of language similar to that used by the taxpayer in the memorandum would therefore appear to offer protection. Keeping in mind that any plan language should be discussed with legal counsel, the following template language may be suggested to clients for the purpose of excluding staffing firm employees from participation in the client’s ERISA plan[72]:

“The Plan includes any employee of [Client] who is paid in U.S. currency, but shall not include:

1.     An individual whose services are used by [Client] pursuant to an employment agreement or personal services agreement if such agreement provides that such individual shall not be eligible to participate in [Client’s] Plan

2.     Individuals who are not paid directly by [Client] or an affiliate of [Client]

3.     Individuals who are not on [Client’s] payroll

4.     Individuals who are “leased employees” within the meaning of § 414(n) or (o) of the Internal Revenue Code

5.     Individuals whom [Client] does not treat as its employees for federal income tax withholding or employment tax purposes.

l. Employee Contracts and Waivers

In addition to careful plan drafting, it may be possible for clients to achieve additional protection from benefits liability through carefully drafted employee agreements or waivers. One of the many court rulings in the Microsoft case discussed the issue of waivers.

Beginning in July 1998, Microsoft required temporary employees whose annual contracts were up for renewal to sign an agreement acknowledging that they were employees of the staffing firm, not Microsoft, and waiving any claim to compensation or benefits from Microsoft. The district court, upon learning of the new agreements, objected to the following provision:

[e]ven if a court or government agency determines that Temporary Personnel and Microsoft have had a common-law employer–employee relationship at any time, Temporary Personnel will still be bound by this Agreement and will not be entitled to receive from Microsoft or have Microsoft provide on his/her behalf any different or additional pay, or any benefits, insurance coverage, tax payments or withholding, or compensation of any kind.

Microsoft argued that the waiver pertained only to work performed after the date of the agreement and that it was not intended to affect workers involved in the pending litigation who had performed services before the agreement. The district court disagreed that the waiver was limited in this manner.

In response to the district court’s concerns, Microsoft agreed to revise the workers’ agreement to provide the following:

Regardless of how the legal status of Worker may be characterized—as an employee of Temporary Agency, an employee of Microsoft, an independent contractor, or otherwise—Worker acknowledges and agrees that Microsoft will not provide to Worker or on Worker’s behalf any compensation, insurance or benefits, including without limitation…. [The agreement then lists Microsoft’s insurance and benefits plans.]

In a separate provision, employees, regardless of their legal status, were also asked to waive any right to any claim for benefits or other compensation from Microsoft. Microsoft explained to the district court that the revised waivers would apply only to new temporary employees, would not affect claims for benefits relating to any services they provided before signing the agreement, and would not affect claims for benefits if a court found the waiver invalid. The revised waiver provided the following:

I have read carefully this entire agreement including this highlighted provision, and I have had sufficient time to consider my waiver of any entitlement or claim to compensation, insurance, and benefits from Microsoft. This waiver does not affect any claim worker might have for any type of compensation, insurance, or benefits from Microsoft attributable to services provided by worker prior to the date of this agreement or attributable to services provided at any time if this waiver were ever found to be ineffective or otherwise invalid by any court of competent jurisdiction.

Microsoft also agreed to take corrective measures regarding workers who had signed the original waiver. Without expressly ruling on the validity of the revised agreement, the ruling indicated that it “goes a long way toward satisfying the court’s earlier expressed concern.”[73]

Even though the district court did not expressly decide the effectiveness of the new Microsoft waiver, its action suggests that voluntary and specific waivers executed at the outset of an employment relationship may be valid.

A 1998 decision by the U.S. Court of Appeals for the 10th Circuit in Capital Cities/ABC Inc. v. Ratcliff[74] supports the conclusion that clients can protect themselves through carefully worded agreements with employees. In that case, newspaper carriers who worked as independent contractors for Capital Cities sued the company, claiming that they were common-law employees entitled to company benefits. The carriers had signed agreements acknowledging their status as independent contractors and agreed that they were not entitled to benefits under the company’s plans. The 10th Circuit rejected the carriers’ claims, holding that that the agreements signed before the start of their work determined their right to benefits. The 10th Circuit ruled that the issue was one of contract rather than waiver (which involves forgoing a right that already exists) and that the carriers were not entitled to benefits.[75]

Some benefits experts believe that temporary employee waivers are not enforceable unless they are consistent with and expressly sanctioned by the client’s benefit plan, suggesting that any waiver language should be tailored to particular client situations. Because of the complexity of the issues, staffing firms and their clients should consult with expert legal counsel about plan-drafting issues and any agreements with workers relating to benefits eligibility.

m. Limits on Worker Assignments—Are They Necessary?

To protect against benefits claims following the Microsoft litigation, clients began to adopt policies limiting the length of assignment of staffing firm employees. Some of these policies seem to be based on the erroneous belief that, after working for a certain period of time, such employees are automatically eligible for coverage under client benefits plans or even entitled to be hired into regular full-time positions with the client.

Length of assignment, however, is not the sole issue in determining the employment status of workers supplied by staffing firms. For tax and benefits purposes, it is but one of many factors under the common-law control test and is not determinative. Assignment limits may even carry some risk if the client has not clearly excluded staffing firm employees from its plan because those limits might be construed as an effort to deny benefits by preventing employees from reaching the hours needed for plan participation. Clients could face charges of violating ERISA, the tax code, and the ACA, which protect employees from such employer action.

Because assignment limits can cause economic harm to workers whose assignments are terminated prematurely and can disrupt client business operations, clients should examine their time limits policies to ensure that they are necessary and are not based on misinformation. For example, it is important to understand that while ERISA sets rules for employee benefit plans, it does not require employers to offer benefits and does not dictate what level of benefits must be provided. Also, while federal tax law requires that plans satisfy certain coverage and nondiscrimination rules as a condition of receiving favorable tax treatment, it does not require employers to offer benefits to or to cover all employees in their plans. As previously noted, a company generally can exclude up to 30% of its rank-and-file employees under a pension, profit-sharing, or 401(k) plan without endangering the plan’s tax-advantaged status. This “slack” is why clients generally can exclude staffing firm employees from their benefit plans without jeopardizing their tax status.

Nevertheless, some clients, relying on the ERISA “hours of service” rules, terminate the staffing firm’s workers before they reach 1,000 hours in the erroneous belief that individuals who work at least 1,000 hours in a year are entitled to participate in the client’s retirement plan. This is unnecessary because the hours of service rule does not apply to nonemployees or to employees who have been expressly excluded from the plan under a proper exclusion provision. Nor does it apply in cases where the client’s retirement plan does not require 1,000 hours of service or, necessarily, to an employer that adopts the “elapsed time” method.

Other clients’ assignment limit policies are based on the federal tax code provisions dealing with “leased employees,” IRS Code section 414(n). Again, those provisions do not require clients to provide benefits to leased employees. In fact, leased employees can and should be excluded from client plans. The rules require only that leased employees be included in a client’s head count for discrimination testing purposes. This is not a problem unless the client has so many leased employees (and other excluded employees) that it exceeds the “slack” in the client’s plan discussed earlier, which could affect the plan’s tax qualification.

5. Family and Medical Leave

The federal Family and Medical Leave Act of 1993 (“FMLA”) applies to employers with at least 50 employees per day for 20 or more weeks in the current or preceding calendar year. The law requires such employers to provide up to 12 weeks of unpaid family and medical leave in any 12-month period to employees who meet eligibility requirements for (1) the birth or adoption of a child, (2) the “serious health condition” of an employee, or (3) the “serious health condition” of an immediate family member of an employee.[76]

On Jan. 28, 2008, President Bush signed the National Defense Authorization Act for FY 2008, the first ever expansion of the FMLA. The NDAA created two new types of FMLA leave specifically designed to support military families, including (1) military caregiver leave and (2) qualifying exigency leave. Military caregiver leave entitles an eligible employee who is the spouse, son, daughter, parent, or next of kin of a covered service member to take up to 26 weeks of leave during a 12-month period to care for a service member who is undergoing medical treatment, recuperation, or therapy for a serious illness or injury.[77] Qualifying exigency leave allows an eligible employee to take up to 12 weeks of leave for any “qualifying exigency” because a spouse, son, daughter, or parent is on active duty or has been notified of an impending call or order to active duty.[78] Employer obligations include maintaining health insurance benefits during the leave period and, except for certain key employees, restoring employees to the same or equivalent position upon return from leave.

a. Eligible Employees

To be eligible for leave, employees of a covered employer must satisfy three tests: (1) they must have been employed by the employer for at least 12 months (not necessarily consecutively), (2) they must have worked at least 1,250 hours during the 12-month period immediately preceding the beginning of leave, and (3) the employer must employ 50 or more employees within 75 miles of the employee’s work site.

b. Primary and Secondary Employers

DOL regulations address the potential co-employer obligations of staffing firms (specifically temporary staffing and employee leasing firms) and their clients under the FMLA. Under these rules, clients using temporary or leased employees may have to include those employees in their own head count in determining whether they are subject to the FMLA.[79]

Although the rules state that in determining whether a joint employment relationship exists “the entire relationship is to be viewed in its totality,” the rules go on to provide that a temporary staffing or employee leasing firm and its clients will ordinarily be deemed joint employers.[80] If a co-employment relationship is found to exist, both the staffing firm and the client must count the temporary or leased employees in determining whether the employer is covered under the FMLA and whether the employee is eligible for benefits.[81] For example, if a client has 40 regular, full-time workers and is a co-employer of 15 workers assigned by a temporary staffing or employee leasing firm for 20 or more weeks in the current or preceding calendar year, the client is covered by the FMLA because it will be deemed to have 50 or more employees.

However, the DOL rules make clear that only the primary employer is responsible for giving required notices to its employees, providing leave, and maintaining health benefits during leave. Factors considered in determining who is the primary employer include the authority or responsibility to hire, fire, assign, or place the employee; pay their wages; and provide employment benefits.[82] The DOL rules state that temporary staffing companies and employee leasing firms generally are primary employers.[83]

Clients have obligations as secondary employers similar to those generally found in the civil rights laws. Regardless of whether they are covered by the FMLA in their own right, secondary employers must comply with the “prohibited acts” provisions with respect to temporary or leased employees. Such acts include interfering with an employee’s attempt to exercise rights under the FMLA and discharging or discriminating against an employee for opposing a practice that the FMLA makes unlawful.[84]

Because a business must employ 50 or more employees a day for 20 or more weeks in the current or preceding calendar year before it is subject to the FMLA,[85] it is possible for a client with fewer than 50 employees to avoid the FMLA by limiting its use of outside temporary employees to peak or seasonal workloads. But if the client uses such services on a regular, ongoing basis, it could become subject to the law if its daily head count, including the temporaries, is at or above 50 for at least 20 weeks in a calendar year.

Moreover, assuming the staffing firm and client are joint employers and the client hires a temporary worker at the conclusion of an assignment (i.e., a temporary-to-hire scenario), the time the employee worked on assignment must be counted by the client toward the 12 month/1,250 hour test for FMLA eligibility.[86]

c. Duty to Restore Temporary Employee Returning From Leave

The final DOL regulations specifically address the obligations of staffing firms and their clients to restore a temporary or leased employee to the same or equivalent position on his or her return from leave. Under the DOL rules, the primary employer (i.e., the staffing firm) has primary responsibility for restoring the employee.

However, the client also has obligations. The final DOL rules provide that if the client is using staffing firm services in the same or equivalent position at the time the employee returns from leave, the staffing firm must reinstate the employee immediately, even if this means removing another employee from the job.[87] In such cases, the client must accept the returning employee.[88]

If, however, a client for legitimate business reasons discontinues the services of the temporary staffing firm or the services performed by the employee who took leave and no equivalent jobs are available with the same client, then the temporary staffing firm must try to find an equivalent position with another client. If no equivalent job is available, the returning employee is given priority consideration for other assignments for which he or she is qualified.[89]

The final DOL regulations’ commentary suggests that the head-of-the-line approach can be used only if the returning employee typically experienced waiting periods between temporary assignments.[90] However, waiting periods arguably need not actually occur. The DOL rules expressly state that the FMLA does not give employees greater rights than their employment agreement provides. Hence, it seems reasonable to conclude that the head of-the-line rule can be used provided employees have a clear understanding with the staffing firm that such periods could occur.

d. Application of 75-Mile Rule to Staffing Firms

Under the regulations, an employee is not eligible for leave unless the employer employs 50 or more employees within 75 miles of the employee’s work site. In the case of temporary employees, “work site” generally means the staffing firm’s office from which employees are assigned, not the client’s places of business. Therefore, all employees assigned from that office—even if a client work site is more than 75 miles from the office—must be included in the staffing firm’s head count for the purpose of determining the eligibility of both temporary and full-time staff employees. However, under the DOL rules that became effective January 16, 2009, if the employee has physically worked for at least one year at a client facility, the employee’s work site is that location and the 75 miles is measured from there.[91]

B. Employment Practices

1. Equal Employment Opportunity Laws

a. Liability of Clients

Staffing arrangements cannot be used to shield companies from compliance with the Equal Employment Opportunity Laws. The remedial purpose of Title VII of the Civil Rights Act of 1964 is so broad that every party to a staffing arrangement may be liable for discriminatory acts against staffing firm employees as long as the party controls some substantial aspect of their compensation, terms, conditions, or privileges of employment. Liability may even extend to acts committed by persons with whom the party has no employment relationship.

For example, in the 1984 landmark case of Amarnare v. Merrill Lynch, a federal court in New York held a client of a temporary staffing firm to be a co-employer under Title VII in a suit brought by a temporary employee.[92] The employee alleged that the client discharged her from her assignment and refused to hire her on a permanent basis because of her sex, race, and national origin. The client moved to dismiss the case, arguing that it had no employer–employee relationship with her. The employee asserted that the client was an employer because it “controlled her work hours, workplace, and work assignments; hired, trained, and supervised her; and ultimately discharged her.”

The court agreed that there was a sufficient employer–employee relationship to support a Title VII claim against the client. It found that the employee “was subject to the direction of [the client] in her work assignments, hours of service, and other usual aspects of an employee-employer relationship…” This finding permitted an inference that she was an employee of both the temporary staffing firm and the client during the period of the assignment. However, the court also noted that the client could be liable under Title VII even if it were not an employer because Title VII allows suits against persons “who are neither actual nor potential direct employers of particular complainants, but who control access to such employment and who deny access by reference to invidious criteria” (internal quotations omitted).

Although the client in the Amarnare case was ultimately found not to have discriminated, the case established that clients can be held accountable if they unlawfully discriminate against a staffing company’s employees.

In another case, Magnuson v. Peak Technical Services,[93] a federal court in Virginia held that staffing firm Peak, its client Volkswagen of America, Volkswagen’s Fairfax, VA, dealership, and the dealership’s general manager could all be employers under Title VII and potentially liable for the alleged sexual harassment of Peak’s employee by the general manager. The court ruled that both Peak and Volkswagen of America could be liable for the general manager’s acts, even though he was not employed by them, if “(i) they knew of the harassment; and (ii) failed to take any corrective action to remedy the situation.”[94]

Some federal courts have required a common-law employment relationship between a client and a temporary employee in order to hold the client liable under the EEO laws[95] and have rejected claims in which the client exercises too little control to be an employer.[96]

Most state courts have interpreted state human rights laws broadly to protect employees against discrimination committed by clients, even in cases in which the parties to the staffing arrangement entered into a written contract that expressly provided that temporary employees assigned to the client were not the client’s employees.[97]

b. Liability of Staffing Firms

Staffing firms, of course, also may have EEO liability. The court in the Amarnare case expressly held that the temporary employee was employed by both the temporary staffing firm and the client.[98] However, some federal courts have declined to decide whether the staffing firm was an employer under Title VII and instead rejected the employee’s claim because the firm acted promptly to correct the alleged discriminatory conduct against an assigned employee.[99]

But in several cases courts have held that staffing firms were not employers for EEO purposes. For example, in Williams v. Caruso,[100] a federal court in Delaware concluded that a staffing firm could not be held liable as an employer for a hostile environment at a client’s work site because the staffing firm did not control the details of the work at the site. The court concluded instead that the staffing firm was an employment agency and as such could potentially be held liable for a retaliatory discharge. However, because the staffing firm took prompt action when it learned of the alleged hostile environment, the court rejected the worker’s claim.

c. EEOC Guidance on Contingent Workers

In contrast to the courts, the Equal Employment Opportunity Commission (an independent federal agency) has shown no ambivalence regarding the employer status of staffing firms and their clients for EEO purposes. The agency’s views on the subject are set forth in EEOC Enforcement Guidance on the Application of EEO Laws to Contingent Workers Placed by Temporary Employment Agencies and Other Staffing Firms, which was issued in 1997 (see Appendix H) and in agency opinions.[101] Though somewhat dated, the EEOC has never overruled or updated its enforcement guidance on this subject.

The guidance applies to temporary staffing firms, contract firms, long-term staffing arrangements, and PEO services. A contract firm is defined as one that takes on “full operational responsibility for performing an ongoing service and supervises its workers at the client’s work site.” This definition essentially corresponds to industry definitions of managed services or outsourcing.

The EEOC enforcement guidance memorandum confirms that, in most cases, staffing firm workers are employees, not independent contractors. It sets forth a non-exhaustive list of 16 factors to be used in making this determination with no one factor being decisive. The guidance specifically rejects the reasoning of courts in several cases that held that temporary workers are not staffing firm employees. It states that the courts “placed undue emphasis on daily supervision of job tasks and underestimated the significance of other factors indicating an employment relationship.” The EEOC enforcement guidance memorandum says that the staffing firm, the client, or both could be employers and be held liable for unlawful discriminatory conduct. If both have the right to control a worker under the factors test and each has the statutory minimum number of employees (under rules spelled out in the guidance), they are covered as joint employers. In contrast, clients of a contract firm are not joint employers if the contract firm furnishes the job equipment and has the exclusive right, through on-site managers, to control the details of the work, make or change assignments, and terminate employees.

If a client puts its employees on the staffing firm’s payroll solely to transfer the responsibility of administering wages and insurance benefits, the staffing firm would not be an employer under the EEOC enforcement guidance memorandum. But if a staffing firm has a right to exercise control over the worker, it would be an employer. Hence, PEOs would be employers if they have the authority to hire and fire employees independent of the client. Staffing firms engaged in pure payrolling services probably would not be employers, although they still may have liability as nonemployers.

Even if a staffing firm is not an employer, it may be liable for discriminating against an individual. This is because the EEOC views the antidiscrimination laws as not only prohibiting an employer from discriminating against its own employees, but also prohibiting it “from interfering with an individual’s employment opportunities with another employer.”

If the combined discriminatory actions of a staffing firm and its client harm the worker, the EEOC takes the position that both are jointly and severally liable for back pay, front (i.e., prospective) pay, and compensatory damages. This means that employees can collect the full amount of damages from either the staffing firm, the client, or both. Neither the employee nor the EEOC has any obligation to pursue a claim against both the staffing firm and the client, and neither the staffing firm nor the client, if sued, has a right to bring the other into the proceeding or any right to contribution from the other. In contrast, punitive damages can only be assessed individually against each party based on its respective degree of malicious or reckless conduct.

Head Count Issues Under Title VII

Title VII of the Civil Rights Act defines “employer” for the purposes of the act as one that employs 15 or more employees for each working day in each of 20 or more calendar weeks in the current or preceding calendar year.[102] The question is whether temporary employees assigned to a client by a staffing firm must be included in the head count of both the staffing firm and the client to determine whether each employer has met the 15-employee head count requirement. It is a complex question, and federal courts do not agree on the answer. For an excellent overview of the criteria courts have applied in determining when the employees of two or more employers should be aggregated in determining whether statutory head count requirements have been satisfied under Title VII and other laws, see Arculeo v. On-Site Sales & Marketing LLC, 425 F.3d 193 (2d Cir. 2005).

d. Affirmative Action, EEO-1 Reporting, and Other Record-Keeping Issues

Federal law requires certain federal contractors and subcontractors, and employers generally, to comply with rules intended to protect the employment rights of specific classes of employees. This section addresses affirmative action requirements for minorities and women under Executive Order 11246. Later sections discuss the re-employment rights of certain military service members returning from active duty; preferential job-listing requirements for Vietnam-era veterans; and protection of the disabled under the Americans With Disabilities Act.

Affirmative Action Under Executive Order 11246—EEO-1 Reporting

The purpose of affirmative action programs is not to address acts of discrimination against specific individuals but to take positive steps to rectify past discrimination against certain protected groups as a class.

President Johnson established the federal government’s affirmative action policy regarding minorities in 1965 with Executive Order 11246. The policy is enforced under regulations issued by the DOL Office of Federal Contract Compliance Programs. The order and regulations apply to federal contractors with 50 or more employees and contracts of $50,000 or more and to certain subcontractors.

A threshold question is how the 50-employee head count test applies to staffing firms. Although there is no known ruling involving the staffing industry, it is possible that courts would apply the test similar to how they are applied under other civil rights laws. For example, Title VII and the federal Age Discrimination in Employment Act apply head count tests (15 and 20 employees, respectively) using a 20-week rule. Under those laws, if an employer employs the requisite number of employees in 20 or more calendar weeks in the current or preceding calendar year, the employer is subject to the law. If a 20-week rule were applied to the 50-employee test under Executive Order 11246, a staffing firm whose weekly head count (including employees assigned to clients) was at least 50 in 20 or more calendar weeks in a year would be subject to the Executive Order, assuming it had federal contracts or subcontracts over the specified dollar amount.

If a staffing firm is subject to the Executive Order and is therefore required to have an affirmative action plan, the question is whether its temporary employees must be included in the plan. ASA has historically asserted that because the affirmative action plan rules are ill-suited and unworkable for a temporary workforce, only a staffing firm’s full-time employees must be included.

As explained below, the EEOC has implicitly recognized ASA’s position by expressly exempting temporary employees from the affirmative action record-keeping and reporting rules.

Those rules, first proposed by the EEOC in 1965, require all private employers with 100 or more employees (including employers with fewer than 100 if they are owned or affiliated with another company and the entire enterprise employs 100 or more) to file an EEO-1 report showing all full-time and part-time employees by race, ethnicity, and gender. Federal contractors with 50 or more employees and federal businesses worth $50,000 or more also must file.

When the rules were first proposed, ASA voiced concern about the impact on temporary staffing firms. The association pointed out that it would be impossible to visually determine the minority status of thousands of employees who work for clients at remote locations in unpredictable, short-term tenures. Moreover, the association was concerned that if temporary staffing firms had to record the racial status of their workers, they would run afoul of state antidiscrimination laws because the information potentially could be used in making assignments—a classic catch-22.

The EEOC eventually acknowledged these problems and expressly excluded temporary workers from its record-keeping and reporting requirements. The exclusion is set forth in the instructions to employers for completing the EEO-1 report available on the EEOC website. The instructions, which are jointly issued by the EEOC and OFCCP, state that the following persons are excluded from the definition of employee:

[P]ersons who are hired on a casual basis for a specified period of time, or for the duration of a specified job, and work on remote or scattered sites or locations where it is not practical or feasible for the employer to make a visual survey of the workforce…persons temporarily employed…who are obtained through a hiring hall or other referral arrangement through an employee contractor or agent…or persons (EXCEPT leased employees[103]) on the payroll of an employment agency[104] who are referred by such agency for work to be performed on the premises of another employer under that employer’s direction and control.

The affirmative action rules issued by DOL under Executive Order 11246 expressly referred to the EEO-1 report as the basis for developing and monitoring employer affirmative action plans.[105] Because the report the DOL directed employers to use expressly excludes temporary employees, ASA believed that it was reasonable to conclude that the DOL did not intend to require such employees to be included in staffing company affirmative action plans. Moreover, the association believed that the exclusion extends to clients’ plans as well because the EEO-1 instructions exclude persons “obtained…through an employee contractor…”[106]

The staffing industry took this position for almost 30 years, and while some regional OFCCP offices disagreed, the agency never formally challenged the industry’s view. Nor did the DOL take any position on the matter until Nov. 13, 2000, when—in an overview of the scope of final OFCCP regulations—it asserted, in passing, that temporary employees should be included in affirmative action plans. Responding to a comment on the proposed rules,[107] the DOL stated, “the term ‘employees’ is broad enough to include part-time, temporary, and full-time employees.” This view, the DOL said, did not “signal any change in OFCCP’s requirement for reporting [such employees] in written [affirmative action plans] now or in the future.”[108] Since issuing that brief statement, which did not specifically mention temporary employees employed by staffing firms, the DOL has issued no authoritative statement on the matter or any guidance as to how the affirmative action plan rules should be applied to temporary employees employed by staffing firms.

OFCCP Internet Applicant Rules

In 2005, the OFCCP issued special rules pertaining to “Internet applicants” that require certain federal contractors and subcontractors to collect and maintain résumés as well as data on applicants’ sex, race, and ethnic data when job seekers and employers use the Internet to find jobs and fill positions.[109] ASA believes that the exclusion of temporary employees for EEO-1 reporting purposes supports the assertion that the OFCCP Internet applicant rules do not apply to temporary employees. No court has ever ruled on the issue, however.

Exemption for “Recruitment Practices” Under EEOC and Department of Labor Rules

The EEOC has not adopted any specific requirement that employers must make or keep personnel or employment records—only that such records that are kept must be preserved for one year from the date the record is made or the personnel action involved, whichever occurs later. This regulation is set forth at 29 C.F.R. § 1602.14. In 1978, the EEOC and DOL issued “Uniform Guidelines on Employee Selection Procedures,” which specifies which records employers should maintain to determine whether their employment selection procedures have a disparate impact on minorities and other protected groups. The guidelines also prescribe methods for validating procedures that are found to have a disparate impact.[110]

In 2004, the EEOC and DOL published questions and answers to clarify the application of the guidelines to Internet recruitment practices.[111] In Question 95 the agencies said that Internet recruitment, like traditional recruitment, is exempt from uniform guideline requirements.

As a business practice, recruitment involves identifying and attracting potential recruits to apply for jobs. Under [the guidelines], ‘recruitment practices’ are not considered…to be selection procedures,[112] and the [guidelines’] requirements geared to monitoring selection procedures do not apply.

Based on these guidelines, ASA believes that staffing firms that identify and attract recruits for direct hire by clients are engaged in “recruitment practices” and should be exempt from requirements to maintain applicant flow data under both the uniform guidelines and OFCCP regulations pertaining to Internet applicants. Moreover, ASA believes that the exemption applies to direct placements and to those made through temporary-to-hire arrangements; however, the exemption may have little practical application if clients require staffing firms to provide EEO information.

Client Requests for Race and Ethnic Data

Clients increasingly use staffing firms to recruit employees for hire, either through direct placements or through temporary-to-hire arrangements. In doing so, clients may request sex, race, and ethnic information regarding such candidates based on EEOC or OFCCP requests that the client provide applicant flow data. In those circumstances, ASA encourages staffing firms to comply with lawful client requests for such information when possible.

Providing such data may present challenges. For example, temporary job applicants generally do not apply for assignments with specific clients, and identifying individual employees among the hundreds, or even thousands, of applicants considered for assignment to a client may be complex and costly. Even if it can practically be done, the results may be misleading because of vagaries in the process of assigning temporary workers. For example, qualified candidates are often assigned based primarily on availability, with little regard to other selection criteria. Nevertheless, staffing firms should work with their clients to develop a reasonable process for obtaining the desired information.

Employer Obligations to Military Reservists and National Guard Members

Given America’s continuing military involvement overseas, U.S. armed forces have in recent years made greater use of military reservists and National Guard members. When these individuals return from active duty, civilian employers face legal issues concerning their re-employment rights. For staffing firms, these issues prompt three common questions:

■     What are staffing firms’ re-employment obligations to their internal staff?

■     What are the obligations to reinstate temporary workers with the clients they previously were assigned?

■     To what extent must a returning temporary worker receive preferential treatment for future assignments with clients?

e. Uniformed Services Employment and Re-Employment Rights Act

The Uniformed Services Employment and Re-Employment Rights Act ((USERRA), 38 U.S.C. § 4301 et seq.) protects any employee who must be absent from civilian employment because of active-duty military service when all of the following apply:

■     The employee provides advance notice to the civilian employer.

■     The cumulative length of the employee’s military absence does not exceed five years.

■     The employee returns to work within the period prescribed by law or submits a timely application for re-employment.

■     The character of the employee’s service does not disqualify him or her from re-employment.

Internal Employees—Seniority and Position Upon Return

After military service, an employee’s re-employment rights and seniority are governed by the “escalator principle.” The Supreme Court has stated that the returning employee “does not step back on the seniority escalator at the point he stepped off. The employee steps back on at the precise point he would have occupied had he kept his position continuously.” Thus, a staffing firm’s returning internal employees suffer no loss of seniority because they have served on active duty.

When an employee returns after being absent for 90 days or fewer, the employee is entitled to the position he or she would have attained had the absence not occurred (the “escalator” position) provided the employee is qualified to perform the duties of that position. If the returning employee is not qualified for a higher-skilled position, the employee may be reassigned to the position held when the absence started.

For absences exceeding 90 days, the returning employee must be assigned to either the “escalator” position or a position with equivalent seniority, status, and pay, assuming the employee is qualified to perform the duties of the position. If the returning employee is unqualified, the employee must be assigned to his or her former position or a position with equivalent seniority, status, and pay. If the returning employee is unqualified for that position, the firm must try to reassign the employee to an alternative position of lesser status and pay, with full seniority.

Hardship Exception

USERRA provides that there may be no obligation to re-employ an individual if the employer’s circumstances have changed such that re-employment is impossible or would create an undue hardship for the employer.

Whether re-employment is required will depend on the specific facts and circumstances. For example, re-employment may not be required if the employee’s position has been eliminated during his or her absence. There is no requirement to re-establish a position that is no longer needed.

However, the returning employee may be entitled to re-employment if other positions exist that involve his or her former duties. The veteran may also be entitled to re-employment in a position to which he or she would have advanced or been transferred if employment had continued without interruption. The veteran may be entitled to re-employment in a position of equivalent seniority, status, and pay. Thus, re-employment cannot be refused if equivalent positions exist for which the veteran is qualified or could be qualified after reasonable training.

Temporary Employees—Reinstatement With Clients

USERRA contains a broad definition of “employer,” which potentially encompasses both staffing firms and their clients as joint employers of temporary workers.

Although USERRA does not specifically address the obligations of joint employers, the Family and Medical Leave Act may provide useful guidance. The FMLA provides that, in joint employment situations, the primary employer (the staffing firm) has an obligation to restore to employment an employee returning from leave. The secondary employer (the client) also may be required to accept the returning employee, depending on the facts.

However, USERRA’s re-employment provisions do not apply if the original employment was “for a brief, nonrecurrent period and there [was] no reasonable expectation that such employment [would] continue indefinitely or for a significant period” (38 U.S.C. § 4312(d)(1)(C). Whether a temporary worker is entitled to re-employment with the client will therefore depend on the nature of the former assignment. If the assignment was reasonably expected to be continuous and for an indefinite period, re-employment with the client would likely be required.

Casual and nonrecurrent assignments, however, would not likely implicate USERRA’s reinstatement requirements. For example, an extra clerk hired during the holiday rush or a substitute employee hired during the absence of a regular employee on a year’s leave would not likely be entitled to re-employment with a staffing firm’s client (see Martin v. Roosevelt Hospital, 426 F.2d 155, 159 (2nd Cir. 1970)). Similarly, a temporary worker placed with a client to perform a particular task, such as a defined piece of research, that was completed during military service would not be entitled to re-employment with the client if the client does not regularly employ people for such tasks.

Depending on the facts, a worker in a temporary-to-hire position might be entitled to re-employment. While there do not appear to be any court cases addressing such a situation, the law provides that employees on probationary status are entitled to re-employment if they reasonably anticipated that they would be hired on completion of the probationary period.[113]

Priority Consideration for Future Assignments

Because USERRA does not address joint employment, it is unclear whether staffing firms must provide returning veterans with priority consideration for future assignments. However, USERRA’s strong protections for returning veterans, embodied in the “escalator” principle, suggests that priority consideration may be required.

Under the FMLA, when individuals returning from medical leave cannot be reinstated with the client they were previously assigned to, the staffing firm must give them priority consideration or place them at the “head of the line” for possible assignments with other clients for which they are qualified. Staffing firms wishing to take a conservative approach may wish to adopt a similar approach under USERRA.

f. Job Listing Requirements Under the Vietnam Era Veterans’ Readjustment Assistance Act

In recent years, a number of staffing firms have been advised by their state employment services office that they have mandatory job listing obligations under the Vietnam Era Veterans’ Readjustment Assistance Act. The issue is whether and under what circumstances those obligations apply to staffing firms and their clients.

The act requires each federal contractor or subcontractor having contracts or transactions of $150,000 or more in a year to list all employment openings with the local office of their state employment service.[114] Openings include temporary jobs lasting more than three days. However, regulations issued under the act expressly provide that there is no obligation to list positions that will be filled from within the contractor’s organization, including openings filled from regularly established “recall” lists.[115]

All staffing firms maintain a database of qualified employees who have been previously screened and hired. When a client order is received, the firm selects from this inventory an employee who best fits the client’s requirements. When the assignment is completed, the employee may be immediately reassigned to another job or, if one is not immediately available, returned to the firm’s active list for recall when another assignment becomes available. Staffing firms have taken the position that client orders filled from their existing database are filled from within their own organization within the meaning of the regulations and therefore do not have to be listed with the employment service.

In contrast to filling jobs from within, staffing firms sometimes place classified ads to fill client requirements that cannot be met from the firm’s existing database or to replenish its inventory of qualified employees in various job categories. Jobs published for either purpose could be construed as openings subject to the listing requirements, even if specific jobs are not immediately available, provided the jobs by their nature are expected to last more than three days. Assuming the listing requirements would apply in such cases, it would appear reasonable to conclude that a staffing firm could comply by providing a copy of the ad to the local employment service in a timely manner.

Clients that contract out a particular job or function to an outside labor supply firm also may be viewed as having created an employment opening within the meaning of the act. However, the opening arguably is not with the client but with the supplier (e.g., a staffing firm) that has contracted to provide the labor and that directly hires the worker.

g. Americans With Disabilities Act

Since the Americans With Disabilities Act became effective for most employers in 1992,[116] there has been little case law on how the law applies to staffing firms. But the EEOC has issued guidance. In December 2000, citing a study that suggests employment with staffing firms can provide a “critical means for people with disabilities to move from unemployment to competitive permanent employment,” the agency issued specific enforcement guidance on how the ADA applies to staffing firms and their clients (Appendix I). The guidance addresses ADA issues not covered in the EEOC’s 1997 general enforcement guidance (Appendix H) on contingent workers. It covers three main areas, including disability-related inquiries and medical examinations; reasonable accommodation and undue hardship; and qualification standards, employment tests, and other selection criteria.

When Medical Questions May Be Asked

An important compliance question for staffing firms is: when can they ask temporary job applicants disability-related questions or require them to submit to medical examinations? The ADA generally prohibits employers from making such inquiries before making an “offer of employment.” A key question is when is a staffing firm considered to have offered employment to a temporary job applicant?

Before the guidance was issued, the staffing industry operated on the assumption that, for ADA purposes, job offers were made when applicants completed the initial hiring process and were deemed qualified for assignments. This was based on the EEOC’s agreement with a large national staffing firm allowing the firm to request medical information before an assignment had been offered.

However, the EEOC subsequently reversed its position, stating that staffing firms cannot ask for medical information until an employee is offered an assignment. Citing Congress’s concern that individuals should know whether they have been denied employment because of a medical condition, the EEOC asserted that only after a job offer is made and medical information is disclosed can job applicants have a reasonable basis for attributing a subsequent withdrawal of the offer to the disclosure of that information.

Exceptions to the Rule

In discussions with EEOC officials prior to the issuance of guidance, ASA expressed concern that restricting medical questions until after an assignment is offered could make it difficult, if not impossible, for staffing firms to make ADA-required accommodations in a timely manner. To mitigate this concern, the EEOC provided certain exceptions to the rule.

The EEOC acknowledges that temporary jobs may become available on short notice and last for only brief periods of time. So the guidance expressly provides that if a reasonable accommodation cannot be provided quickly enough for an employee to begin or complete an assignment in a timely manner, the EEOC will consider that an “undue hardship” and relieve the staffing firm of its obligation to accommodate the employee.

The guidelines also provide that if an employee cannot provide required medical information before an assignment is scheduled to begin, the staffing firm may revoke the offer of employment and assign another employee.

Finally, the guidelines make clear that when job applicants have obvious disabilities or when they voluntarily disclose that they have disabilities or that they need accommodations, staffing firms may, during the initial interview, ask what reasonable accommodations they may need to perform the types of jobs they are seeking, even though no assignments have been offered.

Clients Are Co-Employers

The guidance confirmed a long-standing ASA position that staffing firm clients generally have a joint obligation with the staffing firm for ADA compliance.[117] This obligation includes sharing the cost of providing reasonable accommodations to workers with disabilities. Whether an accommodation is reasonable will depend on the circumstances, and the EEOC takes the position that staffing firms and their clients should engage in an informal, interactive process with the employee to determine the employee’s needs.

Undue Hardship

The ADA has always relieved employers from making accommodations if doing so would impose an “undue hardship.” One example cited in the EEOC’s guidance is an accommodation that would involve a “significant expense for both the staffing firm and the client,” even if their resources were combined. In such a case, both would incur an undue hardship. “Significant” is not defined and must be determined on the facts and circumstances of each case. Staffing firms and clients can also show undue hardship if the cost of the accommodation would be significant to one of them, and it has made a good-faith but unsuccessful effort to get the other to contribute.

2. Labor-Management Relations

In the area of labor relations and collective bargaining, the key to determining co-employment is whether the client is substantially involved in determining the terms and conditions of employment of the staffing firm’s employees. In such cases, clients may have joint employer obligations with respect to a staffing firm’s employees.

a. Joint Employment in Labor Relations

The law of joint employment under the National Labor Relations Act has changed significantly since the last edition of Co-Employment. For 30 years, the NLRB had applied a joint employer standard requiring a showing that the employers jointly exerted direct and immediate control over the essential terms and conditions of employment in matters such as hiring, firing, discipline, supervision, and direction of employees. [118]

In 2015, the Board abandoned this standard in favor of a new test that makes it easier to establish joint employment. In Browning-Ferris Industries of California Inc., the Board rejected the requirement of direct and immediate control in favor of a new, more expansive, economic realities test under which indirect control or even an unexercised potential right to control employment terms may be sufficient to establish joint employer status.[119]

Browning-Ferris Industries (BFI) appealed to the U.S. Court of Appeals for the District of Columbia Circuit,[120] but before the court could rule the administration changed hands and, in December 2017, a new Board majority, in Hy-Brand Industrial Contractors Ltd., overturned Browning-Ferris and restored the traditional joint employer standard.[121] Three months later, however, the Board vacated Hy-Brand based on an NLRB inspector general determination that Board member William Emanuel should not have participated in the case because of his former law firm’s (though not Emanuel’s) involvement in Browning-Ferris.

On April 6, 2018, the D.C. Circuit stayed BFI’s appeal pending the Board’s reconsideration of Hy-Brand. Two months later, the Board denied reconsideration[122] and on September 28, 2018, the Court issued its ruling. In a 2-1 decision, a three-judge panel of the court ruled that a company’s unexercised right to control and indirect control of a contractor’s employees are factors that can be considered in determining whether the company is a joint employer under the National Labor Relations Act. The majority said that long-standing U.S. Supreme Court precedent and the Restatement of Agency show that both factors are relevant to joint employer analysis under common law principles.

But the court said the Board failed to adequately differentiate between the elements of indirect control that bear on the essential terms and conditions of employment (which are relevant to employer status) and those elements that merely spell out the ordinary obligations of a third-party contractor. The court remanded the case to the Board with instructions to “confine its consideration of indirect control consistently with common-law limitations”—suggesting it was possible that BFI might not be a joint employer “under a properly articulated and cabined test of indirect control.”

Prior to the court’s ruling, the Board issued proposed regulations that signaled a return to the pre-Browning-Ferris standard control. BFI had asked the court to delay its ruling pending the issuance of a final rule. The court rejected the request saying there was no need to wait for Board regulations since the issue of the proper joint employer standard is a question of law solely within the court’s purview, and that the court would owe no deference to the Board’s view on such a question. It would owe deference, it said, only to the Board’s application of the law to the facts of a case.

Significantly, however, the majority said they were not deciding whether the right to control in the absence of any exercise of the right could, alone, establish joint employment. Nor did they decide whether indirect control without evidence of direct control in any area could be dispositive. This leaves open the possibility that the final Board regulations could require some degree of actual and direct control that would pass muster under the court’s decision. The question is, how much? In that regard, ASA and other employer groups urged that the final rules provide that an employer must exercise actual, direct control over more than one essential term or condition of employment to be considered a joint employer.

As we went to press, resolution of the joint employer standard remains uncertain. The parties could request review by the full D.C. Circuit, and the Supreme Court potentially could have the last word. Any Board decision, on remand or in rulemaking, reinstating the pre-Browning-Ferris standard would, moreover, be subject to challenge depending on the status of the court case and whether the Board’s actions are viewed as compliant. The circuit court panel suggested it might uphold a Board decision reinstating the old standard in Browning-Ferris if retroactive application of the new standard would depart too far from employers’ “reasonable, settled expectations.” No such constraint would apply to a Board regulation dealing with the issue, however, because the Board has said that any such rule will only apply prospectively.

While the NLRB’s ruling in Browning-Ferris has caused some confusion and uncertainty in the business community, the fact remains that joint employment has been an inherent aspect of staffing firm/client relationships for decades and the ruling thus did not represent a fundamental change for the industry; nor has the more relaxed definition of joint employment resulted in any discernible increase in unionization of temporary workers or unfair labor practice claims against staffing firm clients. Moreover, to the extent that the courts ultimately limit reliance on a mere right to control, or indirect control, to establish joint employment, the long-term effect of Browning-Ferris on staffing services is likely to be negligible.

Legislation to reinstate the historical joint employer standard passed the House in 2017, but the Senate did not act on the measure and the effort died. A more recent bill, the Trademark Licensing Protection Act of 2018 (HR 6695) addresses the issue more narrowly by providing that licensing a trademark (as in a franchisor/franchisee arrangement) would not create a joint employment relationship. The bill has bipartisan support, but passage was uncertain at the time we went to press.

b. Inclusion of Staffing Firm Employees in Client Bargaining Units

Since 1970, the National Labor Relations Board and at least one federal court have held that temporary employees employed by staffing firms may be included in client bargaining units where there is a sufficient “community of interest” between a staffing firm’s employees and the client.[123] A key issue, however, is whether the staffing firm’s employees can be forced into the client’s bargaining unit without the consent of both employers.

The issue has had an unsettled history. Beginning with the Greenhoot case in 1973, the NLRB long held that both joint employers must consent.[124] The Board upheld Greenhoot, in 1990, in the Lee Hospital case.[125] But 10 years later, in the M.B. Sturgis and Jeffboat cases, the NLRB overturned Lee Hospital, saying it had misapplied Greenhoot.[126]

In Sturgis, the NLRB held that as long as all of the workers in a bargaining unit are employed, solely or jointly, by a single client, it is not a multiemployer unit and the consent requirement does not apply, even if the unit includes employees of multiple suppliers. In dissent, Board member J. Robert Brame III argued that staffing firms and their clients, even if joint employers, still retain their separate employer status, and, therefore, any bargaining unit composed of the employees of both employers is still a multiemployer bargaining unit that legally requires the consent of both employers.

Brame predicted that the decision would lead to controversy and confusion as the employers strove to protect their differing interests. Subsequent NLRB cases construing Sturgis—involving complex and contentious questions regarding application of the “community of interest” standard and the allocation of bargaining responsibilities among multiple employers—showed that Brame’s concerns were well-founded.[127]

In 2004, the Board changed course again, overruling Sturgis in H.S. Care L.L.C. dba Oakwood Care Center.[128] Citing the decades of precedent beginning with Greenhoot, the NLRB in a 3–2 decision said that allowing such units to be formed without consent results in a “bifurcation of bargaining… [that] hampers the give-and-take process of negotiation between a union and an employer, and places the employers in the position of negotiating with one another as well as with the union.”[129]

Twelve years later, however, the Board changed course yet again. In Miller & Anderson Inc. [130] the Board effectively reinstated Sturgis, holding that staffing firm temporary employees can be included in a client’s existing bargaining unit without staffing firm and client consent, provided the temporary workers are jointly employed by the client (using the more liberal Browning-Ferris standard) and share a community of interest with the client’s employees regarding the terms and conditions of employment.

Although history suggests that the Board may change its mind again on this issue, it also is true, as was the case following Sturgis, that Miller & Anderson is unlikely to significantly affect staffing firm–client relationships.

Like Sturgis, the decision potentially could raise complex issues over which party, the staffing firm or the client, controls which terms and conditions of temporary workers’ employment for purposes of bargaining. And equally thorny issues could arise as to whether the staffing firm’s employees have enough common interest with the client’s employees to warrant certifying a bargaining unit consisting of both.[131] But the post-Sturgis cases in which such issues arose were few and did not significantly affect the staffing industry during the ruling’s four-year lifespan.

Like Sturgis, Miller & Anderson is unlikely to have much impact because few temporary workers are assigned to work sites with existing collective bargaining arrangements—and because unions have shown little interest in separately organizing temporary workers, bargaining over the terms and conditions of temporary workers’ employment, or using temporary workers to organize nonunion work sites. Temporary workers have shown little interest in joining unions and paying union dues. Thus, few staffing clients are likely to face the prospect of unionized temporary workers.

c. Crediting Prior Service When Temporary Workers Are Hired by Clients

Even if a temporary worker is not included in a joint bargaining unit, he or she may be entitled to benefits under a collective bargaining agreement covering the client’s employees if the client directly hires the temporary employee following completion of a temporary assignment. At least one labor arbitrator has held that the temporary employee may be entitled to back pay to make up any difference between what he or she was earning as a temporary employee and the wage rate specified for that work classification in the client’s collective bargaining agreement.[132]

d. Liability for Unfair Labor Practices

‘Salts’

A unique twist on the theme of co-employment involves the use by unions of “salts,” individuals employed and paid by unions to apply for work with a nonunion employer for the express purpose of organizing the employer’s workforce. The U.S. Supreme Court held in NLRB v. Town & Country Electric Inc. that salts are “employees” within the meaning of the National Labor Relations Act and therefore cannot be rejected or dismissed from employment based solely on their union activities.[133]

The case involved a nonunion electrical contractor in Minnesota. The contractor retained the services of an employment agency to recruit electricians. The agency rejected 10 of 11 union applicants, and the contractor fired the one union employee it had hired. The NLRB held that the contractor and its employment agency committed an unfair labor practice by discriminating against the workers based on their union membership.

The narrow issue decided by the Supreme Court was whether the workers were employees of the electrical contractor within the meaning of the NLRA, which protects employees from unfair labor practices. The contractor argued that as employees of the union, the workers could not also be its employees and therefore were not protected. However, the Supreme Court held that the workers were employees of both the union and the contractor (i.e., the union and the contractor were co-employers) and therefore were protected against discrimination by the contractor.

Although nothing in the Supreme Court’s ruling prohibits an employer from rejecting unqualified applicants or from disciplining or dismissing workers who perform poorly or who engage in unlawful conduct, staffing firms and their clients should not discriminate against applicants or employees on the basis of union membership. However, the NLRB has upheld an employer’s refusal to hire applicants who were also full-time employees of a union on the basis of the employer’s policy against moonlighting.[134]

In another case involving salts, a federal court of appeals ruled that votes cast by union salts hired by a construction staffing firm should be counted in a representation election involving all the firm’s plumbers in the Boston area.[135] The salts gave the union the edge in the election. The court ruled that the salts shared a sufficient community of interest with the firm’s other assigned workers to be included in the same bargaining unit.

The staffing firm argued that the salts did not have the same interests as the firm’s other employees because they accepted employment solely to organize the workforce and would likely leave employment once this task was accomplished. The court, however, found no evidence that the workers lacked the same interest in employment as the other workers. The union organizers did not receive compensation from the union for their activities and did not, in the court’s opinion, appear solely motivated by their desire to organize the workforce. The court noted that the salts did not resign after the election but instead were laid off by the staffing firm. It also found no evidence that they would have refused subsequent employment with the staffing firm if they had not found other jobs before the staffing firm had a chance to recall them.

e. Staffing Firm Liability for Unfair Labor Practices of a Client

The NLRB established in the 1993 case of Capital EMI Music that a staffing firm will not be held liable for a client’s unfair labor practice unless it knows or should have known that the client acted against the employee for unlawful reasons and acquiesced in the unlawful action by failing to protest it or exercise any contractual right it might have had to resist it.[136] In that case, the client terminated an assigned worker because of his union activities, and the staffing firm removed the worker without knowledge of those activities. The NLRB rejected an administrative law judge’s ruling that the staffing firm was vicariously liable for the unlawful acts of its client solely because of their co-employer relationship. The NLRB subsequently applied the principle established in Capital EMI Music in a 2000 case, SOS Staffing Services.[137] The NLRB found the staffing firm guilty of an unfair labor practice for failing to protest its client’s actions. The client unlawfully terminated a temporary worker’s assignment because the worker engaged in protected union activity. The NLRB determined that the staffing firm was obligated to register its protest with the client, even though the staffing firm did not learn of the client’s action until three weeks after the employee had been terminated.

Similarly, in Action Temporary Employment in 2001, temporary employees struck to protest their staffing firm’s practice of asking applicants about their union membership. The NLRB found that the employees had unconditionally offered to return to work and that the client had committed an unfair labor practice for refusing to reinstate them. The NLRB also held that the staffing firm had not only committed an unfair labor practice in its own right by asking job applicants about their union membership but was jointly liable for the client’s unfair labor practice because it took no action to determine why the client refused to reinstate two employees.[138]

3. Work Site Safety

The federal Occupational Safety and Health Act and state workplace safety laws require employers to maintain safe and healthy workplaces. The issue of who is primarily responsible for ensuring the safety of staffing firm employees at the work site—the staffing firm or the client—was unclear during the early 1970s, and staffing companies were sometimes cited for safety violations.

A clear policy began to emerge in 1977 in an administrative agency decision involving Manpower Temporary Services. The company was cited as solely responsible for the safety violations that led to the death of one of its temporary employees; its client was not cited. After reviewing the facts, an administrative law judge with the Occupational Safety and Health Review Commission ruled that although Manpower was an employer under common law because it had the right to hire and fire the employees, it was not the responsible employer. Because the focus of the act is prevention, the judge held that the government must first look to the employer that created the hazard and supervised the workers. It would be “unconscionable,” he said, to require temporary staffing firms to satisfy the safety requirements of each and every work situation.[139]

Since this decision, OSHA offices have been advised that when temporary or other leased employees are used, the party in direct control of the workplace and the actions of the employees should be cited (usually, the work site, or utilizing employer).[140] Under these determinations, a temporary staffing company generally will be cited only if necessary to correct the violation or if it knew or should have known of an unsafe condition. The OSHA Field Operations Manual states in its definition of an employee:

Whether or not workers are employees of a particular employer depends on several factors, the most important of which is who controls the manner in which the employees perform their assigned work. The question of who pays these employees may not be the key factor to establish a relationship.[141]

Under OSHA’s rules for recording and reporting occupational injuries and illnesses, clients are also required to maintain records of illnesses and injuries of temporary employees if the temporary employees are subject to the client’s supervision, which generally will be the case.[142] This long-standing OSHA policy was formally adopted in regulations in 2001.[143] The purpose is to ensure timely and accurate record-keeping by the employer in the best position to obtain the information and to assist OSHA in identifying high-hazard employers. Clients also are required to cover temporary employees under OSHA’s 1986 Hazard Communication Standard, which requires employers to notify employees of hazardous substances in the workplace.[144]

Some staffing firms reportedly have told clients that they can relieve the clients of the obligation to maintain records of illnesses and injuries of temporary employees by providing “supervisory” staffing firm employees at the client’s work site. Such arrangements should be carefully scrutinized. According to OSHA, day-to-day supervision means supervision of the “details, means, methods, and processes by which the work is to be accomplished” (see Appendix J). Staffing firms typically do not provide such detailed supervision, and providing a few supervisory employees is unlikely to meet that test.

In 2008, OSHA issued final regulations requiring employers to provide and pay for employee personal protective equipment (PPE). The regulations address when a staffing firm is responsible for complying with this requirement and when a staffing firm’s client is responsible.

When the regulations were first proposed, ASA filed comments urging OSHA to follow its long-standing policy of imposing the primary responsibility for complying with work site safety requirements on the entity that directs and controls the employees at the work site on a daily basis. Because clients generally direct and supervise workers on a day-to-day basis, ASA asserted that clients should be primarily responsible for providing and paying for PPE.

In its final regulations, OSHA agreed that the obligation to provide and pay for PPE depends on which entity controls the employees at the work site. If the client controls how employees perform their assigned work, it will usually be responsible. But if the staffing firm controls the work, it will have the obligation. In some cases, a staffing firm and its client might share the responsibility. OSHA says that staffing firms and clients are free to agree on how to coordinate the provision of PPE at no cost to the employee.[145]

The utilizing employer principle also is generally recognized under state law. North Carolina, for example, has codified the principle in amendments to its occupational safety statutes,[146] and New Mexico has incorporated a similar provision into its workers’ compensation regulations.[147] These provisions require clients to include in their work site safety programs staffing firm employees whose work they supervise and control.

Although clients have primary responsibility for maintaining safe work sites, staffing firms have a responsibility to take reasonable steps to determine conditions at the work site, provide generic safety information, and advise employees as to how they can obtain more specific information at the work site to protect themselves from hazards they are likely to face on the job. Staffing firms can be penalized for failing to inquire about the conditions at the work site and to take adequate steps to ensure that their employees are properly informed of any hazards and how to protect themselves.[148]

In 2013, OSHA launched a Temporary Worker Initiative (TWI), an education and enforcement campaign pursuant to which the agency published, among other documents, a record-keeping bulletin, and recommended practices for temporary worker safety. In the recommendations, OSHA highlighted staffing firms’ and clients’ joint responsibility for providing and maintaining safe working conditions. In May 2014, ASA and OSHA entered into a formal alliance aimed at further educating staffing companies, their clients, and temporary workers about temporary worker rights and employer responsibilities under the Occupational Safety and Health Act. Through the alliance, and with ASA member input, OSHA published additional TWI Bulletins, including those covering personal protection equipment, bloodborne pathogens, noise and hearing conservation, and whistleblower protection rights. See OSHA’s website for a full list of TWI Bulletins.

California is a notable departure from the general view that the client is the primary employer for work site safety. The state occupational safety and health board has held that staffing firms are the primary employer and must not only inspect the work site but also provide adequate safety training[149] and furnish a safe workplace.[150] In addition, California provides that every employer in a staffing arrangement is required to report injuries to the California OSHA and that staffing firms may not delegate this duty to clients.[151]

4. Wrongful Discharge

The common-law principle of “employment at will” gives employers a broad right to terminate employment relationships for any lawful reason. Over time, courts and legislatures have significantly eroded that right, especially in states, like California, that have widely expanded their worker protection laws. In some cases, the right may be limited by specific agreement, for example a promise by the employer not to terminate the employee except for cause—or because of a public policy exception (e.g., termination for refusal to engage in illegal activity). Where the right to terminate employment at will is limited, employers may be subject to civil lawsuits for “wrongful discharge.”

While clients can ask the staffing firm to remove a temporary employee from the assignment, only the staffing firm has the right to hire and fire, and employees removed from an assignment at the client’s request may be reassigned to another client. Temporary employees generally understand (and should be made to understand) that even if the assignment purports to be for a specified period, the client always has a right to terminate the assignment for any lawful reason. Special problems may exist in PEO arrangements where the leased employees generally make up most or all of the client’s workforce and work on a long-term, indefinite basis. In such cases, it is especially important to make sure that the right to hire, fire, and reassign is carefully spelled out in the client agreement and that the employees are clearly informed.

Even if a client were held to be an employer for purposes of a wrongful discharge claim based on the removal of the employee from a staffing assignment, the client could protect itself from claims that the employees could be removed only for cause by ensuring that it does not make representations to such employees (e.g., in employee handbooks or orientations) that could be construed as limiting its common-law right to terminate an employee at will.

For example, a California appeals court ruled in an unpublished opinion that a temporary employee was not unlawfully discharged by the client.[152] The employee had been on assignment with the client for two-and-one-half years under a series of contracts with the staffing firm. He claimed that he had an implied-in-fact contract of employment with the client that entitled him to be discharged only for good cause, in accordance with the client’s employee policy manual. The court rejected his claim, finding that no contract existed. It noted that even if the worker were an employee of the client, he did not have a contract and thus would be an at-will employee whose employment was terminable for any legal reason at any time.

5. Plant and Facility Closings (WARN Act)

The federal Worker Adjustment and Retraining Notification Act requires employers of 100 or more employees that plan to terminate or lay off 50 or more employees at a single location for six months or more to notify those workers 60 days in advance (29 U.S.C. §§ 2101 et seq.). Part-time workers who work an average of 20 hours or less per week or who have worked less than six months are not counted in the 50-employee layoff threshold, but they are entitled to notice if the threshold is met.

A covered employer also must give notice of a mass lay-off that does not result from a plant closing but will result in an employment loss at the work site during any 30-day period for 500 or more employees, or for 50 to 499 employees if they make up at least 33% of the employer’s active workforce. Again, this does not count employees who have worked less than six months in the last 12 months or employees who work an average of less than 20 hours a week for that employer. These employees, however, are entitled to notice if the applicable threshold is met.

Staffing firms should be aware of two important exceptions to the notice requirements under the WARN Act.

a. Clients Exempt From Notice Requirement

Consultants or contract employees who have a separate employment relationship with another employer and who are paid by that employer or are self-employed are not entitled to WARN notice from the business to which they are assigned (see 20 C.F.R. § 639.3(e)). This means that a staffing firm client is not required to give notice to employees assigned by a staffing firm.

b. Temporary Projects

Notice need not be given when temporary facilities are closed or employees are laid off because a particular project has been completed. This exemption applies, however, only when the employees were hired with the understanding that their employment was limited to the duration of the project.

Therefore, if a staffing firm has more than 50 employees working on assignments at a single location and the work is performed as part of a special project, the staffing firm will not be required to give notice if the employees were informed when they started work that their assignments would end when the project was completed (see 20 C.F.R. § 639.5(c)). The temporary project exemption will relieve the staffing firm from having to provide notice if the workers understood that their assignments would end when the project was completed or the temporary facility closed. However, if the assignments were indefinite, or if the lay-off occurs before the expected completion of the project, the staffing firm must provide the required notice.

Even though temporary project employees are not entitled to notice, they are counted in determining whether the act applies and whether the 50-employee threshold for plant or facility closings has been met. For example, a staffing firm client that employs 90 regular full-time employees and 10 temporary project employees is covered by the act. If the employer closes the temporary project as planned and terminates the employment of the 10 temporary workers and 40 permanent employees, the 50-employee threshold will be met, but only the 40 permanent employees are entitled to notice (see 20 C.F.R. § 639.3(a)(3) and (c)(2)).

c. Special Circumstances

If no exemption applies and a staffing firm is required to gives its temporary employees notice, then less than 60 days’ notice may be given in special circumstances that were not foreseeable at the time the notice would have been required. For example, if a client does not give a staffing firm adequate notice of its intent to terminate the employment of 50 or more of the staffing firm’s employees, and the termination was not reasonably foreseeable by the staffing firm, then the staffing firm must give as much notice as possible. In some circumstances, this may be notice after the fact.

No notice is required, however, if at the time of lay-off or termination the staffing firm offers to transfer the employee to a different site of employment within a reasonable commuting distance and with no more than a six-month break in employment. Notice is also not required if the firm offers to transfer the employee to another site regardless of distance and with no more than a six-month break in employment if the employee accepts the offer within 30 days of the offer or of the lay-off, whichever is later.

6. Immigration and I-9 Verification

In 1986 Congress passed the Immigration Reform and Control Act (IRCA), making it unlawful for an employer to hire any person not authorized to work in the U.S. To prove that only authorized persons have been hired, all employers must complete a Form I-9, attesting that they have verified each individual’s right to work. Employees must establish their identity and work authorization by showing certain documents described in regulations.

Section 1 of Form I-9 must be completed by the employee no later than the date of hire. Section 2 must be completed by the employer no later than three days from the date of hire. Generally, date of hire is no later than the first day of work for pay. But the U.S. Department of Homeland Security has adopted a special rule for staffing firms. Staffing firms can choose, as the date of hire, when it makes a conditional offer of employment (i.e., after it determines the employee is eligible for, and the employee has consented to, placement in the firm’s roster of candidates, even if an actual assignment does not occur until later). Or the firm can choose the first day the employee works on assignment. Once a choice is made, the firm must use the same approach for all its temporary employees. The special rule for staffing firms was confirmed in 2016 by the U.S. Customs and Immigration Service which issued a statement confirming that staffing firms can choose as the first day of employment “either the date an employee is assigned to his or her first job or the date the new employee is entered into the assignment pool…”

Regulations issued under the IRCA make clear that clients using contract services do not have any obligation to verify the employment status of the contractor’s employees. The regulations provide that “in the case of an independent contractor or contract labor or services, the term ‘employer’ shall mean the independent contractor or contractor and not the person or entity using the contract labor…”[153] Accordingly, clients have no obligation to verify the employment status of a staffing firm’s employees.[154]

Because the staffing firm is responsible for performing the I-9 verification and for maintaining the records relating to this requirement, it is also the staffing firm’s responsibility to ensure that the information obtained from a job applicant is not used in a discriminatory manner.

Detailed FAQs relating to the how the I-9 and E-Verify rules apply to staffing firms and clients are available on the ASA website.

7. Privacy Protection

a. Health Information Privacy Rules Under HIPAA

The Health Insurance Portability and Accountability Act of 1996 required the establishment of privacy rules that apply to organizations in the health care industry and that set a compliance date of April 14, 2003, for most covered entities.[155] On May 21, 2008, President Bush signed the Genetic Information Nondiscrimination Act of 2008 which, among other things, expanded HIPAA specifically to state that genetic information should be considered medical information and receive the same privacy protections.[156] The EEOC is charged with authority to enforce GINA.

The American Recovery and Reinvestment Act of 2009 included amendments to HIPAA, known as the Health Information Technology for Economic and Clinical Health Act of 2009 (HITECH), that impose significant new obligations on “covered entities” and “business associates” that generally became effective February 17, 2010.[157] In January 2013, the U.S. Department of Health and Human Services (HHS) issued a comprehensive omnibus rule (the “omnibus rule”) implementing HITECH. The general effective date of the omnibus rule was September 23, 2013.[158]

In general, the privacy rules govern the use and disclosure of “protected health information” in the hands of health care organizations. When health care organizations contract with service providers and the services involve the use or disclosure of protected health information, the service providers are considered “business associates” under the rules and must contractually agree to protect the information in the same ways as the health care organization. Such “business associate contracts” must be in writing and must contain certain privacy provisions as specified in the rules. Members of the health care organization’s workforce are not considered business associates.

In a typical relationship between a staffing firm and a client—in which the staffing firm assigns its temporary employees to provide services at the client’s premises under the client’s supervision—neither the staffing firm nor its employees should be treated as business associates because in such circumstances, the temporary employees should be treated as members of the client’s workforce. Other arrangements—for example, where services are to be performed off-site or under the staffing firm’s direct control—might result in a different outcome.

If the staffing firm and its employees are not treated as business associates, neither the staffing firm nor the client will have an obligation to comply with the HIPAA privacy requirements or to include HIPAA privacy provisions in its contracts.

Definition of ‘Business Associate’

The HIPAA privacy rules define a business associate as any person who performs or assists in performing a function or activity involving the use or disclosure of individually identifiable health information on behalf of the covered entity.[159] Under this broad definition, a staffing firm could be a business associate of a client health care organization if the assigned employees use or disclose protected health information. In such cases, the staffing firm would have to enter into a business associate contract with the client containing the required privacy provisions.

b. Argument for Not Treating Staffing Firms or Their Temporary Employees as Business Associates

The HIPAA privacy rules appear to provide two bases for arguing that staffing firms and their temporary employees are not business associates of their clients, at least in the typical case where the temporary employees provide services on the client’s premises under the client’s supervision.

First, because the definition of business associate excludes individuals who act “in the capacity of a member of the workforce” of a covered entity, temporary employees will not be treated as business associates if they can be characterized as members of the client’s workforce. “Workforce” is defined as employees, volunteers, trainees, and other persons who perform work under the direct control of a covered entity, whether or not they are paid by that entity.[160] While the rules do not define “direct control,” where the individual works might be a significant factor.[161]

The focus on location makes practical sense, given that the purpose of the business associate contract is to protect protected health information when it leaves the control of the covered entity. If an individual works with such information on the premises of the covered entity, the information arguably has not left the covered entity’s control in a way that requires the protection of a business associate contract. By contrast, if the service provider is using protected health information off-site, there is arguably a greater need for such protection.

Because a staffing firm’s temporary employees typically work at the client’s premises and the parties would not contemplate protected health information leaving the client’s premises and control of the covered customer, temporary employees generally should be treated as under the client’s direct control and, therefore, as members of the client’s workforce rather than its business associates. The preamble to the omnibus rule recognizes this to be the case, stating:

[A] covered entity may treat a contractor who has his or her duty station onsite at a covered entity and who has more than incidental access to protected health information as either a member of the covered entity’s workforce or as a business associate for purposes of the HIPAA Rules.[162]

Second, even if temporary employees, for some reason, are not treated as actual members of the client’s workforce, they still should not be treated as the client’s business associates because they are acting in the capacity of workforce members. Staffing firms typically assign their employees to perform, on a temporary basis, functions similar to those performed by the client’s regular employees and, in that sense, they act in the capacity of the client’s workforce.

Under either of the above arguments, staffing firms generally should not be required to enter into business associate contracts with the covered clients to which they send temporary employees.

Who Decides Whether a Staffing Firm Is a Business Associate?

The pre-HITECH HIPAA privacy rules appear to indicate that the covered entity, not the potential business associate, would decide how individuals are to be treated, and that the decision would be more of a choice than a mandate.[163] Therefore, covered entities were likely to view it as their decision to make. This position was bolstered somewhat by pre-HITECH regulatory guidance, which narrowly indicated that, in certain scenarios, covered entities could essentially choose to treat certain vendors’ employees as their own workforce members rather than as business associates.[164]

Under the new HITECH rules, however, potential business associates are also obligated to identify situations in which they are in fact business associates, thus warranting the implementation of business associate agreements. Therefore, potential business associates may now be subject to direct regulation under HIPAA and therefore must comply with their own obligations to determine whether they are actually business associates. Accordingly, the decision whether to classify itself as a business associate is one that the staffing firm must itself confront, but it will undoubtedly want to do so in cooperation with its clients. Covered staffing firm clients—because of “co-employment” or other concerns—might be motivated to treat temporary employees as business associates rather than as members of their workforce. The following arguments might be helpful in persuading clients that it is not only appropriate but advantageous to treat the employees as members of the client’s workforce.

■     The definition of “workforce” clearly includes individuals (e.g., volunteers, others) who are not common-law employees, and that characterizing temporary employees as workforce members for HIPAA purposes would not create “co-employment” issues under other laws.

■     By treating temporary employees as workforce members and providing them the proper training, the client would be better able protect its protected health information than would the staffing firm.

■     Although the preamble to the pre-HITECH regulations and other informal regulatory guidance indicate that covered entities can elect how to treat certain service providers, that choice is not reflected in the actual regulatory language. In addition, because HITECH imposes obligations directly upon business associates, the classification of a business associate is not simply a unilateral decision within the covered entity’s sole discretion. Because any reasonable reading of the actual regulatory language is likely to result in on-site temporary employees being categorized as workforce members, a covered client might want to treat them as such from the beginning to protect itself.[165]

■     Treating temporary employees as members of the client’s workforce avoids having to include irrelevant and potentially burdensome privacy provisions in its contract with the staffing firm. Many of HIPAA’s privacy provisions contemplate that protected health information is held in the possession of the business associate, that is, the staffing firm. For example, one provision requires a business associate to agree that it will provide access rights to protected health information in its possession.[166] Other provisions require the business associate to agree to permit amendment and accounting rights, make its books and records available to the Secretary of Health and Human Services for audit purposes, and destroy or return all information in its possession at the end of the contract.[167] Where the staffing firm itself holds no protected health information, it does not seem reasonable to include such provisions in its contract.

c. Financial Information Privacy Rules (Gramm-Leach-Bliley)

The Financial Services Modernization Act of 1999, also known as the Gramm-Leach-Bliley Act (GLB), established rules for financial services institutions that took effect in November 2000, with full compliance required by July 1, 2001. New regulations issued May 23, 2002, impose additional requirements that were phased in over the following two years.

Under GLB, financial services institutions are required to take certain steps to protect the privacy of nonpublic consumer financial information. The question is whether when a staffing firm provides temporary employees to a client covered by GLB the client must include special GLB privacy provisions in its contracts with staffing firms. ASA believes that regulations issued by the Federal Trade Commission require financial institutions to include special GLB provisions in their contracts with staffing firms to safeguard consumer information. Prior to the issuance of the most recent regulations, the association believed that special contract language was required only in limited circumstances.

Several other federal agencies have issued implementing privacy regulations for the industries they regulate.[168] In addition, the GLB left it to the states to issue GLB-related privacy and safeguard regulations for insurance companies.[169] The scope of this book deals only with the FTC rules.

There are two commission regulations that potentially impose obligations on financial institutions to include special language in their contracts with third-party service providers. Both rules are discussed below.

Federal Trade Commission Privacy Rules

The FTC issued regulations May 24, 2000, which are generally referred to as the “privacy rules.” The privacy rules regulate financial institutions and their disclosure of “nonpublic personal information” to “nonaffiliated third parties.”[170] In general, the rules permit disclosures to be made to temporary employees in the following circumstances:

■     The temporary employee is treated as a joint employee of the client. The privacy rules exclude from the definition of “nonaffiliated third party” persons who are “employed jointly” by the financial services institution and another company. Hence, if a temporary employee assigned by a staffing firm is treated as jointly employed by the client, the privacy rules would not apply. In such cases, even though the staffing firm would remain a nonaffiliated third party, a confidentiality agreement would appear not to be necessary if the financial services institution discloses information only to the temporary employees and not to the staffing firm.[171]

■     The financial institution gives notice of the disclosures to its consumers/ clients and provides them with the opportunity to “opt out”—and they do in fact opt out.[172]

■     If the financial institution has a confidentiality agreement with the service provider limiting the use and reuse of protected information, this obviates any opt-out requirement.[173] If the service provider refuses to enter into a confidentiality agreement, the financial institution must provide its consumers/ clients with the opportunity to opt out.

■     The disclosures are made to “effect, administer, or enforce a transaction that a consumer requests or authorizes.”[174] Such disclosures are excluded from the privacy rules, eliminating the need for a confidentiality agreement or opt out. It seems likely that this exception applies to the types of activities that financial institutions assign to temporary staff, but staffing firms should review the circumstances on a case-by-case basis.

Federal Trade Commission Safeguard Rules

The most recent regulations under GLB, issued in May 2002, create a new set of “Standards for Safeguarding Customer Information.”[175] These “safeguard rules” apply in addition to the “privacy rules.” They establish standards for financial institutions for protecting client information and also require them to ensure by contract that all service providers undertake appropriate safeguards to protect client information. Whereas the privacy rules focus on prohibiting the disclosure and reuse of private information, the safeguard rules establish the administrative, technical, and physical safeguards that financial institutions must take to ensure the security of records and to protect them from unauthorized access.

The safeguard rules require financial institutions to “[r]equire [their] service providers by contract to implement and maintain” safeguards for client information. The preamble to the rules makes clear that such a contract is required even if a contract is not required under the privacy rules:

[T]he Commission has determined that the Rule should apply to all service providers, even those that the Privacy Rule does not require to enter into agreements concerning reuse and redisclosure of the relevant information. Although the Privacy Rule allows certain service providers to receive information without entering into confidentiality agreements, these confidentiality provisions do not address the range of security issues that are contemplated by the Safeguards Rule.[176]

Who Is the Service Provider Under the Safeguard Rules—the Staffing Firm, the Temporary Employee, or Both?

The safeguard rules broadly define “service provider” as “any person or entity that receives, maintains, processes, or otherwise is permitted access to customer information through its provision of services directly to a financial institution…”[177] Staffing firms might argue that the temporary employee is the service provider because the staffing firms never directly receive, maintain, process, or otherwise are permitted access to the private information.[178] The counterargument is that the staffing firm, as the entity directly paid by the financial institution for services rendered, is deemed to be in receipt of the information. Given that the safeguard rules do not contain any of the exceptions that are recognized in the privacy rules and are intended to broadly apply to “all” service providers that receive protected client information, it seems likely that they would apply to both staffing firms and their temporary employees.

Even assuming that they, not their employees, are the service providers, staffing firms may be able to minimize their exposure by limiting the GLB language in their contracts. That language need not be onerous. The preamble to the final safeguard rules states that “financial institutions are well positioned to develop and implement appropriate contracts with their service providers…that do not impose undue or conflicting burdens…”[179] Staffing firms should accept language that is appropriately tailored to their business (i.e., providing temporary staff) and to minimize the risk of inappropriate disclosure of information protected by the GLB rules.

d. Background and Reference Checks Under the Fair Credit Reporting Act

Employers, including staffing firms, that use credit bureaus or other firms that specialize in employee background checks are subject to notice and disclosure requirements under the federal Fair Credit Reporting Act.[180] The FCRA also imposes requirements on staffing firms that provide clients with information obtained from a job applicant’s former employer as part of a routine reference check.

Consumer Reports Obtained From Third Parties

The FCRA governs an employer’s use of two types of reports, “consumer reports” and “investigative consumer reports,” for making employment-related decisions. A consumer report is any communication received from a “consumer reporting agency” bearing on a person’s credit worthiness, credit standing, character, general reputation, personal characteristics, or mode of living.[181] An “investigative consumer report” is a consumer report that contains similar information obtained through personal interviews as well as written records.[182] A consumer reporting agency is a person or entity that regularly engages in the practice of collecting such information and providing it to third parties for a fee.[183] When a staffing firm obtains a consumer report from a consumer reporting agency, it must

■     Before obtaining the report, clearly advise the job applicant in a stand-alone written statement that such a report might be obtained. Such statement should consist solely of the disclosure required by FCRA.

■     Receive written authorization from the job applicant to obtain the report

■     Certify to the consumer reporting agency that it has followed the above steps and will not use the information unlawfully

■     Before taking any adverse action based on the report, give a copy of the report to the job applicant along with a summary of the consumer’s rights (summary available from the consumer reporting agency) and wait a reasonable period after furnishing this information to take any action

■     After taking adverse action, notify the job applicant of the action taken; provide the name, address, and telephone number of the consumer reporting agency that furnished the report; advise the individual of his or her right to dispute the accuracy of the report with the agency; inform the individual that the agency did not make the adverse decision and cannot explain it; and inform the individual that he or she has the right to obtain a free copy of the report from the consumer reporting agency within 60 days.[184] If a staffing firm obtains an “investigative consumer report,” it must comply with additional disclosure requirements provided in the FCRA.[185]

Routine Reference Checking—Communications of Information to Clients

The FCRA rules on consumer reports do not apply to information obtained by staffing firms from a job applicant’s former employers as part of a routine reference check. This is because former employers generally do not regularly collect and furnish such information for a fee and therefore are not considered to be “consumer reporting agencies.”[186] Staffing firms that wish to communicate the results of a reference check to clients may take advantage of simplified disclosure rules that apply to firms that regularly procure employees for employers or procure job opportunities for people.[187] Those rules require the following:

■     Prior consent (oral or written) from the candidate to make the reference check

■     Prior consent from the candidate to communicate that information to the prospective employer

■     Written confirmation by the candidate of any oral consent within three business days

■     Written notification to the candidate of the candidate’s right to request the “nature and substance” of any information in the candidate’s file at the time the information is requested

■     Written disclosure to the candidate of the nature and substance of all information in the file (sources need not be disclosed) within five days of a request[188]

Many states also have enacted laws regarding background reports that limit an employer’s right to make employment decisions based on a consumer report. Those laws must also be observed, provided they do not conflict with the FCRA.

8. Draper v. American Rice Inc., No. 01-09-00239-CV, 2010 WL 2991094, at *7 (Tex. App. July 29, 2010); Cyronis v. Mart Mgmt. Inc., No. 3:09-cv-38(CDL), 2010 WL 339798, at *4 (M.D.Ga. Jan. 21, 2010); Kenwal Steel Corp. v. Seyring, 903 N.E. 2d 510, 515 (Ind. Ct. App. 2009); Chavez v. Transload Services, L.L.C., 884 N.E.2d 1258, 1262 (Ill. App. Ct. 2008); Schwager v. VHS Acquisition Corp./Vanguard Health Mgmt., 142 P.3d 1227, 1229-30 (Ariz. Ct. App. 2006).

9. See Ala. Code § 25-14-9(f)(6)(e) (applies to professional employer organizations only); Fla. Stat. § 440.11(2); Ga. Code Ann. § 34-9-11; Idaho Code Ann. § 72-103(1)(a); Me. Rev. Stat. tit. 39-A §104; Mont. Code Ann. § 39-8-207(8)(b)(i) (applies to professional employer organizations only); N.D. Cent. Code § 6501-08(2); Or. Rev. Stat. § 656.018(5)(a); N.Y. Lab. Law § 922(4) (applies to professional labor employer organizations only); R.I. Gen. Laws § 28-29-2(6)(iii); Utah Code Ann. § 34A-2-105; Va. Code Ann. § 65.2-803.1G; Wis. Stat. § 102.29(6)(b)(1).

10. See, e.g., Parson v. Procter & Gamble Mfg. Co., 514 N.W.2d 891, 893-95 (Iowa 1994); Swanson v. White Consol. Indus. Inc., 77 F.3d 223, 225-26 (8th Cir. 1996); cf. M.J. Daly Co. v. Varney, 695 S.W.2d 400, 403 (Ky. 1985) (temporary employee expressly refused employment with client), overruled by U.S. Fidelity & Guar. Co. v. Technical Minerals Inc., 934 S.W.2d 266, 269 (Ky. 1996); Long v. Pennant Foods Co., LLC, No. NNHCV126027105S, 2013 WL 3388914 (Conn. Super. Ct. June 17, 2013) (unpublished).

11. See, e.g., Pate v. Marathon Steel Co., 777 P.2d 428, 431 (Utah 1989); Runcorn v. Shearer Lumber Prods. Inc., 690 P.2d 324, 328 (Idaho 1984); Card v. Curtis Prunty, No. 91946 (4th District, Idaho, Nov. 21, 1989). Cf. Koch Refining Co. v. Chapa, 11 S.W.3d 153, 155-56 (Tex. 1999) (leasing firm employee assigned to contractor may not sue client/premises owner for workplace injuries when client did not have right to control worker); Hittel v. WOTCO Inc., 996 P.2d 673, 678-79 (Wyo. 2000) (staffing firm employee assigned to contractor may not sue client/premises owner for workplace injuries when client retained no right to control work site safety); Smith v. Wal-Mart Stores East, L.P., No. Civ.A. 4:04CV-173-M, 2005 WL 2243355, at *8 (W.D. Ky. Sept. 14, 2005) (staffing firm worker assigned to cellular company’s kiosk in department store can sue store for workplace injuries because cellular company was not a subcontractor of store).

12. Lines v. Idaho Forest Indus., 872 P.2d 725, 727 (Idaho 1994).

13. Ghersi v. Salazar, 883 P.2d 1352, 1357-58 (Utah 1994); Walker v. U.S. Gen. Inc., 916 P.2d 903, 905-08 (Utah 1996).

14. See, e.g., Va. Polytechnic Inst. & State Univ. v. Frye, 371 S.E.2d 34, 37-38 (Va. Ct. App. 1988); English v. Lehigh Cnty. Auth., 428 A.2d 1343, 1349 (Pa. Super. Ct. 1981); JFC Temps Inc. v. Workmen’s Comp. Appeal Bd., 680 A.2d 862, 866-67 (Pa. 1996); Shaw v. Thrift Drug Inc., No. CIV. A98-5170, 1999 WL 994020, at *4-5 (E.D. Pa. Nov. 2, 1999); Kappas v. Andritz, 45 Pa. D. & C.4th 288 (Pa. Com. Pl. Mar. 17, 2000), aff’d without op., 769 A.2d 1215 (Pa. Super. 2000), cert. denied, 782 A.2d 547 (Pa. 2001). But see Molina v. State Garden Inc., 31 Mass. L. Rptr. 412 (Mass. Super. Ct. 2013) (citing Numberg v. GTE Transport, 34 Mass. App. Ct. 904 (1993) for the principle that the only party that is immune from suit under the workers’ compensation statute is the direct employer, which in Molina was the staffing firm; special employers are not immune because they are not liable for the payment of workers’ compensation).

15. See, e.g., Kappas, supra note 14.

16. See, e.g., Wingfoot Enterprises v. Alvarado, 111 S.W.3d 134, 139-40 (Tex. 2003). For a complete discussion of dual employment issues in the area of workers’ compensation insurance, see 5 Lex K. Larson, Larson’s Workers’ Compensation Law ch. § 67-68 (2018).

17. See, e.g., Marsh v. Tilley Steel Co., 606 P.2d 355 (Cal. 1980); Kenyon v. Second Precinct Lounge, 442 N.W.2d 696, 699-702 (Mich. Ct. App. 1989); Kunz v. Beneficial Temps., 921 P.2d 456 (Utah 1996); Morgan v. ABC Mfr., 710 So. 2d 1077, 1078 (La. 1998); Butts v. Express Personnel Servs., 73 S.W.3d 825, 835 (Mo. Ct. App. 2002) (a temporary service firm employee injured by an employee of a separate temporary service firm was able to sue the other worker’s temporary service firm because no employment relationship existed between the two workers), overruled on unrelated grounds by March v. Midwest St. Louis, LLC, 417 S.W.3d 248, 259 (Mo. 2014).

18. Kunz, supra note 17.

19. Cf. Bright v. Cargill Inc., 837 P.2d 348, 367-68 (Kan. 1992); Alvarado v. Ursua, No. B172601, 2005 WL 1125180, at *3-6 (Cal. Ct. App. May 13, 2005) (unpublished) (holding that staffing firm could be liable for injury caused by its temporary employee because it retained partial control over employee but dismissing claim against employee because he was a fellow employee of the injured worker and therefore immune from liability under state law).

20. See Parker v. Williams & Madjanik Inc., 239 S.E.2d 487, 488-89 (S.C. 1977); Baldwin v. Kelly Servs., Inc., 121 So.3d 275 (Miss. Ct. App. 2013).

21. N.D. Cent. Code. § 65-01-08(2).

22. Horner v. Boston Edison Co., 695 N.E.2d 1093 (Mass. App. Ct. 1998), cert. denied 705 N.E.2d 276 (Mass. 1998); Edgin v. Entergy Operations, 961 S.W.2d 724, 727 (Ark. 1998); Bowman v. Sunoco Inc., 65 A.3d 901 (Pa. 2013).

23. R.I. Gen. Laws § 44-30-71.4.

24. See, e.g., Ala. Code § 25-14-9; Ariz. Rev. Stat. Ann. § 23-614; Cal. Unemp. Ins. Code § 606.5; N.D. Cent. Code § 52-04-24; Utah Code Ann. § 35A-4-202.

25. See Mo. Rev. Stat. § 288.032; Minn. Stat. § 268.065 (applicable where workforce consists of 50 percent or more workers provided by leasing companies, PEOs, or similar entities); Neb. Rev. Stat. § 48-648.

26. See, e.g., General Motors Corp. v. United States, 91-1 U.S. Tax Cas. (CCH) ¶ 50,032 (E.D. Mich. Dec. 20, 1990); In re Critical Care Support Servs. Inc., 138 B.R. 378, 381-82 (Bankr. E.D.N.Y. 1992); Rev. Rul. 75-41, 1975-1 C.B. 323.

27. See United States v. Garami, 184 B.R. 834, 838 (M.D. Fla. 1995) (client of employee leasing firm held liable for employment taxes where leasing firm held to be performing mere “administrative acts” and client provided no proof of payment of taxes by leasing firm); see also In re Earthmovers Inc., 199 B.R. 62, 67 (Bankr. M.D. Fla. 1996), vacated, appeal dismissed, 242 B.R. 49 (M.D. Fla. 1999).

28. General Motors Corp., supra note 26.

29. Otte v. United States, 419 U.S. 43, 50 (1974).

30. See, e.g., Tax Administration, U.S. General Accounting Office, Information Returns Can Be Used to Identify Employers Who Misclassify Workers, GAO/GGD-89-107, at 14 (Sept. 1989); Brock v. Superior Care Inc., 840 F.2d 1054 (2d Cir. 1988).

31. Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323 (1992).

32. Available at https://www.irs.gov/pub/irs-utl/emporind.pdf (last visited Jan. 25, 2019).

33. General explanation of the Tax Reform Act of 1986 (H.R. 3838, 99th Cong. P.L. 99-514) Joint Committee on Taxation (May 4, 1987), p. 1341.

34. Brock, supra note 30, at 1058-59.

35. 29 C.F.R. § 791.2.

36. See U.S. Department of Labor Strategic Plan, Fiscal Years 2014-2018, available at https://www.dol.gov/sites/default/files/StrategicPlan2014-2018.pdf (last visited Jan. 25, 2019).

37. See May 15, 2013, Press Release of the United States Department of Labor Wage and Hour Division, Release No. 13662-NEW (wh 13-043), available at dol.gov/whd/media/press/whdpressVB3.asp?pressdoc=Northeast/20130515.xml (last visited Jan. 25, 2019).

38. See id.

39. See id.

40. Department of Labor Opinion Letter No. 874, Oct. 1, 1968. See, e.g., Barfield v. New York City Health & Hosp. Corp., 432 F. Supp. 2d 390 (S.D.N.Y. 2006). Of course, temporary employees are not always jointly employed by the client. Pfohl v. Farmers Ins. Group, No. 03-CV-3080 DT (RCX), 2004 WL 554834, at *4-7 (C.D. Cal. Mar. 1, 2004) (court held that an insurance company exercised no control over the job activities of a worker assigned by a staffing firm as a claims adjuster and therefore had no obligation to pay overtime to the worker).

41. Catani v. Chiodi, No. CIV. 00-1559 (DWF/RLE), 2001 WL 920025 (D. Minn. Aug. 13, 2001) (the staffing firm had no authority to fire, schedule, or give raises to the workers, nor did it train, supervise, or discipline them).

42. Barfield v. New York City Health & Hosp. Corp., 537 F.3d 132 (2d Cir. 2008).

43. See Cal. Lab. Code § 2810.3.

44. See Tidd v. Adecco USA Inc., No. 07-11214-GAO, 2010 WL 996769, at *2-3 (D. Mass. Mar. 16, 2010).

45. Note that in the case of stock purchase plans (Internal Revenue Code section 423 plans) such as those involved in the Microsoft lawsuit (see discussion beginning on p. 31, infra), employers may not be able to exclude individuals deemed to be their common-law employees. This is because the IRS rules applicable to those plans require virtually all employees to be covered. As a result, many employers that provide such benefits use nonqualified stock purchase plans, which are not subject to nondiscrimination rules.

46. I.R.C. § 410(b).

47. It should be noted that staffing firms generally cannot include in their plans workers who are not their common-law employees.

48. Patient Protection and Affordable Care Act, Pub. L. No. 111–148, § 1001, 124 Stat. 119 (March 23, 2010). Per IRS Notice 2011-1, “Affordable Care Act Nondiscrimination Provisions Applicable to Insured Group Health Plans,” enforcement of the discrimination testing requirement was suspended pending the issuance of regulations. Available at https://www.irs.gov/pub/irs-drop/n-11-01.pdf (last visited Jan. 25, 2019). The Notice provides that any such guidance “will not apply until plan years beginning a specified period after issuance [of the guidance].” As this edition went to press, there is no indication that such guidance is forthcoming.

49. The concept of joint employment generally is not recognized in the area of employee benefits. Courts therefore generally resolve benefits liability issues in terms of the single employer who is the common-law employer. Section 414(n) assumes that leased employees are the common-law employee of the leasing organization because, by its terms, the section does not apply to employees who are common-law employees of the recipient (client). See I.R.C. § 414(n).

50. See Small Business Job Protection Act of 1996, H.R. Rep. No. 104-737, Aug. 1, 1996, p. 260.

51. Patient Protection and Affordable Care Act, §1421(e)(1)(B).

52. Treas. Reg. §54.4980H-1(a)(15); 79 Fed. Reg. 8579 (Feb. 12, 2014).

53. For a discussion of the special rule and the employer status of staffing firms, see Alden J. Bianchi and Edward A. Lenz, The Final Code §4980H Regulations; Common-Law Employees; and Offers of Coverage by Unrelated Employers, 55 BloombergBNA Tax Management Memorandum 331 (Sept. 8, 2014).

54. See I.R.C. § 414(o).

55. For a full explanation of this exemption, see I.R.C. section 414(o) and the accompanying conference committee explanation at H.R. Rep. No. 99-841 (Vol. II, Sept. 18, 1986), pp. 496–497.

56. Under the legislative history describing the record-keeping exception, the employer would also be required to count any individual who provides satisfactory evidence of entitlement to treatment as a leased employee. See note 56, supra.

57. I.R.C. § 414(n)(1)(B).

58. I.R.C. § 401(a)(26).

59. See I.R.S. Notice 84-11, 1984-2 C.B. 469, which states in Q&A 14: “Q–14. Must a leased employee participate in the plan…? A-14. No. Section 414(n)(1)(A) requires only that a leased employee be treated as an employee; it does not require that a leased employee be a participant in the recipient’s qualified plan.”

60. Id. Q&A 15–16.

61. Vizcaino v. Microsoft Corp., 173 F.3d 713, 723-24 (9th Cir. 1999), amended by In Re Vizcaino, 184 F.3d 1070 (9th Cir. 1999), cert. denied, 528 U.S. 1105 (2000).

62. Vizcaino v. Microsoft Corp., 97 F.3d 1187 (9th Cir. 1996), aff’d en banc, 120 F.3d 1006 (9th Cir.1997), cert. denied, 522 U.S. 1098 (1998).

63. Bronk v. Mountain States Tel. & Tel. Inc., 140 F.3d 1335, 1338 (10th Cir. 1998); Wolf v. Coca Cola Co., 200 F.3d 1337, 1339-42 (11th Cir. 2000); Moxley v. Texaco Inc., No. 00-1518 CM (BQRX), 2001 WL 840363, at *2-3 (C.D. Cal. Feb. 15, 2001); Montesano v. Xerox Corp. Ret. Income Guar. Plan, 256 F.3d 86, 88 (2d Cir. 2001) (per curiam); MacLachlan v. ExxonMobil Corp., 350 F.3d 472 (5th Cir. 2003); Edes v. Verizon Commc’ns Inc., 417 F.3d 133, 137-38 (1st Cir. 2005); Cent. Pa. Teamsters Pension Fund v. Power Packaging Inc., No. 04-2867, 2005 WL 2522163, at *1-2 (3d Cir. Oct. 12, 2005) (unpublished); Curry v. CTB McGraw-Hill, LLC, No. C 05-04003 JW, 2006 WL 228951, at *3-7 (N.D. Cal. Jan. 30, 2006); Reinking v. Alyeska Pipeline Service Co., 539 Fed. Appx. 780 (9th Cir. 2013) (unpublished).

64. Burrey v. Pac. Gas & Elec., Co., No. C-95-4638 DLI, 1999 U.S. Dist. LEXIS 22619 (N.D. Cal. May 12, 1999).

65. Berry v. Allstate Ins. Co., 252 F. Supp. 2d 336, 346 (E.D. Tex. 2003), aff’d, 84 Fed. Appx. 442 (5th Cir. 2004); Schultz v. Texaco Inc., 127 F. Supp. 2d 443, 447-50 (S.D.N.Y. 2001); Edes v. Verizon Commc’ns Inc., 417 F.3d 133, 138-40 (1st Cir. 2005).

66. Casey v. Atlantic Richfield Co., No. CV 99-06437LGB(AIJX), 2000 WL 657397 (C.D. Cal. Mar. 30, 2000), rev’d, 21 Fed. Appx. 727 (9th Cir. 2001) (unpublished mem. decision); Mascari v. San Diego Gas & Elec. Co., No. 97-CV1652K(JFS) (S.D. Cal. filed Sep. 10, 1997); Thomas v. SmithKline Beecham, 297 F. Supp. 2d 773 (E.D. Pa. 2003).

67. Clark v. King County, No. 95-2-29890-7 SEA (Wash. Super. Ct. King County); Jordan v. City of Bellevue, No. 98-2-21515-1 SEA (Wash. Super. Ct. King County); Metro. Water Dist. of S. Cal. v. Superior Court, 32 Cal. 4th 491 (Cal. 2004).

68. Nationwide Mut. Ins. Co. v. Darden, supra note 31.

69. Burrey, supra note 65.

70. See, e.g., Scruggs v. ExxonMobil Pension Plan, No. 08-6145, 585 F.3d 1356 (10th Cir. 2009); Abraham v. Exxon Corp., 85 F.3d 1126, 1130-31 (5th Cir. 1996); Trombetta v. Cragin Fed. Bank for Sav. Employee Stock Ownership Plan, 102 F.3d 1435 (7th Cir. 1996); Clark v. E.I. Dupont De Nemours & Co. Inc., 105 F.3d 646 (4th Cir. 1997) (unpublished table decision), cert. denied, 520 U.S. 1259 (1997); Bronk v. Mountain States Tel. & Tel. Inc., supra note 64; Wolf v. Coca Cola Co., supra note 64; Casey v. Atlantic Richfield Co., supra note 67; Montesano v. Xerox Corp., supra note 64; Moxley v. Texaco Inc., supra note 64; Berry v. Allstate Ins. Co., supra note 66. Cf. National Shopmen Pension Fund v. Burtman Iron Works Inc., 148 F. Supp. 2d 60, 63-64 (D.D.C. 2001) (staffing firm clients had to make contributions to a joint labor–management pension fund on behalf of the staffing firm employees because a collective bargaining agreement required contributions to be made on behalf of “all full-time production and maintenance employees” and did not distinguish or exclude staffing firm employees). One federal district court has decided that workers found to be the common-law employees of an employer are entitled to benefits under the employer’s plan even if the plan expressly excludes the workers. Renda v. Adam Meldrum & Anderson Co., 806 F. Supp. 1071 (W.D.N.Y. 1992). However, most ERISA experts believe that this is not a correct view of the law.

71. U.S. Internal Revenue Service Technical Advice Memorandum (Section 410—Minimum Participation Standards) (Release Date: July 28, 1999) (Doc 2000-14434) Department: Official Announcements, Notices, and News Releases; Other IRS Documents; Reclassified Workers Can Be Excluded by Retirement Plan Language. Tax Analysts Tax Notes Today (May 24, 2000), 2000 TNT 101-45.

72. Clients will need to be careful in how any exclusion is framed. Exclusions viewed as “service related” (e.g., exclusions for “part-time,” “seasonal,” or “temporary” employees) may run afoul of the IRS and ERISA minimum service requirements, as opposed to exclusions that are job-related (e.g., exclusions for substitute workers or workers who are not on the employer’s payroll). See IRS Quality Assurance Bulletin (Feb. 14, 2006), available at the ASA website, americanstaffing.net.

73. Transcript of Proceedings on Jan. 26, 1999, before Judge John C. Coughenour at 15, lines 5–9, Vizcaino v. Microsoft Corp., Nos. C93-178C, C98-1646C (W.D. Wash.).

74. 141 F. 3d 1405 (10th Cir. 1998).

75. Cf. Laniok v. Advisory Comm. of Brainerd Mfg. Co. Pension Plan, 935 F. 2d 1360 (2d Cir. 1991).

76. 29 U.S.C. §§ 2601-2654.

77. 29 U.S.C. §§ 2612(a)(3), 2611.

78. 29 U.S.C. § 2612(a)(1)(E).

79. 29 C.F.R. § 825.106.

80. 29 C.F.R. § 825.106(b)(1).

81. 29 C.F.R. § 825.106(d).

82. 29 C.F.R. § 825.106(c); see also, Boyed v. Dana Inc., No. 3:16-CV-2609, 2017 WL 1179058 (N.D. Ohio Mar. 30, 2017) (motion for summary judgment granted to client who argued it was not the primary employer and therefore had no duty to advise temporary worker of FMLA rights).

83. 29 C.F.R. § 825.106(c).

84. 29 C.F.R. § 825.106(e).

85. 29 C.F.R. § 825.105(e).

86. 29 C.F.R. 825.106; Miller v. Defiance Metal Prods. Inc., 989 F. Supp. 945, 946-48 (N.D. Ohio 1997); Meky v. Jetson Specialty Marketing Servs. Inc., No. 5:16-cv-1020, 2017 WL 878235 (E.D. Pa. Mar. 6, 2017); Dep’t of Labor Op., FMLA-37 (July 7, 1994).

87. 29 C.F.R. § 825.106(e); see also Grace v. USCAR, 521 F.3d 655, 676 (6th Cir. 2008).

88. Id.

89. 60 Fed. Reg. 2180, 2214 (Jan. 6, 1995).

90. See id.

91. 29 C.F.R. § 825.111(a)(3). The exception to the 75-mile rule for employees assigned to client facilities for at least one year was based on a ruling by the U.S. Court of Appeals for the Tenth Circuit in Harbert v. Healthcare Services Grp. Inc., 391 F.3d 1140 (10th Cir. 2004).

92. Amarnare v. Merrill Lynch, 611 F. Supp. 344, 349 (S.D.N.Y. 1984), aff’d, 770 F.2d 157 (2d Cir. 1985). While most of the case law on employment relationships under the EEO laws involves claims brought under Title VII of the Civil Rights Act of 1964, which bans employment discrimination on the basis of race, color, religion, sex, and national origin, these legal standards are applicable to all the EEO laws.

93. Magnuson v. Peak Technical Servs. Inc., 808 F. Supp. 500 (E.D. Va. 1992); see also King v. Chrysler Corp., 812 F. Supp. 151 (E.D. Mo. 1993) (court held client could be liable for sexual harassment of third-party employee under Title VII even though it did not employ the victim).

94. Magnuson, 808 F. Supp. at 513; see also Williams v. Grimes Aerospace Co., 988 F. Supp. 925 (D.S.C. 1997) (the staffing firm was not liable if it did not know about the client’s alleged discriminatory conduct); Mullis v. Mechanics & Farmers Bank, 994 F. Supp. 680 (M.D.N.C. 1997) (the staffing firm could be liable because it knew of the client’s alleged harassment but failed to take action for six to eight weeks); Neal v. Manpower Int’l Inc., No. 3:00-CV-277/LAC, 2001 WL 1923127, at *10 (N.D. Fla. Sept. 17, 2001) (a staffing firm could not be held liable for sexual harassment by a client’s employee because the firm was not informed about the harassment).

95. See Beaulieu v. Northrop Grumman Corp., 161 F. Supp. 2d 1135 (D. Haw. 2000), aff’d 23 Fed. Appx. 811 (9th Cir. 2001); Callicutt v. Pepsi Bottling Grp. Inc., No. CIV. 00-95DWFAJB, 2002 WL 992757 (D. Minn. May 13, 2002); Freeman v. State of Kansas, 128 F. Supp.2d 1311 (D. Kan. 2001), aff’d, 22 Fed. Appx. 967 (10th Cir. 2001); Hunt v. Mo. Dep’t of Corre., 297 F.3d 735 (8th Cir. 2002); Lyles v. Alamo Rent-A-Car Inc., No. CIV. H-00-786, 2001 WL 135844 (D. Md. Feb. 14, 2001); Richardson v. Century Prods. Inc., 163 F. Supp. 2d 771 (N.D. Ohio 2001); Moss v. Steele Rubber Prods. Inc., No. 5:07-cv-76, 2010 WL 1380364 (W.D.N.C. Mar. 29, 2010). Cf. Dunn v. Uniroyal Chem. Co., 192 F. Supp. 2d 557 (M.D. La. 2001) (because the client did not exercise complete control over the worker—the staffing firm paid the worker and could reassign her at any time, and there was no employment contract between the client and the worker—no employment relationship existed between the worker and the client); Scott v. UPS Supply Chain Solutions, 523 Fed. Appx. 911 (3d Cir. 2013) (per curiam) (unpublished) (temporary employee was not an employee of the client because he applied to the staffing firm, completed the staffing firm’s job application, signed an acknowledgment that he was the staffing firm’s employee and not the client’s employee, remained employed by the staffing firm during the assignment and after the staffing firm terminated the assignment, received daily monitoring of attendance and performance evaluations from the staffing firm, and did not have employee access to the client’s facility).

96. See Redd v. Summers, 232 F.3d 933 (D.C. Cir. 2000) (the staffing firm was responsible for hiring, training, and supervising all the workers while the client only inspected the staffing firm’s services and exercised little control); West v. MCI Worldcom Inc., 205 F. Supp. 2d 531 (E.D. Va. 2002) (the client did not exercise supervisory control over the worker’s tasks nor did it evaluate her performance, coach her, train her, provide her with administrative support, or pay directly for her services); Allen v. Tyco Elecs. Corp., 294 F. Supp. 2d 768 (M.D.N.C. 2003) (staffing firm on-site coordinator was responsible for answering employee’s work questions and client did not have power to hire, fire, pay, or control duties); Reith v. TXU Corp., 2006 WL 887413 (E.D. Tex. Apr. 4, 2006) (in the Americans With Disabilities Act context, applying economics realities test, court found that the staffing firm, not the client, retained the right to hire and fire the plaintiff, transfer him, and paid his wages and employment taxes).

97. See, e.g., Rodriquez v. Chemical Bank, No. 117827/95 (Sup. Ct. N.Y. Jun. 11, 1996). Cf. Brankov v. Hazzard, 36 N.Y.S.3d 133 (2016) – the New York Supreme Court, Appellate Division, held that client was not a joint employer subject to liability under state and city human rights laws because the staffing agency, not the client, “ultimately controlled plaintiff’s employment.”

98. Compare Atchley v. Nordham Group Inc., 180 F.3d 1143, 1153 (10th Cir. 1999) (holding that the client of a staffing firm, not the staffing firm, was the employer of an assigned worker for Title VII purposes when the client controlled “every aspect” of employment).

99. See Caldwell v. ServiceMaster Corp., 966 F. Supp. 33, 46-48 (D.D.C. 1997); Riesgo v. Heidelberg Harris Inc., 36 F. Supp. 2d 53, 58-59 (D.N.H. 1997).

100. Williams v. Caruso, 966 F. Supp. 287 (D. Del. 1997); see also Kellam v. Snelling Pers. Servs., 866 F. Supp. 812 (D. Del. 1994), aff’d without op., 63 F.3d 162 (3d Cir. 1995); Watson v. Adecco Employment Servs. Inc., 252 F. Supp. 2d 1347, 1355-56 (M.D. Fla. 2003); Blagg v. The Tech. Grp. Inc., 303 F. Supp. 2d 1181, 1184-87 (D. Colo. 2004) (finding that clients and not the staffing firms controlled the job functions of the workers).

101. See Baker v. Harvey, No. 01A45313, 2006 WL 755933 (E.E.O.C. Mar. 16, 2006).

102. 42 U.S.C. § 2000e(b)

103. The exception for leased employees applies to “a permanent employee provided by an employment agency for a fee to an outside company for which the employment agency handles all personnel tasks including payroll, staffing, benefit payments, and compliance reporting”—a clear reference to the services provided by professional employer organizations (PEOs). Employees employed under such arrangements must be reported on the EEO–1 form.

104. The EEOC uses “employment agency” to refer not just to permanent placement firms but generically to all forms of employment services, including temporary staffing firms.

105. See, e.g., 41 C.F.R. §§ 60-2.11, 60-3.4(B).

106. It might be asked why this reasoning would not exclude temporary employees in applying the 50-employee head count test for determining whether a federal contractor is subject to the Executive Order. Although that argument has never been tested to the author’s knowledge, a court might hold that there is a difference between excluding certain workers from an employer’s affirmative action plan because it is not practical or feasible to include them, and holding that they are not employees for the purpose of determining whether the firm is subject to the Executive Order at all. Hence, although the EEO-1 rules applicable to private employers exclude temporary employees for both head count and reporting purposes, the head count exclusion might not extend to federal contractors under the Executive Order.

107. The proposed rules, issued on May 4, 2000, made no mention of the issue of coverage of temporary employees.

108. 65 Fed. Reg. 68022, 68024 (Nov. 13, 2000). No view was expressed as to whether temporary employees assigned by staffing firms should be considered the employees of the staffing firm or the client for affirmative action plan purposes.

109. 70 Fed. Reg. 58946 (Oct. 7, 2005).

110. The Uniform Guidelines on Employee Selection Procedures can be found at 29 C.F.R. pt. 1607 (EEOC) and 41 C.F.R. pt. 60-3 (DOL). The courts have held that the guidelines are not legally binding, and no court has ever applied the record-keeping requirements to temporary employees.

111. 69 Fed. Reg. 10152, 10155 (Mar. 4, 2004).

112. 41 C.F.R. § 60-3.2(C).

113. Cf. Madden v. Rolls-Royce Corp., No. 1:06-CV-0584-LJM-WTL, 2008 WL 747290, at *16 (S.D. Ind. Mar. 18, 2008) (rejecting employee’s claim that client’s failure to reemploy him violated USERRA where he acknowledged that position was temporary and only would become permanent if client had a need after 90 days).

114. 41 C.F.R. §§ 60-300.1 (threshold of $100,000 for contracts on or after December 1, 2003) 60-300.5; 80 Fed. Reg. 38293 (Oct. 1, 2015) (adjusting threshold from $100,000 to $150,000).

115. 41 C.F.R. § 60-300.5(a)(6)(i) and (iii).

116. 42 U.S.C. §§ 12101 to 12213.

117. But see Reith v. TXU Corp., No. 4:05-CV-33, 2006 WL 887413 (E.D. Tex. Apr. 4, 2006) (dismissing an assigned worker’s disability discrimination and harassment claims against a staffing firm client, holding that the client was not a joint employer of the worker and thus could not be liable under the Americans With Disabilities Act), adopted by 2006 WL 1149206 (E.D. Tex. Apr 27, 2006).

118. TLI Inc., 271 NLRB 798 (1984) and Laerco Transp. & Warehouse, 269 NLRB 324 (1984).

119. 362 NLRB No. 186 (2015).

120. Browning-Ferris Industries Inc. v. National Labor Relations Board, U.S. Court of Appeals for the D.C. Circuit, No. 16-1063.

121. 365 NLRB No. 156 (2017).

122. 366 NLRB No. 93 (2018).

123. See Manpower Inc. of Shelby Cnty., 164 N.L.R.B. 287 (1967); Add-a-Man, No. 7-RC-9639 (N.L.R.B. Jan. 26, 1970) (unpublished opinion); N.L.R.B. v. W. Temp. Servs., 821 F.2d 1258 (7th Cir. 1987) (temporary help firm and its client both exercised substantial control over the employees, and both were involved in determining the essential terms and conditions of employment); Continental Winding Co. & Kelly Servs. Inc., 305 N.L.R.B. 122 (1991).

124. Greenhoot Inc., 205 N.L.R.B. 250 (1973).

125. Lee Hosp., 300 N.L.R.B. 947 (1990), overruled by M.B. Sturgis Inc., 331 N.L.R.B. 1298 (2000).

126. M.B. Sturgis Inc., 331 N.L.R.B. 1298 (2000), overruled by H.S. Care, L.L.C., 343 N.L.R.B. 659 (2004).

127. Prof’l Facilities Mgmt. Inc., 332 N.L.R.B. 345 (2000); J. E. Higgins Lumber Co., 332 N.L.R.B. 1172 (2000); Lodgian Inc., 332 N.L.R.B. 1246 (2000); Interstate Warehousing of Ohio, LLC, 333 N.L.R.B. 682 (2001); Outokumpu Copper Franklin Inc., 334 N.L.R.B. 263 (2001) Engineered Storage Prods. Co., 334 N.L.R.B. 1063 (2001); Kaiser Found. Hosps., 337 N.L.R.B. 1061 (2002); Trumbull Mem’l Hosp. & W. Reserve Pers., 338 N.L.R.B. 900 (2003).

128. 343 N.L.R.B. 659 (2004).

129. Id. at 661-62.

130. 364 N.L.R.B No. 39 (2016).

131. See Edward A. Lenz, The Sturgis Case—The Making of a Quagmire, College of Labor and Employment Lawyers (Spring 2002 Newsletter)

132. Metz Baking Co., 100 LA 671 (Mar. 9, 1993).

133. N.L.R.B. v. Town & Country Electric Inc., 516 U.S. 85 (1995).

134. Little Rock Elec. Contractors Inc., 327 N.L.R.B. 932 (1999); see also Contractors’ Labor Pool v. N.L.R.B., 323 F.3d 1051 (D.C. Cir. 2003), in which the court held that a construction staffing firm did not violate the National Labor Relations Act by refusing to hire workers whose prior wages were 30% higher or lower than the staffing firm’s going rate. The court said the policy was designed to minimize employees’ quitting for pay reasons and found no intent to discriminate against union members.

135. TradeSource Inc. v. N.L.R.B., 17 Fed. Appx. 159 (4th Cir. 2001).

136. Capitol EMI Music Inc., 311 N.L.R.B. 997 (1993).

137. SOS Staffing Servs. Inc., 331 N.L.R.B. 815 (2000).

138. Action Temp. Emp’t, 337 N.L.R.B. 268 (2001); see also Mingo Logan Coal Co. v. N.L.R.B., 67 Fed. Appx. 178 (4th Cir. 2003); Dunkin’ Donuts Mid-Atlantic Distribution Ctr. v. N.L.R.B., 363 F.3d 437 (D.C. Cir. 2004) (upholding NLRB decision that staffing firm and client were joint employers and thus both were responsible for unfair labor practices committed against the workers).

139. Sec’y of Labor v. Manpower Temp. Servs. Inc., 5 BNA OSHC 1803 (No. 76-980, 1977).

140. See, e.g., Memorandum to regional administrators from Richard P. Wilson, deputy director, federal compliance and state programs, OSHA, Department of Labor (July 5, 1977). This position was reaffirmed in a February 28, 1985, memorandum from John B. Miles Jr., then OSHA’s director, directorate of field operations.

141. OSHA’s Field Operations Manual, Ch. 4, Violations, at 4–3 (Occupational Safety & Health Admin., U.S. Dep’t of Labor, Aug. 2, 2016), available at https://www.osha.gov/sites/default/files/enforcement/directives/CPL_02-00-160.pdf (last visited Jan. 26, 2019).

142. 29 C.F.R. § 1904.31(b)(2).

143. 29 C.F.R. § 1904.31; 66 Fed. Reg. 5916 (Jan. 19, 2001). Also, staffing firms with more than 10 employees are required to keep occupational injury and illness records of their corporate and branch in-office employees. 29 C.F.R. § 1904.1.

144. Occupational Safety & Health Admin., U.S. Dep’t of Labor, OSHA Standard Interpretations No. 1910-1200, Letter from Roger Clark, Director, OSHA Directorate of Compliance Programs (Feb. 3, 1994). (See Appendix K for the text of the interpretation.)

145. 72 Fed. Reg. 64342, 643621 (Nov. 15, 2007).

146. N.C. Gen. Stat. §§ 95-251(a)(2), 95-252(b).

147. The Worker’s Compensation Handbook for New Mexico, Booklet DI, Annual Safety Inspections (reprinted 1999) at p. 9, incorporated by reference at N.M. Admin. Code R. § 11.4.2.9(B)(12).

148. See, e.g., Friday Temp. Servs. Inc., No. OSHANC 93-2651 (N.C. OSHA Rev. Bd., Apr. 3, 1996) (unpublished order), available at oshrb.state.nc.us/opinions/rb/93-2651.html (last accessed Jan, 26, 2019); Sec’y of Labor v. Froedtert Mem’l Lutheran Hosp. Inc., 20 BNA OSHC 1500 (No. 97-1839, Jan. 15, 2004) (Milwaukee hospital violated the OSHA by failing to provide temporary housekeeping workers with hepatitis B vaccines and training regarding bloodborne pathogens).

149. Manpower Inc., No. 98-R4D5-4158, 2001 WL 575154 (Cal. OSHA Appeals Bd., May 14, 2001); Sully-Miller Contracting Co. v. Cal. Occupational Safety & Health Appeals Bd., 41 Cal. Rptr. 3d 742 (Cal. Ct. App. 2006).

150. Staffchex, No. 10-R4D3-2456, 2014 WL 4546924 (Cal. OSHA Appeals Bd., Aug. 28, 2014) (refusing to recognize the staffing firm’s affirmative defense of lack of control because the Cal/OSH Act’s mandate that employers furnish a safe work place is non-delegable).

151. Labor Ready Inc., No. 99-R3D3-3350, 2001 WL 575152 (Cal. OSHA Appeals Bd., May 11, 2001).

152. Maikish v. Pac. Gas & Electric Co., 2d. Civ. No. B098600 (Cal. App. 2d. Jun. 5, 1997) (unpublished decision); see also Hankins v. Adecco Servs. of Ohio, No. 17-01-13, 2001 WL 1475801 (Ohio Ct. App. Nov. 20, 2001) (the employee knew that assignments were temporary and nothing in the client’s work program manual guaranteed a permanent job with the client).

153. 8 C.F.R. § 274a.1(g) (emphasis in original).

154. See Handbook for Employers, Guidance for Completing Form I-9 (Employment Eligibility Verification Form) M274 at 3 (U.S. Citizenship & Immigration Servs., U.S. Dep’t of Homeland Security, Rev. Jan. 22, 2017).

155. 42 U.S.C. §§ 1320d et seq.

156. 42 U.S.C. § 2000ff, et seq. The EEOC’s implementing regulations for GINA are codified at 29 C.F.R. Part 1635, and effective on January 10, 2011.

157. Title XIII of ARRA enacted the “Health Information Technology for Economic and Clinical Health Act” (HITECH). The HIPAA amendments are set forth in Subtitle D of HITECH.

158. 78 Fed. Reg. 5566 (Jan. 25, 2013).

159. See 45 C.F.R. § 160.103.

160. Id.

161. A person may be treated as a workforce member “if the assigned work station of persons under contract is on the covered entity’s premises and such persons perform a substantial proportion of their activities at that location…” 65 Fed. Reg. 82462, 82480 (Dec. 28, 2000). See also 65 Fed. Reg. at 82643 (employee of contractor such as a software vendor who works on-site may be treated as workforce member); 65 Fed. Reg. at 82645 (volunteers who work off-site and need protected health information should be treated as business associates rather than as workforce members).

162. 78 Fed. Reg. 5565 (Jan. 25, 2013).

163. See 65 Fed. Reg. 82462, 82480 (Dec. 28, 2000) (the covered entity may choose to treat individuals who work on its premises as workforce members or business associates).

164. See Preamble to the Final Regulations under 45 C.F.R. Parts 160 and 164, 65 Fed. Reg. 82462, 82643 (Dec. 28, 2000); OCR HIPAA Frequently Asked Questions, Business Associates, available at hhs.gov/ocr/privacy/hipaa/faq/business_associates/index.html (last visited Jan. 26, 2019).

165. A client that determines that the staffing firm is a business associate and relies on the business associate agreement rather than taking adequate steps itself to safeguard protected health information could be at risk of noncompliance with its HIPAA obligations.

166. 45 C.F.R. 164.504(e)(2)(ii)(E).

167. 45 C.F.R. 164.504(e)(2)(ii)(F), (G), (H), and (I).

168. E.g., Office of Comptroller of the Currency; Board of Governors of the Federal Reserve System; Federal Deposit Insurance Corporation; Office of Thrift Supervision; National Credit Union Administration; Secretary of the Treasury; Securities and Exchange Commission.

169. The National Association of Insurance Commissioners issued a model regulation for implementing GLB, which some states have adopted. Other states have adopted different privacy regulations. Significantly, the NAIC’s model rule states that compliance with the HIPAA privacy regulations—i.e., for health insurers—constitutes compliance with GLB’s privacy requirements.

170. Codified at 16 C.F.R. part 313.

171. 16 C.F.R. § 313.3(m)(1). ASA has not sought to determine whether or under what circumstances temporary employees would be considered “joint employees” of a client under the FTC privacy rules. Accordingly, staffing firms that assign employees to perform services that do not fall within the section 313.14 exception discussed herein may want to pursue this issue further.

172. See 16 C.F.R. § 313.7. Note that the FTC privacy rules differ in this respect from the HIPAA privacy rules. Whereas the HIPAA rules generally prohibit disclosure unless the individual gives permission, the FTC privacy rules generally permit disclosure unless permission is withdrawn.

173. See 16 C.F.R. § 313.13.

174. 16 C.F.R. § 313.14.

175. 16 C.F.R. § 314.3.

176. 67 Fed. Reg. 36484, 36488 (May 23, 2002).

177. 16 C.F.R. § 314.2(d).

178. It may be possible to argue that neither the privacy rules nor the safeguard rules should apply to a staffing firm when it can be shown that the staffing firm does not direct or control the work of its assigned employee and that protected information was given only to the employee. In such cases, it might be argued, it would be unreasonable to impute to the staffing firm any improper disclosure of the information by the employee. However, asserting this argument may have adverse implications with respect to a staffing firm’s employer status vis-à-vis its workers in other areas of the law.

179. 67 Fed. Reg. 36484, 36490 (May 23, 2002).

180. See 15 U.S.C. § 1681 et seq.

181. 15 U.S.C. § 1681a(d).

182. 15 U.S.C. § 1681a(e).

183. 15 U.S.C. § 1681a(f).

184. 15 U.S.C. §§ 1681b, 1681g, 1681m.

185. See 15 U.S.C. §§ 1681d, 1681g.

186. See 15 U.S.C. § 1681a(f).

187. See 15 U.S.C. § 1681a(o).

188. 15 U.S.C. § 1681a(o).

Chapter 3

Maintaining the Staffing Firm’s Employer Status

Being an employer involves more than merely administering payroll. Even if a staffing firm pays employees’ wages, pays employment taxes, and provides required insurance coverage (i.e., workers’ compensation and unemployment insurance), there may be some risk, if nothing more is done, that a court could hold that the staffing firm is a mere payrolling agent and not an employer at all. Staffing firms providing temporary-to-hire, long-term staffing services, and PEO arrangements should be especially alert to the need to assume and maintain an active role in decisions that affect the terms and conditions of employment. Temporary-to-hire arrangements may pose risks if the client assumes a pervasive role in the employment relationship from the outset of the arrangement and the staffing firm’s role is nominal. Long-term, open-ended staffing assignments plus negligible contact with an employee also increase the chance that the employee could be held to be solely the client’s employee.

Staffing firms have been held not to be employers in sexual harassment cases,[189] when determining whether temporary employees are employees of the client for the purpose of including them in the client’s collective bargaining unit,[190] and when determining who is liable for overtime pay.[191] Fortunately, steps can be taken to avoid these outcomes under current legal principles, provided that both parties clearly understand what is at stake and take affirmative steps to ensure that the staffing company is actively involved as an employer.

In addition to issuing paychecks, collecting and remitting all tax and other required withholdings, and providing required insurance coverage, the staffing firm should ensure that it has the right—and exercises the right—to take the following actions with respect to the employees it supplies:

1.     Interview, test, hire, and fire

2.     Assign and reassign

3.     Set pay rates and benefits and discourage clients from dictating such terms

4.     Negotiate with clients the nature, hours, duration, working conditions, and other aspects of all assignments

5.     Maintain general supervisory responsibilities (staffing firms do not have to be on-site to supervise but could periodically check on employees, handle complaints, administer discipline, etc.)

6.     Evaluate performance and provide counseling

7.     Maintain employee records

8.     Handle reimbursement of expenses for temporary workers

9.     Maintain control of assignments (e.g., clients should have no right to assign additional or different projects without the staffing firm’s prior approval or direction)

An often-asked question is whether a staffing company can reinforce its employer status and protect its client from co-employment by placing a full-time staffing firm supervisor “on-site” at the client’s work site to provide day-to-day supervision and control over employees’ work.

Providing substantial on-site supervision and control over the work performed by the staffing firm’s employees will reinforce the staffing firm’s employer status and may help clients avoid some co-employer obligations, although, as discussed in this book, some obligations (e.g., civil rights) may exist even if the client is not an employer. But merely providing nominal supervision, for example, by arbitrarily designating one of the temporary employees as the supervisor, will not negate the client’s co-employer status.

Moreover, as discussed, elimination of the client’s co-employer status may have a downside. If placement of supervisors is held to have completely negated the client’s co-employer status, it could expose the client to negligence suits by the staffing company’s employees in work-related injury cases because the client will no longer be able to invoke the exclusive remedy provisions of state workers’ compensation laws.

The ASA model staffing agreements, available on the ASA website, provide templates that describe the respective duties and responsibilities of staffing firms and clients in accord with historical practices and legal precedents.

189. Kellam v. Snelling Pers. Servs., 866 F. Supp 812, 815-17 (D. Del. 1994), aff’d without op., 63 F.3d 162 (3d Cir. 1995); Williams v. Caruso, 966 F. Supp. 287, 295-96 (D. Del. 1997). Temporary employees were held not to be staffing firms’ employees for purpose of the 15-employee headcount required to be subject Title VII.

190. Walker Mfg. (United Paperworkers Int’l Union), No. 25-RC-9373 (N.L.R.B. July 28, 1995) (temporary staffing firm was held to be mere payroll agent) (unpublished decision).

191. Catani v. Chiodi, No. CIV. 00-1559 (DWF/RLE), 2001 WL 920025, at *3-7 (D. Minn. Aug. 13, 2001).

Conclusion

The growth of nontraditional employment arrangements, including jobs in the so-called “gig economy,” is a reflection of individuals’ desire and need for greater flexibility, independence, and control of their own employment destiny. The yearning for job security will remain strong, and traditional jobs are not going away, but workers will need to find security in different ways—through education, training, and the development of new skills that will enable them to meet the rapidly changing demands of the new workplace, whether in traditional or nontraditional relationships.

The hallmark of the nontraditional workforce is its diversity: in workers’ personal and economic circumstances, in their motivations, in the characteristics of the jobs they hold and the skills they possess, and in their compensation and benefits. Policy makers across the political spectrum have come to recognize and appreciate this diversity and that flexible jobs, such as those provided by staffing firms, have significantly benefited workers and the economy.

The growth of freelance work has prompted some policy makers to consider how to extend legal protection to independent workers who do not meet the traditional definition of employee. The sheer volume and differences among those arrangements, and the complexity and variety of employment laws, pose major challenges in defining which workers would be covered by any new protection. Worker misclassification issues under existing laws, for example, have vexed businesses, courts, and regulators for decades. Given the evolving work relationships, and the potential impact on commerce, any new policies governing independent work will therefore require thoughtful and deliberate consideration.

Appendices

A.  State Laws That Regulate Temporary Staffing Firms

B.  State Laws That Regulate Employee Leasing (PEO) Services

C.  State Laws Regarding Exclusive Remedy for Special Employers

D.  Internal Revenue Service 20-Factor Test for Determining Who Is an Employee

E.  U.S. Department of Labor Opinion Letter on Joint Employer Obligations for Minimum Wage and Overtime Pay

F.  Federal Tax Provisions Regarding Leased Employees—Internal Revenue Code Section 414(n)

G.  IRS Technical Advice Memorandum: Retirement Plans May Exclude Leased Employees

H.  Equal Employment Opportunity Commission Guidelines on Application of EEO Laws to Contingent Workers

I.  EEOC Guidelines on Application of the Americans With Disabilities Act to Contingent Workers

J.  Occupational Safety and Health Administration Record-Keeping Rules

A

State Laws That Regulate Temporary Staffing Firms

Table A1

Licensing, Registration, and Bonding Laws Applicable to Temporary Help Firms

State

Statute Citation

Massachusetts
Registration

MASS. GEN. LAWS ANN. CHAPTER 140 § 46-B, “Employment Agencies”

New Jersey
Registration

N.J. STAT. ANN. § 56:8-1.1, “Consumer Fraud Act”

North Carolina
Registration

N.C. GEN. STAT. § 95-47.14, “Regulation of Private Personnel Services”

Rhode Island
Bonding

R.I. GEN. LAWS ANN. § 5-7-3, “Employment Agencies” (Bonding Requirements Law; § 28-6.10-1 to 28-6.10-4)

Table A2

States That Regulate Day Labor Staffing Firms

State

Scope

Statute Citation

Arizona
No license or registration requirement; clarifies responsibilities of labor pools

“Day labor” means unskilled labor. The law excludes “employment of a professional or clerical nature” from the definition of day labor.

ARIZ. REV. STAT. § 23-551 to 23-553, “Day Labor”

Florida
No license or registration requirement; clarifies responsibilities of labor pools

The law applies only to firms that specialize in unskilled labor and where workers assemble before being dispatched to customers.

FLA. STAT. ANN. § 31.448.20 to 31.448.26, “Labor Pool Act”

Georgia
No license or registration requirement; clarifies responsibilities of labor pools

The law applies only to firms that send workers on assignments of casual labor. “Casual labor” means work that does not require a professional or occupational license, a high school diploma, vocational education, proficiency in a type of machinery, or training before the assignment that exceeds one hour. “Labor pool” does not include a firm that requires advanced applications, job interviews, and references.

GA. CODE ANN. § 34-10-1 to 34-10-6, “Labor Pools”

Illinois
Registration requirement

“Day labor” means unskilled labor. The law excludes “employment of a professional or clerical nature” from the definition of day labor. Firms are also required to post notices describing wages, available transportation, work details, and attire and equipment costs.

820 ILL. COMP. STAT. § 175/1 to 175/99, “Day Labor Services Act”

New Mexico
No license or registration requirement

Clarifies wage responsibilities of day labor firms and provides for check cashing fees. “Day labor” means unskilled labor. The law exempts temporary services employment agencies where advanced applications, a screening process, and job interviews are required.

N.M. STAT. ANN. § 50-15-1 to 50-15-7, “Day Laborer Act”

Texas
License requirement

The law applies only to firms that specialize in unskilled labor and where workers assemble before being dispatched to customers.

TEX. LABOR CODE ANN. § 92.001 to 92.025, “Temporary Common Worker Employers”

Some cities have laws that impose license requirements and/or location restrictions on labor service staffing firms. These include the following:

Akron, OH

Chicago, IL

Elgin, IL

Englewood, CO

Kansas City, MO

Littleton, CO

Table A3

States With Right to Know and Wage Payment Laws

State

Statute Citation

California
Termination pay

CAL. LAB. CODE § 201.3

California
Imposes joint liability on staffing firms and clients with respect to wages and failure to provide workers’ compensation

CAL. LAB. CODE § 2810.3

California Wage Statement

CAL. LAB. CODE § 2810.5

District of Columbia
Temporary staffing agencies must provide notice to employees at the time of initial interview or hire, signed and dated by the staffing firm and the employee, with similar information on wage rates and payday, but will be able to give projected rates of pay if not known. Notice must be provided in English and in the employee’s primary language (see exception), if different.

DC CODE §§ 32-1008(c),(d),(e), (9a); see also https://does.dc.gov/sites/ default/files/dc/sites/does/ page_content/attachments/Notice%20 for%20Temporary%20Staffing%20 Firms_OWH%20 Revised.pdf (last accessed Jan. 31, 2019)

Illinois
Sec. 10 Notice, Sec. 30 Wage Payment and Notice

820 ILCS 175/1 DAY AND TEMPORARY LABOR SERVICES ACT

Massachusetts
Job description and notice requirements

MASS. GENERAL LAWS ANN. CHAPTER 149-§159C

New York
Notice and record-keeping requirement

N.Y. LAB. LAW ART. 6 § 195

Rhode Island
Temporary Employee Protection Act

GENERAL LAWS CHAPTER § 28-6.10-1 to 28-6.10-4

Table A4

States That Regulate Health Care Staffing Firms

State

Statute Citation

California

CAL. CIVIL CODE § 1812.524–1812.533, “Nurse Registries”

Connecticut

CONN. GEN. STAT. § 19a-123 through 19a-123d, “Nursing Pools”

District of Columbia

D.C. CODE ANN. § 44-1051.01 through 44-1051.18, “Nurse Staffing Agencies”

Florida

FLA. STAT. ANN. § 400.506, “Licensure of Nurse Registries”
FLA. STAT. ANN. § 400.980, “Health Care Service Pools”

Illinois

225 ILL. COMP. STAT. § 510/1 through 510/15, “Nurse Agency Licensing Act”

Kentucky

KY. REV. STAT. ANN. § 216.860 through 216.865, “Nursing Pools”

Maine

ME. REV. STAT. ANN. § 2131, “Temporary Nurse Agencies”

Maryland

MD. CODE ANN., HEALTH—GENERAL § 19-2001 through 19-2002, “Health Care Staff Agencies”

Massachusetts

MASS. GEN. LAWS ANN. CH. 111, § 72y, “Nursing Pool Registrations”

Minnesota

MINN. STAT. ANN. § 144a.70 through 144a.74, “Registration of Supplemental Nursing Service Agencies”

Nevada

NEV. REV. STAT. ANN. § 449.0151 through 449.240, “Medical and Other Related Facilities—Licensing, Regulation and Inspection”

New Jersey

N.J. STAT. ANN. § 34: 8-43 through 34: 8-66, “Employment Agencies” N.J. Stat. Ann. § 56:8-1.1, “Temporary Help Services”

North Carolina

N.C. GEN. STAT. § 131e-154.1 through 131e-154.8, “Nursing Pool Licensing Act”

Washington

WASH. REV. CODE §18.52C.010 through 18.52C.050, “Nursing Pools”

B

State Laws That Regulate Employee Leasing (PEO) Services

Table B1

States With Licensing or Registration Requirements for Employee Leasing Companies (PEOs)

State

Statute Citation

Alabama

ALA. CODE § 25-14-1 to 25-14-11, “Alabama Professional Employer Registration Act”

Arizona

AZ. REV. STAT. ANN. § 23-561 to 23-576, “Professional Employer Organizations”

Arkansas

ARK. STAT. ANN. § 23-92-401 to 23-92-419, “Arkansas Employee Leasing Act”

Colorado
Registration Only

COLO. REV. STAT. § 80-70-114

Connecticut
Registration Only

CONN. GEN. STAT. § 556a-31-221a to 221h

Florida

FLA. STAT. ANN. § 468.520 to 468.535, “Employee Leasing Companies”

Georgia

GA. CODE ANN. § 34-7-6, “Professional Employer Organizations”
Note: Employer recognition law; no licensing requirement

Hawaii
Registration Only

HAW. REV. STAT. § 373 L-2
Note: effective July 1, 2011

Idaho

IDAHO CODE § 44-2401 to 44-2407, “Idaho Professional Employer”
Note: Establishes guidelines; no licensing requirement

Illinois

215 ILL. COMP. STAT. 113/1-99, “Employee Leasing Company Act”

Indiana

IN. CODE 27-16-1-1 to 27-16-10-3, “Professional Employer Organizations”

Kentucky
Registration Only

KY. REV. STAT. ANN. § 342.615, “Registration of Employee Leasing Companies”

Louisiana
Registration Only

LA. REV. STAT. ANN. § 22: 1541 to 1543, “Louisiana Professional Employer Act” (insurance law); § 23:1761 to 23:1768, “Professional Employer Organizations” (labor and workers’ compensation law)

Maine

ME. REV. STAT. TIT. 32, § 14051 to 14059, “Employee Leasing Companies”

Michigan

MICH. COMP. LAWS § 338.3727 Note: Effective July 1, 2011

Minnesota

MINN. STAT. § 79.255, “Compensation Insurance”
Note: Registration is a prerequisite to obtaining workers’ compensation insurance.

Montana

MONT. CODE ANN. § 39-8-101 to 39-8-403, “Professional Employer Organizations and Groups Licensing”

Nebraska
Registration Only

NEB. REV. STAT. § 48-2701 to 48-2711, “Professional Employer Registration Act”
Note: Effective Jan. 1, 2012

Nevada

NEV. REV. STAT. § 616B.670 to 616B.697, “Employee Leasing Companies”

New Hampshire

N.H. REV. STAT. ANN. § 277-B:1 to 277-B:18, “Employee Leasing Companies”

New Jersey
Registration Only

N.J. STAT. ANN. § 34:8-67 to 34:8-77, “Leasing Companies”

New Mexico

N.M. STAT. ANN. § 60-13a-1 to 60-13a-14, “Employee Leasing”

New York

N.Y. LABOR CODE ART. 31, “New York Professional Employer Act”

North Carolina
Registration Only

N.C. GEN. STAT. § 58-89a-1 to 58-89a-180, “North Carolina Professional Employer Organization Act”

Ohio

OH. REV. CODE ANN. 4125.01 to 4125.99, “Professional Employer Organizations”

Oklahoma
Registration Only

OKLA. SAT. TIT. 40, § 600.1 to 600.8, “Oklahoma Professional Employer Organization Recognition and Registration Act”

Oregon
Registration Only

OR. REV. STAT. § 656.850 to 656.855, “Worker Leasing Companies”

Rhode Island
Registration Only

R.I. GEN. LAWS § 5-75-1 to 5-75-11, “Professional Employer Organizations Act of 2004”; R.I. Gen. Laws § 44-30-71.4, “Personal Income Tax”
Note: The state tax division must certify that the company has complied with withholding obligations.

South Carolina

S.C. CODE ANN. § 40-68-10 to 40-68-180, “Regulation of Staff Leasing Services”

Tennessee

TENN. CODE ANN. § 62-43-101 to 62-43-113, “Employee Leasing”

Texas

TEX. LABOR CODE ANN. § 91.001-91.062, “Staff Leasing Services Act”

Utah

UTAH CODE ANN. § 58-59-101 to 58-59-503, “Employee Leasing Company Licensing Act”

Vermont

VT. STAT. ANN. TIT. 21, § 12-1031 to 12-1043, “Employee Leasing Companies”

Virginia
Registration Only

VA. CODE ANN. § 65.2-803.1, “Requirements for Registration as Professional Employer Organizations”

West Virginia

W. VA. CODE §33-46a-4, “Professional Employer Organizations”

Wisconsin
Registration Only

WIS. STAT. § 202.01 to 202.29, “Regulation of Professional Employer Organizations and the Solicitation of Funds for a Charitable Purpose”

Table B2

States With Special Workers’ Compensation Laws Applicable to Employee Leasing (PEO) Services

The citations for Washington and West Virginia are to state administrative codes; the other citations are to state statutes.

State

Statute Citation

Arkansas

ARK. CODE ANN. § 23-92-401 to 23-92-419

Florida

FLA. STAT. ANN. § 468.529

Idaho

IDAHO CODE § 72-103

Illinois

215 ILL. COMP. STAT. ANN. § 113/30

Kentucky

KY. REV. STAT. ANN. § 342.615

Louisiana

LA. REV. STAT. ANN. § 22: 1746

Maine

ME. REV. STAT. ANN. TIT. 32, § 14055.2

Massachusetts

MASS. ANN. LAWS CH. 152, § 14a

Minnesota

MINN. STAT. ANN. § 268.065

Missouri

MO. REV. STAT. § 287.282

Montana

MONT. CODE ANN. § 39-8-403

Nebraska

NEB. REV. STAT. § 48-2709

Nevada

NEV. REV. STAT. § 616B.670 to 616B.697

New Hampshire

N.H. REV. STAT. ANN. § 277-B:10

New Jersey

N.J. STAT. ANN. § 34:8-67 to 34:8-77

New Mexico

N.M. STAT. ANN. § 59a-2-9.1

New York

N.Y. LAB. LAW ART. 31, § 922

North Dakota

N.D. CENT. CODE § 65-08.1-01

Oklahoma

OKLA. STAT. TIT. 40, § 600.7

Oregon

OR. REV. STAT. § 656.855, 737.270

Rhode Island

R.I. GEN. LAWS § 28-47-1

South Carolina

S.C. CODE ANN. § 40-68-75

Tennessee

TENN. CODE ANN. § 62-43-113

Texas

TEX. LAB. CODE ANN. § 91.006

Utah

UTAH CODE ANN. § 34a-2-103

Vermont

VT. STAT. ANN. TIT. 21, § 1037

Virginia

VA. CODE ANN. § 65.2-803.1

Washington

WASH. ADMIN. CODE § 296-17-87301

West Virginia

W. VA. CODE § 33-46a-7

Wisconsin

WIS. STAT. 108.067

Table B3

States With Special Workers’ Compensation Laws Applicable to Employee Leasing (PEO) Services

The following states have adopted modified versions of the National Council on Compensation Insurance model workers’ compensation rules as part of their internal state agency manuals but not as part of their administrative codes:

Alabama

Arkansas

Connecticut

The District of Columbia

Florida

Indiana

Iowa

Kansas

Kentucky

Maryland

Massachusetts

Mississippi

New Hampshire

New Mexico

North Carolina

Rhode Island

South Carolina

South Dakota

Tennessee

Vermont

The following states have similar rules:

California
Maine
Nevada
New York

Table B4

States With Special Unemployment Insurance Laws Applicable to Employee Leasing (PEO) Services

Citations for Massachusetts, Ohio, and Washington are to the state administrative code; the citation for Kentucky is to a letter by the state unemployment insurance agency.

State

Statute Citation

Alabama

ALA. CODE § 25-14-9

Arizona

ARIZ. REV. STAT. ANN. § 23-614

Arkansas

ARK. STAT. ANN. § 11-10-717

California

CAL. UNEMP. INS. CODE § 606.5

Colorado

COLO. REV. STAT. § 8-70-114

Delaware

DEL. CODE ANN. § 3302(8)(J)

Florida

FLA. STAT. § 443.036(18)

Georgia

GA. CODE ANN. § 34-8-32

Idaho

IDAHO CODE § 72-1349B

Illinois

820 ILL. COMP. STAT. 405/206.1

Indiana

IND. CODE § 27-16-10

Iowa

IOWA ADMIN. CODE R. 871.22

Kansas

KAN. STAT. ANN. § 44-758

Kentucky

KY. DEPT. FOR EMPLOYMENT SERVICES, UI-1.2 LETTER

Louisiana

LA. REV. STAT. ANN. § 23: 1761 to 1768

Maine

ME. REV. STAT. ANN. TIT. 26, § 1221-a

Maryland

MD. REGS. CODE TIT. 9, § 32.01.26

Massachusetts

MASS. REGS. CODE. TIT. 430, § 5.07 through 5.13

Michigan

MICH. ADMIN. CODE R. 421.190

Minnesota

MINN. STAT. § 268.065

Mississippi

MISS. CODE ANN. § 71-5-11

Missouri

MO. REV. STAT. § 288.032

Montana

MONT. CODE ANN. § 39-8-207

Nebraska

NEB. REV. STAT. § 48-602

New Hampshire

N.H. REV. STAT. ANN. § 277-B:9

New Jersey

N.J. STAT. ANN. § 34: 8-72

New Mexico

N.M. STAT. ANN. § 51-1-52.1

New York

N.Y. LAB. LAW ART. 31, § 923

North Dakota

N.D. CODE § 52-04-24

Ohio

OHIO ADMIN. CODE § 4141-3-07

Oklahoma

OKLA. STAT. TIT. 40, § 1-209.1

Rhode Island

R.I. GEN. LAWS § 44-30-71.4

South Carolina

S.C. CODE ANN. § 40-68-120

Tennessee

TENN. CODE ANN. § 62-43-109

Texas

TEX. LAB. CODE ANN. § 91.044

Utah

UTAH CODE ANN. § 31a-40-209

Vermont

VT. STAT. ANN. TIT. 21, § 1033

Washington

WASH. REV. CODE § 50.04.245

Wisconsin

WIS. STAT. § 108.02, 108.065

Wyoming

WYO. STAT. § 27-3-502

C

State Laws Regarding Exclusive Remedy for Special Employers

Table C1

States That Apply the Exclusive Remedy Rule to Special Employers

The following states have applied the exclusive remedy provisions of their workers’ compensation laws to customers using temporary help or other contract services.

State

Case or Statute

Alabama

ALA. CODE § 25-14-9. Rhodes v. Alabama Power Co., 599 So.2d 27 (ALA. 1992)

Alaska

Anderson v. Tuboscope Vetco Inc., 9 P.3d 1013 (ALASKA 2000)

Arizona

Wiseman v. Dynair Tech of Arizona Inc., 192 ARIZ. 413, 966 P.2d 1017 (ARIZ. CT. APP. 1998)

Arkansas

National Union Fire Insurance Co. v. Tri-State Iron and Metal Co., 323 ARK. 258, 914 S.W.2d 301 (ARK. 1996); Edgin v. Entergy Operations, 331 ARK. 162, 961 S.W.2d 724 (ARK. 1998)

California

CAL. LABOR CODE § 3602(D) — Workers’ Compensation

Colorado

Evans v. Webster, 832 P.2d 951 (COLO. APP. 1991), cert. denied 1992 COLO. LEXIS 582 (COLO. JULY 7, 1992)

Connecticut

Koscak v. Mott Metallurgical Corp., No. CV 94-0536404s, 1996 WL 409232 (CONN. SUPER. CT. JULY 1, 1996)

Delaware

Porter v. Pathfinder Services Inc., 683 A.2d 40 (DEL. 1996)

District of Columbia

Thomas v. Hycon Inc., 244 F. SUPP. 151 (D.D.C. 1965) The court stated that special employers are protected by the exclusive remedy rule even though it was not the issue before the court.

Florida

FLA. STAT. ANN. § 440.11(2) — Workers’ Compensation

Georgia

GA. CODE ANN. § 34-9-11(C) — Workers’ Compensation

Hawaii

Frank v. Hawaii Planing Mill Foundation, 88 HAW. 140, 963 P.2d 349 (HAW. 1998)

Idaho

IDAHO CODE § 72-103 — Workers’ Compensation

Illinois

Falge v. Lindoo Installations Inc., 74 N.E.3d 520 (ILL. APP. 2d DIST. 2017); Chaney v. Yetter Manufacturing Co., 315 ILL. APP. 3d 823, 248 ILL. DEC. 737, 734 N.E.2d 1028 (ILL. APP.), cert. denied 192 ILL.2d 685, 252 ILL. DEC. 76, 742 N.E.2d 326 (ILL. 2000)

Indiana

Walters v. Modern Aluminum, 699 N.E.2d 671 (1998)

Iowa

Fletcher v. Apache Hose & Belting Co., 519 N.W.2d 839 (IOWA APP. 1994)

Kansas

Scott v. Altmar, 272 KAN. 1280, 38 P.3d 673 (KAN. 2002)

Kentucky

United States Fidelity & Guaranty Co. v. Technical Minerals Inc., 934 S.W. 2d 266 (KY. 1996)

Louisiana

Snow v. Lenox International, 662 So. 2d 818 (LA. APP. 1995)

Maine

ME. REV. STAT. ANN. TIT. 39-a § 104 — Workers’ Compensation

Maryland

Whitehead v. Safway Steel Products Inc., 304 MD. 67, 497 A.2d 803 (MD. 1985)

Michigan

Kidder v. Miller-Davis Co., 455 MICH. 25, 564 N.W.2d 872 (MICH. 1997)

Minnesota

Danek v. Meldrum Manufacturing & Engineering Co., 312 MINN. 404, 252 N.W.2d 255 (MINN. 1977)

Mississippi

Northern Electric Co. v. Phillips, 660 SO.2d 1278 (MISS. 1995)

Missouri

McGuire v. Tenneco Inc., 756 S.W.2d 532 (MO. 1988)

Montana

MONT. CODE ANN. § 39-8-207(8)(B) — Professional Employer Organizations and Groups Licensing
Note: The Montana PEO licensing statute is the only reference in that state on the application of the exclusive remedy rule to special employers.

Nebraska

Kaiser v. Millard Lumber Inc., 255 NEB. 943, 587 N.W.2d 875 (NEB. 1999)

Nevada

Antonini v. Hanna Industries, 94 NEV. 12, 573 P.2d 1184 (NEV. 1978)

New Hampshire

Benoit v. Test Systems Inc., 142 N.H. 47, 694 A.2d 992 (N.H. 1997)

New Jersey

Kelly v. Geriatric and Medical Services Inc., 287 N.J. SUPER 567, 671 A.2d 631 (N.J. SUPER. CT. APP DIV.), aff’d without op. 147 N.J. 42, 685 A.2d 943 (N.J. 1996)

New Mexico

Vigil v. Digital Equipment Corp., 122 N.M. 417, 925 P.2d 883 (N.M. CT. APP.), cert. denied 122 N.M. 279, 923 P.2d 1164 (N.M. 1996)

New York

CONSOL. LAWS OF N.Y. ANN. § 922. Thompson v. Grumman Aerospace Corp., 78 N.Y.2d 553, 585 N.E.2d 355, 578 N.Y.S.2d 106 (N.Y. 1991)

North Carolina

Poe v. Atlas-Soundelier/American Trading & Production Corp., 132 N.C. APP. 472, 512 S.E.2d 760 (N.C. APP.), cert. denied 350 N.C. 835, 538 S.E.2d 199 (N.C. 1999)

North Dakota

N.D. CENT. CODE § 65-01-08(2) — Workers’ Compensation

Ohio

Campbell v. Central Terminal Warehouse, 56 OHIO ST. 2d 173, 383 N.E.2d 135 (OHIO 1978)

Oklahoma

Van Zant v. People Electric Cooperative, 900 P.2d 1008 (OKLA. APP.), cert. denied (OKLA. JULY 13, 1995)

Oregon

OR. REV. STAT. § 656.018(5) — Workers’ Compensation

Pennsylvania

Nagle v. TrueBlue Inc. et al., 148 A.3d 946 (PA. CMWLTH. 2016); English v. Lehigh County Authority, 286 PA. SUPER. 312, 428 A.2d 1343 (PA. SUPER. CT. 1981). But see Bowman v. Sunoco Inc., 620 Pa. 28 (PA. APR 25, 2013) In which the Pennsylvania Supreme Court relied on the Horner case in Massachusetts and the Edgin case in Arkansas to find that a staffing firm worker who signed a waiver gave up his right to sue any customer of the staffing firm for injuries covered by workers’ compensation.

Rhode Island

R.I. GEN. LAWS § 28-29-2(6), 28-29-20 — Workers’ Compensation

South Carolina

Day v. Sanders Brothers Inc., 315 S.C. 95, 431 S.E.2d 629 (S.C. APP. 1993) The court stated that special employers are protected by the exclusive remedy rule even though it was not the issue before the court.

South Dakota

Goodman v. Sioux Steel Co., 475 N.W.2d 563 (S.D. 1991)

Tennessee

Tedder v. Union Planters Corp., No. W1999-01971COA-R3-CC, 2001 WL 589139 (TENN. APP. MAY 29, 2001)

Texas

Guevara v. WCA Waste Corp. et al., No. 01–15–01075–CV, 2017 WL 1483320 (TEX. APP. APRIL 25, 2017); Garza v. Excel Logistics Inc., 161 S.W.3d 473 (Texas 2005) (Court held that, in order to be afforded exclusive remedy protection, a client must either be explicitly covered by the staffing firm’s workers’ compensation policy (i.e., by being an additional or named insured) or maintain its own policy that covers temporary employees assigned to the client).

Utah

UTAH CODE ANN. § 34a-2-105 — Workers’ Compensation

Vermont

Candido v. Polymers Inc., 166 VT. 15, 687 A.2d 476 (Vt. 1996)

Virginia

VA. CODE ANN. § 65.2-803.1(G) — Workers’ Compensation

Washington

Forks v. Encon Washington LLC, 198 WASH. APP. 1021 (WASH. APP. MARCH 21, 2017); Novenson v. Spokane Culvert & Fabricating Co., 91 WASH.2d 550, 588 P.2d 1174 (WASH. 1979) However, the temporary employee must expressly consent to an employment relationship with the customer.

West Virginia

Maynard v. Keynard Chemical Co., 626 F.2d 359 (4tH CIR. 1980)

Wisconsin

WIS. STAT. ANN. § 102.29(6) — Workers’ Compensation

Table C2

States That Do Not Apply the Exclusive Remedy Rule to Special Employers

State

Case or Statute

Massachusetts

Numberg v. GTE Transport Inc., 34 MASS. APP. CT. 904, 607 N.E.2d 1 (MASS. APP. 1993). However, in Horner v. Boston Edison Co., 45 MASS. APP. 139, 695 N.E.2d 1093, cert. denied 428 MASS. 1104 (MASS. 1998), the Appeals Court upheld the use of a release with which an employee waived his right to bring claims against any customers of the staffing firm for injuries covered by the state workers’ compensation statute. Also, in Molina v. State Garden Inc., 31 MASS. L. RPTR. 412 (MASS. SUPER. CT. 2013), the Superior Court found that a staffing client was immune from liability under the workers’ compensation exclusivity provisions after upholding an alternate employer endorsement that specifically named the client and stated that the workers’ compensation insurance would apply as though the alternate employer was insured.

Wyoming

Wyoming does not have any cases or statutes on whether special employers are protected by the exclusive remedy rule. However, in SOS Staffing Services Inc. v. Fields, 54 P.3d 761 (WYO. 2002), a co-employee protection case, the Wyoming Supreme Court held that an employment relationship is necessary for the protection to exist and found that the workers’ compensation law explicitly states that an assigned staffing firm worker is not an employee of the customer. The court concluded that an assigned staffing firm worker was not protected from an injury suit by an employee of the customer.

D

Internal Revenue Service 20-Factor Test for Determining Who Is an Employee

Rev. Rul. 87-41
1987-1 C.B. 296 (I.R.S.)
Revenue Ruling: Employment Status Under Section 530(D) of the Revenue Act of 1978
Published: 1987
Section 3121. Definitions, 26 CFR 31.3121(d)-1: Who are employees. (Also Sections 3306, 3401, 31.3306(i)-1, 31.3401(c)-1.)

Employment status under section 530(d) of the Revenue Act of 1978. Guidelines are set forth for determining the employment status of a taxpayer (technical service specialist) affected by section 530(d) of the Revenue Act of 1978, as added by section 1706 of the Tax Reform Act of 1986. The specialists are to be classified as employees under generally applicable common law standards.

Issue

In the situations described below, are the individuals employees under the common-law rules for purposes of the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), and the Collection of Income Tax at Source on Wages (chapters 21, 23, and 24 respectively, subtitle C, Internal Revenue Code)? These situations illustrate the application of section 530(d) of the Revenue Act of 1978, 1978-3 (Vol. 1) C.B. xi, 119 (the 1978 Act), which was added by section 1706(a) of the Tax Reform Act of 1986, 1986-3 (Vol. 1) C.B. (the 1986 Act) (generally effective for services performed and remuneration paid after December 31, 1986).

Facts

In each factual situation, an individual worker (Individual), pursuant to an arrangement between one person (Firm) and another person (Client), provides services for the Client as an engineer, designer, drafter, computer programmer, systems analyst, or other similarly skilled worker engaged in a similar line of work.

Situation 1

The Firm is engaged in the business of providing temporary technical services to its clients. The Firm maintains a roster of workers who are available to provide technical services to prospective clients. The Firm does not train the workers but determines the services that the workers are qualified to perform based on information submitted by the workers.

The Firm has entered into a contract with the Client. The contract states that the Firm is to provide the Client with workers to perform computer programming services meeting specified qualifications for a particular project. The Individual, a computer programmer, enters into a contract with the Firm to perform services as a computer programmer for the Client’s project, which is expected to last less than one year. The Individual is one of several programmers provided by the Firm to the Client. The Individual has not been an employee of or performed services for the Client (or any predecessor or affiliated corporation of the Client) at any time preceding the time at which the Individual begins performing services for the Client. Also, the Individual has not been an employee of or performed services for or on behalf of the Firm at any time preceding the time at which the Individual begins performing services for the Client. The Individual’s contract with the Firm states that the Individual is an independent contractor with respect to services performed on behalf of the Firm for the Client.

The Individual and the other programmers perform the services under the Firm’s contract with the Client. During the time the Individual is performing services for the Client, even though the Individual retains the right to perform services for other persons, substantially all of the Individual’s working time is devoted to performing services for the Client. A significant portion of the services are performed on the Client’s premises. The Individual reports to the Firm by accounting for time worked and describing the progress of the work. The Firm pays the Individual and regularly charges the Client for the services performed by the Individual. The Firm generally does not pay individuals who perform services for the Client unless the Firm provided such individuals to the Client.

The work of the Individual and other programmers is regularly reviewed by the Firm. The review is based primarily on reports by the Client about the performance of these workers. Under the contract between the Individual and the Firm, the Firm may terminate its relationship with the Individual if the review shows that he or she is failing to perform the services contracted for by the Client. Also, the Firm will replace the Individual with another worker if the Individual’s services are unacceptable to the Client. In such a case, however, the Individual will nevertheless receive his or her hourly pay for the work completed. Finally, under the contract between the Individual and the Firm, the Individual is prohibited from performing services directly for the Client and, under the contract between the Firm and the Client, the Client is prohibited from receiving services from the Individual for a period of three months following the termination of services by the Individual for the Client on behalf of the Firm.

Situation 2

The Firm is a technical services firm that supplies clients with technical personnel. The Client requires the services of a systems analyst to complete a project and contacts the Firm to obtain such an analyst. The Firm maintains a roster of analysts and refers such an analyst, the Individual, to the Client. The Individual is not restricted by the Client or the Firm from providing services to the general public while performing services for the Client and in fact does perform substantial services for other persons during the period the Individual is working for the Client. Neither the Firm nor the Client has priority on the services of the Individual. The Individual does not report, directly or indirectly, to the Firm after the beginning of the assignment to the Client concerning (1) hours worked by the Individual, (2) progress on the job, or (3) expenses incurred by the Individual in performing services for the Client. No reports (including reports of time worked or progress on the job) made by the Individual to the Client are provided by the Client to the Firm.

If the Individual ceases providing services for the Client prior to completion of the project or if the Individual’s work product is otherwise unsatisfactory, the Client may seek damages from the Individual. However, in such circumstances, the Client may not seek damages from the Firm, and the Firm is not required to replace the Individual. The Firm may not terminate the services of the Individual while he or she is performing services for the Client and may not otherwise affect the relationship between the Client and the Individual. Neither the Individual nor the Client is prohibited for any period after termination of the Individual’s services on this job from contracting directly with the other. For referring the Individual to the Client, the Firm receives a flat fee that is fixed prior to the Individual’s commencement of services for the Client and is unrelated to the number of hours and quality of work performed by the Individual. The Individual is not paid by the Firm either directly or indirectly. No payment made by the Client to the Individual reduces the amount of the fee that the Client is otherwise required to pay the Firm. The Individual is performing services that can be accomplished without the Individual’s receiving direction or control as to hours, place of work, sequence, or details of work.

Situation 3

The Firm, a company engaged in furnishing client firms with technical personnel, is contacted by the Client, who is in need of the services of a drafter for a particular project, which is expected to last less than one year. The Firm recruits the Individual to perform the drafting services for the Client. The Individual performs substantially all of the services for the Client at the office of the Client, using materials and equipment of the Client. The services are performed under the supervision of employees of the Client. The Individual reports to the Client on a regular basis. The Individual is paid by the Firm based on the number of hours the Individual has worked for the Client, as reported to the Firm by the Client or as reported by the Individual and confirmed by the Client. The Firm has no obligation to pay the Individual if the Firm does not receive payment for the Individual’s services from the Client. For recruiting the Individual for the Client, the Firm receives a flat fee that is fixed prior to the Individual’s commencement of services for the Client and is unrelated to the number of hours and quality of work performed by the Individual. However, the Firm does receive a reasonable fee for performing the payroll function. The Firm may not direct the work of the Individual and has no responsibility for the work performed by the Individual. The Firm may not terminate the services of the Individual. The Client may terminate the services of the Individual without liability to either the Individual or the Firm. The Individual is permitted to work for another firm while performing services for the Client, but does in fact work for the Client on a substantially full-time basis.

Law and Analysis

This ruling provides guidance concerning the factors that are used to determine whether an employment relationship exists between the Individual and the Firm for federal employment tax purposes and applies those factors to the given factual situations to determine whether the Individual is an employee of the Firm for such purposes. The ruling does not reach any conclusions concerning whether an employment relationship for federal employment tax purposes exists between the Individual and the Client in any of the factual situations.

Analysis of the preceding three fact situations requires an examination of the common law rules for determining whether the Individual is an employee with respect to either the Firm or the Client, a determination of whether the Firm or the Client qualifies for employment tax relief under section 530(a) of the 1978 Act, and a determination of whether any such relief is denied the Firm under section 530(d) of the 1978 Act (added by Section 1706 of the 1986 Act). An individual is an employee for federal employment tax purposes if the individual has the status of an employee under the usual common law rules applicable in determining the employer–employee relationship. Guides for determining that status are found in the following three substantially similar sections of the Employment Tax Regulations: sections 31.3121(d)-1(c); 31.3306(i)-1; and 31.3401(c)-1.

These sections provide that generally the relationship of employer and employee exists when the person or persons for whom the services are performed have the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished. That is, an employee is subject to the will and control of the employer not only as to what shall be done but as to how it shall be done. In this connection, it is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if the employer has the right to do so.

Conversely, these sections provide, in part, that individuals (such as physicians, lawyers, dentists, contractors, and subcontractors) who follow an independent trade, business, or profession, in which they offer their services to the public, generally are not employees.

Finally, if the relationship of employer and employee exists, the designation or description of the relationship by the parties as anything other than that of employer and employee is immaterial. Thus, if such a relationship exists, it is of no consequence that the employee is designated as a partner, coadventurer, agent, independent contractor, or the like.

As an aid to determining whether an individual is an employee under the common law rules, 20 factors or elements have been identified as indicating whether sufficient control is present to establish an employer-employee relationship. The 20 factors have been developed based on an examination of cases and rulings considering whether an individual is an employee. The degree of importance of each factor varies depending on the occupation and the factual context in which the services are performed. The 20 factors are designed only as guides for determining whether an individual is an employee; special scrutiny is required in applying the 20 factors to assure that formalistic aspects of an arrangement designed to achieve a particular status do not obscure the substance of the arrangement (that is, whether the person or persons for whom the services are performed exercise sufficient control over the individual for the individual to be classified as an employee). The 20 factors are described here:

1. Instructions. A worker who is required to comply with other persons’ instructions about when, where, and how he or she is to work is ordinarily an employee. This control factor is present if the person or persons for whom the services are performed have the RIGHT to require compliance with instructions. See, for example, Rev. Rul. 68-598, 1968-2 C.B. 464, and Rev. Rul. 66-381, 1966-2 C.B. 449.

2. Training. Training a worker by requiring an experienced employee to work with the worker, by corresponding with the worker, by requiring the worker to attend meetings, or by using other methods indicates that the person or persons for whom the services are performed want the services performed in a particular method or manner. See Rev. Rul. 70-630, 1970-2 C.B. 229.

3. Integration. Integration of the worker’s services into the business operations generally shows that the worker is subject to direction and control. When the success or continuation of a business depends to an appreciable degree upon the performance of certain services, the workers who perform those services must necessarily be subject to a certain amount of control by the owner of the business. See United States v. Silk, 331 U.S. 704 (1947), 1947-2 C.B. 167.

4. Services rendered personally. If the Services must be rendered personally, presumably the person or persons for whom the services are performed are interested in the methods used to accomplish the work as well as in the results. See Rev. Rul. 55-695, 1955-2 C.B. 410.

5. Hiring, supervising, and paying assistants. If the person or persons for whom the services are performed hire, supervise, and pay assistants, that factor generally shows control over the workers on the job. However, if one worker hires, supervises, and pays the other assistants pursuant to a contract under which the worker agrees to provide materials and labor and under which the worker is responsible only for the attainment of a result, this factor indicates an independent contractor status. Compare Rev. Rul. 63-115, 1963-1 C.B. 178, with Rev. Rul. 55-593 1955-2 C.B. 610.

6. Continuing relationship. A continuing relationship between the worker and the person or persons for whom the services are performed indicates that an employer–employee relationship exists. A continuing relationship may exist where work is performed at frequently recurring although irregular intervals. See United States v. Silk.

7. Set hours of work. The establishment of set hours of work by the person or persons for whom the services are performed is a factor indicating control. See Rev. Rul. 73-591, 1973-2 C.B. 337.

8. Full time required. If the worker must devote substantially full time to the business of the person or persons for whom the services are performed, such person or persons have control over the amount of time the worker spends working and impliedly restrict the worker from doing other gainful work. An independent contractor, on the other hand, is free to work when and for whom he or she chooses. See Rev. Rul. 56-694, 1956-2 C.B. 694.

9. Doing work on employer’s premises. If the work is performed on the premises of the person or persons for whom the services are performed, that factor suggests control over the worker, especially if the work could be done elsewhere. Rev. Rul. 56-660, 1956-2 C.B. 693. Work done off the premises of the person or persons receiving the services, such as at the office of the worker, indicates some freedom from control. However, this fact by itself does not mean that the worker is not an employee. The importance of this factor depends on the nature of the service involved and the extent to which an employer generally would require that employees perform such services on the employer’s premises. Control over the place of work is indicated when the person or persons for whom the services are performed have the right to compel the worker to travel a designated route, to canvass a territory within a certain time, or to work at specific places as required. See Rev. Rul. 56-694.

10. Order or sequence set. If a worker must perform services in the order or sequence set by the person or persons for whom the services are performed, that factor shows that the worker is not free to follow the worker’s own pattern of work but must follow the established routines and schedules of the person or persons for whom the services are performed. Often, because of the nature of an occupation, the person or persons for whom the services are performed do not set the order of the services or set the order infrequently. It is sufficient to show control, however, if such person or persons retain the right to do so. See Rev. Rul. 56-694.

11. Oral or written reports. A requirement that the worker submit regular or written reports to the person or persons for whom the services are performed indicates a degree of control. See Rev. Rul. 70-309, 1970-1 C.B. 199, and Rev. Rul. 68-248, 1968-1 C.B. 431.

12. Payment by hour, week, month. Payment by the hour, week, or month generally points to an employer–employee relationship, provided that this method of payment is not just a convenient way of paying a lump sum agreed upon as the cost of a job. Payment made by the job or on straight commission generally indicates that the worker is an independent contractor. See Rev. Rul. 74-389, 1974-2 C.B. 330.

13. Payment of business and/or traveling expenses. If the person or persons for whom the services are performed ordinarily pay the worker’s business and/or traveling expenses, the worker is ordinarily an employee. An employer, to be able to control expenses, generally retains the right to regulate and direct the worker’s business activities. See Rev. Rul. 55-144, 1955-1 C.B. 483.

14. Furnishing of tools and materials. The fact that the person or persons for whom the services are performed furnish significant tools, materials, and other equipment tends to show the existence of an employer–employee relationship. See Rev. Rul. 71-524, 1971-2 C.B. 346.

15. Significant investment. If the worker invests in facilities that are used by the worker in performing services and are not typically maintained by employees (such as the maintenance of an office rented at fair value from an unrelated party), that factor tends to indicate that the worker is an independent contractor. On the other hand, lack of investment in facilities indicates dependence on the person or persons for whom the services are performed for such facilities and, accordingly, the existence of an employer–employee relationship. See Rev. Rul. 71-524. Special scrutiny is required with respect to certain types of facilities, such as home offices.

16. Realization of profit or loss. A worker who can realize a profit or suffer a loss as a result of the worker’s services (in addition to the profit or loss ordinarily realized by employees) is generally an independent contractor, but the worker who cannot is an employee. See Rev. Rul. 70-309. For example, if the worker is subject to a real risk of economic loss due to significant investments or a bona fide liability for expenses, such as salary payments to unrelated employees, that factor indicates that the worker is an independent contractor. The risk that a worker will not receive payment for his or her services, however, is common to both independent contractors and employees and thus does not constitute a sufficient economic risk to support treatment as an independent contractor.

17. Working for more than one firm at a time. If a worker performs more than de minimis services for a multiple of unrelated persons or firms at the same time, that factor generally indicates that the worker is an independent contractor. See Rev. Rul. 70-572, 1970-2 C.B. 221. However, a worker who performs services for more than one person may be an employee of each of the persons, especially where such persons are part of the same service arrangement.

18. Making service available to general public. The fact that a worker makes his or her services available to the general public on a regular and consistent basis indicates an independent contractor relationship. See Rev. Rul. 56-660.

19. Right to discharge. The right to discharge a worker is a factor indicating that the worker is an employee and the person possessing the right is an employer. An employer exercises control through the threat of dismissal, which causes the worker to obey the employer’s instructions. An independent contractor, on the other hand, cannot be fired so long as the independent contractor produces a result that meets the contract specifications. Rev. Rul. 75-41, 1975-1 C.B. 323.

20. Right to terminate. If the worker has the right to end his or her relationship with the person for whom the services are performed at any time he or she wishes without incurring liability, that factor indicates an employer– employee relationship. See Rev. Rul. 70-309.

Rev. Rul. 75-41 considers the employment tax status of individuals performing services for a physician’s professional service corporation. The corporation is in the business of providing a variety of services to professional people and firms (subscribers), including the services of secretaries, nurses, dental hygienists, and other similarly trained personnel. The individuals who are to perform the services are recruited by the corporation, paid by the corporation, assigned to jobs, and provided with employee benefits by the corporation. Individuals who enter into contracts with the corporation agree they will not contract directly with any subscriber to which they are assigned for at least three months after cessation of their contracts with the corporation. The corporation assigns the individual to the subscriber to work on the subscriber’s premises with the subscriber’s equipment. Subscribers have the right to require that an individual furnished by the corporation cease providing services to them, and they have the further right to have such individual replaced by the corporation within a reasonable period of time, but the subscribers have no right to affect the contract between the individual and the corporation. The corporation retains the right to discharge the individuals at any time. Rev. Rul. 75-41 concludes that the individuals are employees of the corporation for federal employment tax purposes.

Rev. Rul. 70-309 considers the employment tax status of certain individuals who perform services as oil well pumpers for a corporation under contracts that characterize such individuals as independent contractors. Even though the pumpers perform their services away from the headquarters of the corporation and are not given day-to-day directions and instructions, the ruling concludes that the pumpers are employees of the corporation because the pumpers perform their services pursuant to an arrangement that gives the corporation the right to exercise whatever control is necessary to assure proper performance of the services; the pumpers’ services are both necessary and incident to the business conducted by the corporation; and the pumpers are not engaged in an independent enterprise in which they assume the usual business risks, but rather work in the course of the corporation’s trade or business. See also Rev. Rul. 70-630, 1970-2 C.B. 229, which considers the employment tax status of sales clerks furnished by an employee service company to a retail store to perform temporary services for the store.

Section 530(a) of the 1978 Act, as amended by section 269(c) of the Tax Equity and Fiscal Responsibility Act of 1982, 1982-2 C.B. 462, 536, provides, for purposes of the employment taxes under subtitle C of the Code, that if a taxpayer did not treat an individual as an employee for any period, then the individual shall be deemed not to be an employee, unless the taxpayer had no reasonable basis for not treating the individual as an employee. For any period after December 31, 1978, this relief applies only if both of the following consistency rules are satisfied: (1) all federal tax returns (including information returns) required to be filed by the taxpayer with respect to the individual for the period are filed on a basis consistent with the taxpayer’s treatment of the individual as not being an employee (“reporting consistency rule”), and (2) the taxpayer (and any predecessor) has not treated any individual holding a substantially similar position as an employee for purposes of the employment taxes for periods beginning after December 31, 1977 (“substantive consistency rule”).

The determination of whether any individual who is treated as an employee holds a position substantially similar to the position held by an individual whom the taxpayer would otherwise be permitted to treat as other than an employee for employment tax purposes under section 530(a) of the 1978 Act requires an examination of all the facts and circumstances, including particularly the activities and functions performed by the individuals. Differences in the positions held by the respective individuals that result from the taxpayer’s treatment of one individual as an employee and the other individual as other than an employee (for example, that the former individual is a participant in the taxpayer’s qualified pension plan or health plan and the latter individual is not a participant in either) are to be disregarded in determining whether the individuals hold substantially similar positions.

Section 1706(a) of the 1986 Act added to section 530 of the 1978 Act a new subsection (d), which provides an exception with respect to the treatment of certain workers. Section 530(d) provides that section 530 shall not apply in the case of an individual who, pursuant to an arrangement between the taxpayer and another person, provides services for such other person as an engineer, designer, drafter, computer programmer, systems analyst, or other similarly skilled worker engaged in a similar line of work. Section 530(d) of the 1978 Act does not affect the determination of whether such workers are employees under the common law rules. Rather, it merely eliminates the employment tax relief under section 530(a) of the 1978 Act that would otherwise be available to a taxpayer with respect to those workers who are determined to be employees of the taxpayer under the usual common law rules. Section 530(d) applies to remuneration paid and services rendered after December 31, 1986.

The Conference Report on the 1986 Act discusses the effect of section 530(d) as follows:

The Senate amendment applies whether the services of [technical service workers] are provided by the firm to only one client during the year or to more than one client, and whether or not such individuals have been designated or treated by the technical services firm as independent contractors, sole proprietors, partners, or employees of a personal service corporation controlled by such individual. The effect of the provision cannot be avoided by claims that such technical service personnel are employees of personal service corporations controlled by such personnel. For example, an engineer retained by a technical services firm to provide services to a manufacturer cannot avoid the effect of this provision by organizing a corporation that he or she controls and then claiming to provide services as an employee of that corporation.

[T]he provision does not apply with respect to individuals who are classified, under the generally applicable common-law standards, as employees of a business that is a client of the technical services firm.

2 H. R. Rep. No. 99-841 (Conf. Rep.), 99th Cong., 2d Sess. II-834 to 835 (1986).

Under the facts of Situation 1 the legal relationship is between the Firm and the Individual, and the Firm retains the right of control to ensure that the services are performed in a satisfactory fashion. The fact that the Client may also exercise some degree of control over the Individual does not indicate that the Individual is not an employee. Therefore, in Situation 1, the Individual is an employee of the Firm under the common law rules. The facts in Situation 1 involve an arrangement among the Individual, Firm, and Client, and the services provided by the Individual are technical services. Accordingly, the Firm is denied section 530 relief under section 530(d) of the 1978 Act (as added by section 1706 of the 1986 Act), and no relief is available with respect to any employment tax liability incurred in Situation 1. The analysis would not differ if the acts of Situation 1 were changed to state that the Individual provided the technical services through a personal service corporation owned by the Individual.

In Situation 2, the Firm does not retain any right to control the performance of the services by the Individual and, thus, no employment relationship exists between the Individual and the Firm.

In Situation 3, the Firm does not control the performance of the services of the Individual, and the Firm has no right to affect the relationship between the Client and the Individual. Consequently, no employment relationship exists between the Firm and the Individual.

Holdings

Situation 1. The Individual is an employee of the Firm under the common law rules. Relief under section 530 of the 1978 Act is not available to the Firm because of the provisions of section 530(d).

Situation 2. The Individual is not an employee of the Firm under the common law rules.

Situation 3. The Individual is not an employee of the Firm under the common law rules. Because of the application of section 530(b) of the 1978 Act, no inference should be drawn with respect to whether the Individual in Situations 2 and 3 is an employee of the Client for federal employment tax purposes.

E

U.S. Department of Labor Opinion Letter on Joint Employer Obligations for Minimum Wage and Overtime Pay

U.S. Department of Labor
Opinion Letter No. 874, Oct. 1, 1968
Joint Employers—Duty to Keep Records and Pay Overtime

This is in further reference to your letter of August 9, 1968, concerning the application of the Fair Labor Standards Act to certain employees of a company that supplies temporary help to various industries.

With regard to your second question, typically employees of a temporary staffing company working on assignments in various business establishments are joint employers of an employee, each is responsible for compliance with the requirements imposed on an employer under the statute with respect to any workweek when the employee is so employed. However, the employer who actually pays the employee the sums intended as compensation for hours of employment is considered primarily responsible for the keeping of the records required by Regulations, Part 516, and is treated as the one who has the primary duty of compliance as to such hours of employment. Where each employer makes direct payment to the employee, each employer is required to keep the records specified in the record-keeping regulations. In any event, a temporary help supplier which acts in the interest of one or more employers in any workweek in relation to any employee whose services it provides should keep the prescribed records with respect to that employee.

You pose a situation in which the ABC Temporary Staffing Company sends Jones to work Monday and Tuesday for a total of 20 hours in the week at the F Company. On Wednesday, Jones is sent to work at G Company for 12 hours; on Thursday and Friday, he works a total of 20 hours at H Company.

The foregoing discussion will answer your questions whether F, G, and H must keep records of the hours Jones has worked or whether it is sufficient that ABC Company alone keep the records. You also ask if F, G, and H would be liable if the ABC Temporary Staffing Company failed to pay the proper minimum wage. Each individual company is jointly responsible with the temporary staffing company for compliance with the minimum wage requirements of the law during the time the employee worked there. We would consider the ABC Company primarily responsible for the payment of proper overtime compensation in the example you present, since it is through its act that the employee received the assignment which caused overtime to be worked and it has the most direct knowledge of the total number of hours Jones worked in the workweek. Of course, if Jones worked overtime in any week for any of the employers to whom he was assigned by ABC Company, there is no question that such employer would be jointly responsible for the payment of proper overtime compensation for such work, as well as the applicable minimum wage. In addition, we believe we should point out that a number of courts have held in particular joint employment situations that the obligation to pay for overtime work resulting from a totaling of the hours worked for each rests equally on the joint employers. See e.g., Goldberg v. John R. Cowley & Bro. Inc., 292 F.2d 105; McComb v. Midwest Rust Proof Co., 8 Wage Hour Cases 460, 16 Labor Cases 64, 927 (E.D. Mo.); Mitchell v. Sin Jin Products Co., 171 F. Supp. 486 (D. Md.); Wirtz v. Marymax Construction Co., 17 Wage Hour Cases 333 (E.D.N. Mexico).

F

Federal Tax Provisions Regarding Leased Employees—Internal Revenue Code Section 414(n)

Table of Contents

American Staffing Association Answers to the Nine Most Common Questions About Leased Employees Under the Federal Tax Code

United States Code Annotated

Internal Revenue Bulletin 1984-2 CB 469—Notice 84-11 (July 16, 1984)

Small Business Job Protection Act of 1996

American Staffing Association Answers to the Nine Most Common Questions About Leased Employees Under the Federal Tax Code

1.     Q: What is the technical definition of a “leased employee?”

A: Generally, for the purposes of section 414(n), any employee of a service firm who furnishes services to a client under the primary control of the client for 1,500 hours or more in a 12-month period is considered a “leased employee.”

2.     Q: Do clients have to provide benefits to leased employees?

A: No. Section 414(n) only requires clients to include leased employees in their employee head count for discrimination testing purposes.

3.     Q: Doesn’t ERISA require employers to provide benefits to all employees who work 1,000 hours?

A: ERISA and section 414(n) have different purposes and requirements. ERISA contains a number of requirements relating to an employer’s benefit plans, but they apply only to the employer’s own employees. Section 414(n) applies to an employer’s use of outside employees.

4.     Q: What is the purpose of the IRS “discrimination” tests?

A: They are designed to ensure that an employer’s benefit plans do not favor higher-paid employees. Generally, they require employers to cover a certain percentage of lower-paid employees and to provide them with benefits similar to those received by higher-paid employees. Plans that meet the tests are eligible for favorable tax treatment. Coverage tests apply to retirement plans and to certain fringe benefits such as group life insurance, cafeteria plans, and self-insured health plans.

5.     Q: Does section 414(n) apply to all benefit plans that are subject to coverage testing?

A: No. Section 414(n) applies to retirement plans and to certain fringe benefits such as group life insurance and cafeteria plans. It does not apply to the coverage testing of group health plans (but it does apply in determining whether such plans are subject to COBRA or to certain Medicare “coordination-of-benefits” rules).

6.     Q: Why are clients concerned about leased employees?

A: Clients with tax-qualified benefit plans are concerned that including leased employees in their employee count will cause their plans to fail the coverage tests and lose their tax-favored status. If a plan fails the coverage tests, an employer could lose its tax deduction for the cost of benefits, and its employees could be immediately taxed on the value of the benefits earned.

7.     Q: Are there exceptions to the rule requiring clients to count leased employees?

A: Yes. Congress intended that a client not have to count leased employees for coverage testing purposes if its total use of such persons is less than 5% of its lower-paid workforce, and provided the client’s plans are not “top-heavy.” Of course, in such a case, the client’s plans should also expressly exclude leased employees from coverage.

8.     Q: What if the number of leased employees furnishing services to a client is 5% or more?

A: The client will have to count all leased employees when applying the coverage tests applicable to any benefit plans to which section 414(n) applies.

9.     Q: Who is responsible for keeping track of the number of leased employees?

A: Legally, it is the client’s responsibility to keep records to determine whether outside employees work long enough to be considered leased employees. Temporary staffing firms can, of course, assist in the record-keeping regarding the employees they assign.

United States Code Annotated

Title 26. Internal Revenue Code

Subtitle A. Income Taxes

Chapter 1. Normal Taxes and Surtaxes

Subchapter D. Deferred Compensation, etc.

Part I. Pension, Profit-Sharing, Stock Bonus Plans, etc.

Subpart B. Special Rules

Current through P.L. 113-295, approved Dec. 19, 2014

Section 414. Definitions and Special Rules

(n) Employee Leasing

(1)   In general. For purposes of the requirements listed in paragraph (3), with respect to any person (hereinafter in this subsection referred to as the “recipient”) for whom a leased employee performs services

(A) the leased employee shall be treated as an employee of the recipient, but

(B) contributions or benefits provided by the leasing organization which are attributable to services performed for the recipient shall be treated as provided by the recipient.

(2)   Leased employee. For purposes of paragraph (1), the term “leased employee” means any person who is not an employee of the recipient and who provides services to the recipient if

(A) such services are provided pursuant to an agreement between the recipient and any other person (in this subsection referred to as the “leasing organization”),

(B) such person has performed such services for the recipient (or for the recipient and related persons) on a substantially full-time basis for a period of at least one year, and

(C) such services are performed under primary direction or control by the recipient.

(3)   Requirements. For purposes of this subsection, the requirements listed in this paragraph are

(A) paragraphs (3), (4), (7), (16), (17), and (26) of section 401(a),

(B) sections 408(k), 408(p), 410, 411, 415, and 416, and

(C) sections 79, 106, 117(d), 125, 127, 129, 132, 137, 274(j), 505, and 4980B.

(4)   Time when first considered as employee.

(A) In general. In the case of any leased employee, paragraph (1) shall apply only for purposes of determining whether the requirements listed in paragraph (3) are met for periods after the close of the period referred to in paragraph (2)(B).

(B) Years of service. In the case of a person who is an employee of the recipient (whether by reason of this subsection or otherwise), for purposes of the requirements listed in paragraph (3), years of service for the recipient shall be determined by taking into account any period for which such employee would have been a leased employee but for the requirements of paragraph (2)(B).

(5)   Safe harbor.

(A) In general. In the case of requirements described in subparagraphs (A) and (B) of paragraph (3), this subsection shall not apply to any leased employee with respect to services performed for a recipient if

(i)  such employee is covered by a plan which is maintained by the leasing organization and meets the requirements of subparagraph (B), and

(ii)  leased employees (determined without regard to this paragraph) do not constitute more than 20% of the recipient’s nonhighly compensated workforce.

(B)  Plan requirements. A plan meets the requirements of this subparagraph if

(i)  such plan is a money purchase pension plan with a nonintegrated employer contribution rate for each participant of at least 10% of compensation,

(ii)  such plan provides for full and immediate vesting, and

(iii) each employee of the leasing organization (other than employees who perform substantially all of their services for the leasing organization) immediately participates in such plan. Clause (iii) shall not apply to any individual whose compensation from the leasing organization in each plan year during the four-year period ending with the plan year is less than $1,000.

(C) Definitions. For purposes of this paragraph

(i)  Highly compensated employee. The term “highly compensated employee” has the meaning given such term by section 414(q).

(ii)  Nonhighly compensated workforce. The term “nonhighly compensated workforce” means the aggregate number of individuals (other than highly compensated employees).

(I) who are employees of the recipient (without regard to this subsection) and have performed services for the recipient (or for the recipient and related persons) on a substantially full-time basis for a period of at least one year, or

(II) who are leased employees with respect to the recipient (determined without regard to this paragraph).

(iii) Compensation. The term “compensation” has the same meaning as when used in section 415; except that such term shall include

(I) any employer contribution under a qualified cash or deferred arrangement to the extent not included in gross income under section 402(e)(3) or 402(h) (1)(B),

(II) any amount which the employee would have received in cash but for an election under a cafeteria plan (within the meaning of section 125), and

(III) any amount contributed to an annuity contract described in section 403(b) pursuant to a salary reduction agreement (within the meaning of section 3121(a)(5)(D)).

(6)   Other rules. For purposes of this subsection

(A) Related persons. The term “related persons” has the same meaning as when used in section 144(a)(3).

(B) Employees of entities under common control. The rules of subsections (b), (c), (m), and (o) shall apply.

(o) Regulations

The Secretary shall prescribe such regulations (which may provide rules in addition to the rules contained in subsections (m) and (n) as may be necessary to prevent the avoidance of any employee benefit requirement listed in subsection (m)(4) or (n)(3) or any requirement under section 457) through the use of

(1)   separate organizations,

(2)   employee leasing, or

(3)   other arrangements.

The regulations prescribed under subsection (n) shall include provisions to minimize the record-keeping requirements of subsection (n) in the case of an employer which has no top-heavy plans (within the meaning of section 416(g)) and which uses the services of persons (other than employees) for an insignificant percentage of the employer’s total workload.

Internal Revenue Bulletin 1984-2 CB 469—Notice 84-11 (July 16, 1984)

Section 414(n) Employee Leasing Provision of the Tax Equity and Fiscal Responsibility Act of 1982

This Notice provides questions and answers relating to the employee leasing provisions of section 414(n) of the Internal Revenue Code as added by the Tax Equity and Fiscal Responsibility Act of 1982 (Pub. L. 97-248, 1982-2 C.B. 462) (TEFRA).

Until applicable regulations are published, the guidance provided by these questions and answers may be relied upon to comply with the provisions of section 414(n). The Service will apply these rules in issuing determination letters, opinion letters, and other rulings with respect to qualified retirement plans. If future regulations are more restrictive than the guidance in this Notice, the regulations will be applied without retroactive effect. However, no inference should be drawn regarding issues not raised which may be suggested by a particular question or answer or as to why certain questions and not others are included.

The determination of whether an organization is a “leasing organization” for purposes of section 414(n) will be based upon the facts and circumstances of each case. Taxpayers that utilize the services of leased employees may request a determination as to whether their plan qualifies by following the determination letter procedure issued in Notice 83-12, 1983-2 C.B. 412 (relating to procedures for obtaining determination letters on the qualification of pension, profit-sharing, and stock bonus plans that have been amended to comply with the changes made by the Tax Equity and Fiscal Responsibility Act of 1982). With regard to item 5 of Notice 83-12 (relating to the requirement that the employer provide information regarding what retirement benefits are provided for leased employees), the employer must supply information regarding the leasing organization’s retirement benefits only if the recipient is relying on such benefits for purposes of qualification of the recipient’s plan.

Q-1. How did TEFRA change the law with regard to employee leasing?

A-1. TEFRA amended the Internal Revenue Code to provide that for purposes of certain employee benefit provisions, a “leased employee” generally shall be treated as an employee of the person for whom such leased employee performs services (the “recipient” of the services) even though such individual is a common-law employee of the leasing organization.

Q-2. For purposes of which employee benefit provisions will a “leased employee” be treated as an employee of the recipient?

A-2. A leased employee will be treated as an employee of the recipient for purposes of the following employee benefit requirements:

(1) Section 401(a) (relating to the exclusive benefit rule);

(2) Sections 401(a)(3) and 410 (relating to minimum participation requirements);

(3) Section 401(a)(4) (relating to the requirement that contributions or benefits do not discriminate in favor of employees who are officers, shareholders, or highly compensated);

(4) Section 401(a)(7) and 411 (relating to minimum vesting standards);

(5) Sections 401(a)(16) and 415 (relating to limitations on contributions and benefits);

(6) Section 404 (relating to deductions for contributions);

(7) Section 408(k) (relating to simplified employee pensions); and

(8) Section 416 (relating to top-heavy plans).

Q-3. How do the provisions of section 414(n) relate to the “common-law employee” rules?

A-3. The provisions of section 414(n) operate independently of the “common-law employee” rules. Thus, if an individual is considered an employee of the recipient under the common law rules, such individual is an employee of the recipient for all purposes and without regard to the provisions of section 414(n). For example, an individual who is a common-law employee of an organization (a “recipient”) will continue to be an employee of the recipient even though the recipient formally “leases” the individual from a separate entity that maintains a safe harbor plan described in section 414(n)(5). In such cases, the fact that the “leasing” organization maintains a safe harbor plan does not affect the treatment of the individual as a common-law employee of the recipient.

Q-4. When is section 414(n) effective?

A-4. Section 414(n) applies to taxable years of the recipient beginning after December 31, 1983.

Q-5. What is a leased employee for purposes of section 414(n)?

A-5. A leased employee is any person who performs services for a recipient if:

(1) such services are provided pursuant to an agreement between the recipient and any other person (the “leasing organization”),

(2) such person has performed such services on a substantially full-time basis for a period of at least one year, and

(3) such services are of a type historically performed in the business field of the recipient by employees.

Q-6. Must the agreement referred to in paragraph (1) of A-5 between the recipient and the leasing organization be in writing?

A-6. No, an oral contract between the recipient and the leasing organization will satisfy the “agreement” requirement.

Q-7. What standards are used to determine if a person has performed services on a substantially full-time basis for a period of at least one year?

A-7. A person is considered to have performed services on a substantially fulltime basis for a period of at least one year if: (1) during any consecutive 12-month period such person has performed at least 1,500 hours of service for the recipient, or (2) during any consecutive 12-month period such person performs services for the recipient for a number of hours of service at least equal to 75% of the average number of hours that are customarily performed by an employee of that recipient in the particular position. The performance of services for a recipient includes the performance of services for an organization related to the recipient in accordance with section 103(b)(6)(C). For example, assume that Corporation X leases Individual A from Leasing Company Y to perform bookkeeping duties. Leasing Company Y does not maintain a retirement plan. It is customary for bookkeepers who are employed by Corporation X to perform services 35 hours per week or 1,820 hours per year. During the next consecutive 12-month period, A performs 1,450 hours of service for X. A does not meet the first test of “substantially full-time” because A did not perform 1,500 hours of service. However, A does meet the second test for “substantially full-time” because A performed services for a number of hours at least equal to 75% of the number of hours that are customarily performed by an employee in that particular position (.75 x 1,820 hours = 1,365 hours customarily performed). Therefore, A is a “leased employee” of Corporation X.

Q-8. For purposes of determining if an employee has performed services for the recipient on a substantially full-time basis for at least one year, does the one-year period include service of the employee prior to the effective date of section 414(n)?

A-8. Yes. For example, in the case of a recipient that is a calendar year taxpayer if, as of January 1, 1984, an individual has been performing services for the recipient on a substantially full-time basis for one year or more and the other requirements of section 414(n)(2) are met, such individual is a “leased employee” as of January 1, 1984. In addition, any period of service performed by the employee as a common-law employee of the recipient is taken into account for purposes of determining whether the employee has performed services on a substantially full-time basis for a period of at least one year. For example, assume that Individual B has been a common-law employee of Corporation X for a period of three years. On April 1, 1984, B terminates his employment with X. On May 1, 1984, B is hired by and becomes a common-law employee of Leasing Company Z. Leasing Company Z is not related to Corporation X. Z enters into a contract with Corporation X to provide leased employees. On May 2, 1984, Individual B is leased to Corporation X. Corporation X does not maintain direct control over Individual B’s day-to-day activities sufficient for B to be considered a common-law employee of X. Individual B is considered to be a leased employee of X for purposes of section 414(n) as of May 2, 1984, because prior service performed by Individual B for the recipient as a common-law employee is taken into account for purposes of determining whether an individual has performed services on a substantially full-time basis for a period of at least one year.

Q-9. Will a recipient’s retirement plan be denied qualification if the plan covers an individual who would otherwise be a leased employee but for the fact that such individual does not meet the “substantially full-time” standard?

A-9. No. In the case where a recipient’s retirement plan covers an individual who would be a leased employee for purposes of section 414(n), but such individual does not meet either of the tests in answer 7 for determining “substantially full-time,” the plan will not lose its qualified status or otherwise be denied qualification.

Q-10. What is the meaning of the requirement that services be of a type historically performed in the business field of the recipient by employees?

A-10. Services will be considered of a type historically performed by employees in the business field of the recipient if it is not unusual for the services to be performed by employees of organizations in the recipient’s business field in the United States.

Q-11. Are there any exceptions to the application of the provisions of section 414(n)?

A-11. Generally, no. Except as provided in section 414(n)(5) (relating to safe harbor plans of leasing organizations), as long as the three requirements of section 414(n)(2) and questions and answers 5 through 10 are met, the provisions of section 414(n) apply. However, the Service will consider suggestions made by the public regarding employee leasing arrangements that might be excepted from the provisions of section 414(n) in regulations.

Q-12. If, as of January 1, 1984, an individual is considered to be a leased employee, how are that individual’s years of service determined for purposes of participation and vesting under the recipient’s retirement plan?

A-12. For purposes of both participation and vesting, the entire period for which the leased employee has performed services for the recipient must be taken into account in accordance with section 414(n)(4), including periods before the effective date of section 414(n). Therefore, if the recipient is a calendar year taxpayer and the recipient’s retirement plan requires one year of service before an employee may participate, and a leased employee began performing services for the recipient on January 1, 1981, the leased employee’s service for participation purposes will be considered to have commenced on January 1, 1981. However, because the individual does not become a leased employee until January 1, 1984, such leased employee need not begin to participate in the plan until January 1, 1984. Therefore, section 414(n) does not require the recipient to provide retroactive benefits for the leased employee for years of service prior to January 1, 1984.

Q-13. How does the plan maintained by the leasing organization treat the leased employee for purposes of the applicable pension requirements?

A-13. The leased employee continues to be the common-law employee of the leasing organization. Therefore, for purposes of coverage, vesting, contributions, and benefits, a plan maintained by the leasing organization must take into consideration all of the leased employee’s service for the leasing organization (including periods during which the employee was leased by the leasing organization to a recipient) and compensation for services for or on behalf of the leasing organization.

Q-14. Must a leased employee participate in the plan maintained by the recipient?

A-14. No. Section 414(n)(1)(A) requires only that a leased employee be treated as an employee; it does not require that a leased employee be a participant in the recipient’s qualified plan.

For example, assume that for 1984 Company X (a calendar year taxpayer) has 500 common-law employees who have completed one or more years of service. In addition, X maintains a qualified profit-sharing plan in which 400 of these employees participate. The plan requires an employee to complete one year of service before participation, but does not impose a minimum age requirement. Also, section 414(n) requires that Company X treat 25 leased employees as its own employees for 1984.

Considering only the common-law employees, X’s plan satisfies the coverage requirements of section 410(b)(1) because it benefits 80% (400/500) of X’s employees who have completed one or more years of service. But X’s plan also must consider the 25 leased employees in applying the coverage requirements of section 410(b)(1) for 1984. If none of the 25 leased employees is permitted to participate under X’s plan for 1984, the plan will benefit 76.2% (400/525) of its employees and thus will satisfy section 410(b)(1)(A). Thus, X’s plan is not required to benefit any of the 25 leased employees for 1984. (But see question and answer 16, relating to plan amendments.)

Q-15. May leased employees who must be treated as employees of the recipient under section 414(n) be excluded as a class from participation in the recipient’s plan?

A-15. Yes. A plan maintained by a recipient may exclude from participation all leased employees who must be treated as employees under section 414(n) so long as the plan otherwise satisfies either the percentage or the fair cross-section test of section 410(b)(1) by taking such leased employees into account.

Q-16. Must a plan maintained by a recipient be amended to provide explicitly for the treatment of leased employees who must be treated as employees under section 414(n)?

A-16. Yes. How leased employees will be treated under a recipient’s plan depends on the terms of the plan. Therefore, if an organization utilizes the services of leased employees, the plan must specifically provide how leased employees will be treated under the recipient’s plan.

Q-17. How does the plan maintained by the recipient determine the contributions or benefits to be provided on behalf of the leased employee?

A-17. For purposes of providing a leased employee with contributions or benefits that are based on compensation, a plan maintained by the recipient must determine the portion of the leased employee’s total compensation received from or on behalf of the leasing organization that is attributable to the performance of services for the recipient. For purposes of providing a leased employee with contributions or benefits based on years of service, the principles of question and answer 12 are applicable.

Q-18. Section 414(n)(5) provides that section 414(n) shall not apply to any leased employee if such employee is covered by a “safe harbor” plan maintained by the leasing organization. Must the leasing organization cover all of its employees under a safe harbor plan?

A-18. Generally, no. A leasing organization need not cover every employee it leases under its safe harbor plan but may cover some employees and not others. However, the safe harbor plan is still required to qualify under the rules of section 401(a) and thus must satisfy the coverage rules of section 410(b) and the antidiscrimination rules of section 401(a)(4). In addition, any leased employee not covered by the safe harbor plan is subject to the general rule of section 414(n).

Q-19. If a plan maintained by a leasing organization provides a fully and immediately vested 7 1/2% nonintegrated contribution for each year during which a common-law employee of the leasing organization is considered a leased employee of a recipient, does such plan meet the immediate participation requirement of a safe-harbor plan?

A-19. No. In order to be treated as a safe harbor plan with respect to a leased employee, a plan maintained by a leasing organization must provide for immediate participation for such leased employee at the start of the 12-month period used to determine if the employee is a leased employee under section 414(n). For example, assume that a common-law employee of the leasing organization begins performing services for a recipient on July 1, 1984. Between July 1, 1984, and July 1, 1985, the employee performs more than 1,500 hours of service for the recipient. Therefore, as of July 1, 1985, the recipient must treat the employee as its own employee for purposes of the pension requirements listed in section 414(n)(3). If, as of July 1, 1984, the employee was a participant in the leasing organization’s qualified plan, the leasing organization’s plan will be considered to satisfy the immediate participation requirement for a safe harbor plan with respect to that employee. This is true even if the employee was hired by the leasing organization on January 1, 1984, and did not become a participant in the plan until July 1, 1984, the date on which the employee began providing services for the recipient.

However, in no case does the immediate participation rule require that an individual be a participant in a safe harbor plan before the effective date of section 414(n). Therefore, in the case of a recipient that is a calendar year taxpayer, if an individual is a leased employee as of January 1, 1984, (in accordance with the rules of answer 8), such individual need not become a participant in the safe harbor plan before January 1, 1984.

Small Business Job Protection Act of 1996

104th Congress, 2nd Session

House of Representatives Report 104-737

August 1, 1996—Ordered to be printed

Mr. Archer, from the committee of conference, submitted the following.

Conference Report

[To accompany H.R. 3448]

The committee of conference on the disagreeing votes of the two Houses on the amendments of the Senate to the bill (H.R. 3448), to provide tax relief for small businesses, to protect jobs, to create opportunities, to increase the take home pay of workers, to amend the Portal-to-Portal Act of 1947 relating to the payment of wages to employees who use employer owned vehicles, and to amend the Fair Labor Standards Act of 1938 to increase the minimum wage rate and to prevent job loss by providing flexibility to employers in complying with minimum wage and overtime requirements under that Act, having met, after full and free conference, have agreed to recommend and do recommend to their respective Houses as follows:

17. Treatment of Leased Employees

(Sec. 1454 of the House bill and the Senate amendment.)

Present Law

An individual (a leased employee) who performs services for another person (the recipient) may be required to be treated as the recipient’s employee for various employee benefit provisions, if the services are performed pursuant to an agreement between the recipient and any other person (the leasing organization) who is otherwise treated as the individual’s employer (sec. 414(n)). The individual is to be treated as the recipient’s employee only if the individual has performed services for the recipient on a substantially full-time basis for a year, and the services are of a type historically performed by employees in the recipient’s business field.

An individual who otherwise would be treated as a recipient’s leased employee will not be treated as such an employee if the individual participates in a safe harbor plan maintained by the leasing organization meeting certain requirements. Each leased employee is to be treated as an employee of the recipient, regardless of the existence of a safe harbor plan, if more than 20% of an employer’s non-highly compensated workforce are leased.

House Bill

Under the House bill, the present-law “historically performed” test is replaced with a new test under which an individual is not considered a leased employee unless the individual’s services are performed under primary direction or control by the service recipient. As under present law, the determination of whether someone is a leased employee is made after determining whether the individual is a common-law employee of the recipient. Thus, an individual who is not a common-law employee of the service recipient could nevertheless be a leased employee of the service recipient. Similarly, the fact that a person is or is not found to perform services under primary direction or control of the recipient for purposes of the employee leasing rules is not determinative of whether the person is or is not a common-law employee of the recipient.

Whether services are performed by an individual under primary direction or control by the service recipient depends on the facts and circumstances. In general, primary direction and control means that the service recipient exercises the majority of direction and control over the individual. Factors that are relevant in determining whether primary direction or control exists include whether the individual is required to comply with instructions of the service recipient about when, where, and how he or she is to perform the services, whether the services must be performed by a particular person, whether the individual is subject to the supervision of the service recipient, and whether the individual must perform services in the order or sequence set by the service recipient. Factors that generally are not relevant in determining whether such direction or control exists include whether the service recipient has the right to hire or fire the individual and whether the individual works for others.

For example, an individual who works under the direct supervision of the service recipient would be considered to be subject to primary direction or control of the service recipient even if another company hired and trained the individual, had the ultimate (but unexercised) legal right to control the individual, paid his wages, withheld his employment and income taxes, and had the exclusive right to fire him. Thus, for example, temporary secretaries, receptionists, word processing personnel, and similar office personnel who are subject to the day-to-day control of the employer in essentially the same manner as a common-law employee are treated as leased employees if the period of service threshold is reached.

On the other hand, an individual who is a common-law employee of Company A who performs services for Company B on the business premises of Company B under the supervision of Company A would generally not be considered to be under primary direction or control of Company B. The supervision by Company A must be more than nominal, however, and not merely a mechanism to avoid the literal language of the direction or control test.

An example of the situation in the preceding paragraph might be a work crew that comes into a factory to install, repair, maintain, or modify equipment or machinery at the factory. The work crew includes a supervisor who is an employee of the equipment (or equipment repair) company and who has the authority to direct and control the crew, and who actually does exercise such direction and control. In this situation, the supervisor and his or her crew are required to comply with the safety and environmental precautions of the manufacturer, and the supervisor is in frequent communication with the employees of the manufacturer. As another example, certain professionals (e.g., attorneys, accountants, actuaries, doctors, computer programmers, systems analysts, and engineers) who regularly make use of their own judgment and discretion on matters of importance in the performance of their services and are guided by professional, legal, or industry standards, are not leased employees even though the common-law employer does not closely supervise the professional on a continuing basis, and the service recipient requires the services to be performed on site and according to certain stages, techniques, and timetables. In addition to the example above, outside professionals who maintain their own businesses (e.g., attorneys, accountants, actuaries, doctors, computer programmers, systems analysts, and engineers) generally would not be considered to be subject to such primary direction or control.

Under the direction or control test, clerical and similar support staff (e.g., secretaries and nurses in a doctor’s office) generally would be considered to be subject to primary direction or control of the service recipient and would be leased employees provided the other requirements of section 414(n) are met.

In many cases, the “historically performed” test is overly broad, and results in the unintended treatment of individuals as leased employees. One of the principal purposes for changing the leased employee rules is to relieve the unnecessary hardship and uncertainty created for employers in these circumstances. However, it is not intended that the direction or control test enable employers to engage in abusive practices. Thus, it is intended that the Secretary interpret and apply the leased employee rules in a manner so as to prevent abuses. This ability to prevent abuses under the leasing rules is in addition to the present-law authority of the Secretary under section 414(o). For example, one potentially abusive situation exists where the benefit arrangements of the service recipient overwhelmingly favor its highly compensated employees, the employer has no or very few non-highly compensated common-law employees, yet the employer makes substantial use of the services of non-highly compensated individuals who are not its common-law employees.

Effective date.-—-The provision is effective for years beginning after Dec. 31, 1996, except that the House bill would not apply to relationships that have been previously determined by an IRS ruling not to involve leased employees. In applying the leased employee rules to years beginning before the effective date, it is intended that the Secretary use a reasonable interpretation of the statute to apply the leasing rules to prevent abuse.

Senate Amendment

The Senate amendment is the same as the House bill.

Conference Agreement

The conference agreement follows the House bill and the Senate amendment.

G

IRS Technical Advice Memorandum: Retirement Plans May Exclude Leased Employees

IRS TAM on Section 410: Minimum Participation Standards Document

Date: July 28, 1999

Manager, EP Determinations, Cincinnati, OH

Issues

Whether Plan 1 and Plan 2 may exclude from plan participation employees who are either (1) not reported on the payroll records of affiliated companies as common-law employees (even if a court or administrative agency determines that such individuals are common-law employees and not independent contractors) or (2) are identified by either a specified job code or work status code on the employer’s payroll records, and still satisfy the requirements of section 410(a) of the Internal Revenue Code and section 1.410(a)-3(d) of the Income Tax Regulations.

Whether plan eligibility requirements cause Plan 1 and Plan 2 to fail to satisfy the requirement that a plan must be a definite written program.

Whether section 11.04 of Plan 1 and sections 11.02, 13.06(e), and 14.02(a) of Plan 2, which provide for an involuntary cash-out of a participant’s benefit if the present value of the vested portion of such participant’s account is $3,500 or less at the time of the distribution, satisfy the requirement of section 411(a)(11) and section 417(e) of the Code and the regulations thereunder.

Facts

In September of 1997, the Internal Revenue Service received an Application for Determination for Employee Benefit Plan, Form 5300, for Plans 1 and 2. The Plans were initially effective March 1, 1996, and have calendar plan years. The taxpayer submitted proposed amendments to the plans on March 2, 1998. Section 2.14 of Plan 1 and section 2.21 of Plan 2, as amended March 2, 1998, state that “an individual shall only be treated as an employee if he or she is reported on the payroll records of an affiliated company as a common-law employee. This term does not include any other common-law employee or any leased employee. In particular, it is expressly intended that individuals not treated as common-law employees by the Affiliated Companies on their payroll records are to be excluded from Plan participation even if a court or administrative agency determines that such individuals are common-law employees and not independent contractors.” Neither “common-law employees” nor “independent contractors” are defined in the Plan document.

Section 3.02 of Plan 2 excludes “special assignment employees” from plan participation. The special assignment classification includes two types of workers: those with job code “Y” (Sections 2.14 and 3.03(a)) and those with work status code “X” (section 3.03(b)). The “X” and “Y” work code dictate how these workers are compensated and other terms of their employment. Specifically, “Y” code workers are hired to perform work on specific contracts with specific deadlines for specific compensation and benefits. These benefits include participation in other employer retirement plans. “X” code workers are members of the salaried employee union who have been laid off and are on the inactive seniority list. Pursuant to an agreement between the union and the employer, these former employees are hired for a predetermined period of time to complete a specific task or project. The agreement further provides that they be paid the prevailing contract salary rate and that they are not entitled to participate in the employer’s retirement plans.

Section 11.04(a) of Plan 1 as amended March 2, 1998, provides in general that upon a participant’s retirement or termination of employment, if the present value of the vested portion of the participant’s account is $3,500 or less at the time of the distribution, the vested portion will be distributed to him as soon as practicable following the next valuation date after retirement or termination occurs.

Section 11.02 of Plan 2 as amended March 2, 1998, provides that in the event a participant becomes a terminated participant, if the total value of his or her vested account is $3,500 or less at the time of the annuity starting date, he or she will receive a total distribution of his or her account as soon as practicable. Section 13.06(e) of Plan 2 as amended March 2, 1998, provides that with respect to a participant who has an outstanding loan balance at the time he or she terminates employment with the affiliated companies or dies and whose vested account and outstanding loan balance does not exceed $3,500 on the annuity starting date, the outstanding loan balance will be treated as a distribution.

Section 14.02(a) of Plan 2 as amended March 2, 1998, provides that if the total value of the deceased participant’s account is $3,500 or less on the annuity starting date, a total distribution shall be made automatically to the designated beneficiary.

Law and Rationale

a. Issue 1. Section 410(a) Requirements

Section 410(a) of the Code provides, in general, that a trust will not qualify under section 401(a) if the plan of which it is a part requires, as a condition of participation, that an employee complete a period of service with the employer or employers maintaining the plan extending beyond the later of the date on which the employee attains the age of 21; or the date on which he completes one year of service (or two years of service in the case of a plan that meets 410(a)(1)(B)(1)).

Section 1.410(a)-3(d) of the Income Tax Regulations states that “Section 410(a) and section 1.410(a)-4 relate solely to age and service conditions and do not preclude a plan from establishing conditions, other than conditions relating to age or service, which must be satisfied by plan participants. For example, such provisions would not preclude a qualified plan from requiring, as a condition of participation, that an employee be employed within a specific job classification.” Section 1.410(a)-3(a)(1) of the regulations, however, provides that “plan provisions may be treated as imposing age and service requirements even though the provisions do not specifically refer to age or service. Plan provisions which have the effect of imposing an age and service requirement with the employer or employers maintaining the plan will be treated as if they imposed an age or service requirement.”

Section 1.401-1(a)(2) of the regulations provides, in relevant part, that a qualified pension, profit sharing, or stock bonus plan is a definite written program and arrangement which is communicated to the employees and which is established and maintained by the employer.

Revenue Ruling 74-466, 1974-2 C.B. 131, holds that a plan which excludes nonsalaried employees unless such employees satisfy alternative eligibility requirements “approved by the trustees” that are not defined or described in the plan fails to satisfy the qualification requirement that a plan have a definite written program and arrangement as described in section 1.401-1(a)(2) of the regulations.

It is important to address these plan provisions in the context in which they arise. Many plans simply state that employees are eligible to participate, or that common-law employees are eligible to participate. These provisions mean the same thing.[1] In Nationwide Mutual Insurance Company v. Darden, 503 U.S. 318 (1992), the Supreme Court held that, for purposes of the Employee Retirement Income Security Act of 1974 (ERISA), common law agency principles are applied in determining whether an individual is an employee. The Court did not address how the term “employee” is defined under the Internal Revenue Code. However, the same common law standard is applied for Code purposes. Section 3121(d) of the Code and section 31.3121(d)-f(c)(2) of the Employment Tax Regulations provide that an employee includes any individual who, under the usual common law rules applicable in determining the employer–employee relationship, has the status of an employee. The analysis of a common law employment relationship typically arises in the context of determining whether an individual is a common-law employee or an independent contractor for purposes of employment taxes. This analysis is equally applicable in determining whether an individual is a common-law employee of the employer for purposes of section 401(a) of the code. See Professional & Executive Leasing Inc. v. Commissioner, 89 T.C. 225, 231 (1987); Edward L. Burnette, O.D., PA. v. Commissioner, 68 T.C. 387, 397 (1977); Packard v. Commissioner, 63 T.C. 621, 629 (1975).

Determining whether a particular worker is an independent contractor or an employee can be difficult, for it’s based on facts and circumstances.[2] The entity that engages a worker typically makes the initial determination of whether a worker is an independent contractor or a common-law employee. However, that initial determination of a worker’s status can subsequently be determined (by the entity, the Internal Revenue Service, or the courts) to have been erroneous, so that workers who were initially treated as independent contractors are retroactively reclassified as common-law employees. This reclassification could have a direct effect upon whether the reclassified workers are eligible to participate in any employee benefit plans of the employer. However, plan participation does not flow automatically from reclassification. Instead, plan terms must be examined to determine whether or not the recharacterized workers participate in the plan.

Vizcaino v. Microsoft Corp., 97 F.3d 1187 (9th Cir. 1996), illustrates how retroactive reclassifications can affect participation in qualified retirement plans.[3] The Vizcaino decision involves workers who were initially classified as independent contractors but were later determined to be common-law employees for employment tax purposes. The workers claimed benefits under Microsoft’s benefit plans, including its plan containing a cash or deferred arrangement described in section 401(k) of the Code (401(k) plan). The 401(k) plan limited participation to employees on Microsoft’s U.S. payroll. The court concluded that the workers at issue were common-law employees and thus were eligible, under the plan’s terms, to participate in the 401(k) plan.[4]

Many employers have amended their retirement plans in the wake of this decision in an attempt to protect their plans against the uncertainty that may be created by retroactive determinations that workers are employees rather than independent contractors. Typically, such amendments provide that workers engaged as independent contractors, or workers not paid through the payroll system, will not be eligible to participate in the plan, even if the classification as an independent contractor is later determined to be erroneous.

Section 410(a) of the Code precludes an employer from limiting participation on the basis of age or service, except as specifically permitted in that section. Section 410(a) does not otherwise limit an employer’s ability to design its retirement plan to exclude (or to cover) whichever classifications of employees that it chooses to exclude (or to cover). Similarly, section 1.410(a)-3(d) of the regulations does not preclude an employer from excluding workers based on conditions other than conditions that are age or service related. Indeed, this provision permits an employer to condition participation on “those employees being employed within a specification [sic] job classification.” The section 410(a) inquiry ends with a determination that the plan’s exclusion is not age or service-related.[5]

As indicated previously, employers have legitimate reasons to exclude from plans workers who were not engaged as common-law employees. If the worker is, in fact, an independent contractor, the employer would be precluded from covering the individual under its plan, absent some specific statutory rule, such as the individual’s status as a based employee under section 414(n) of the Code. Even if the worker is not, in fact, an independent contractor, the employer has a legitimate business interest in knowing the cost of the worker’s compensation package at the time the worker is engaged.

A tax-qualified retirement plan that conditions participation on status as a common-law employee need not define that term, for the standard articulated in Darden will be applicable absent some special definition in the plan. With respect to the case at issue, section 410(a) of the Code does not preclude a qualified plan from excluding retroactively reclassified employees from participating in the plan. A worker’s status is based on facts and circumstances. Making a determination as to whether a common law employment relationship exists is not always straightforward. An employer, making the initial classification of a worker’s status, has legitimate concerns in protecting its plan from the consequences of retroactive reclassifications if a mistake is made. Nothing in section 410(a) prevents an employer from addressing these concerns through preventative measures similar to the plan language provided by the taxpayer.

The District contends that the plan language excluding workers identified by work codes in the taxpayer’s payer records does not satisfy the requirements of section 410(a) of the Code for the same reasons that plan language excluding independent contractors fails to satisfy section 410(a). We disagree with this argument that plan language excluding independent contractors fails to satisfy section 410(a). As stated earlier, independent contractors are generally precluded from participating in the plan of an employer based on the exclusive benefit rule described in section 401(a). Section 410(a) provides, in part, that a trust shall not constitute a qualified trust if the plan requires as a condition of participation in the plan that an employee complete a period of service with the employer extending beyond the later of the date that the employee attains age 21 or the date the employee completes one year of service. Independent contractors are not employees (except of themselves) and, thus, the section 410(a) minimum age and service conditions are irrelevant for purposes of determining whether independent contractors can be excluded from a qualified plan of an entity that engages them.

Here the plan excludes workers based on a payroll code. Such an exclusion could potentially be an indirect age or service exclusion, and hence impermissible. This question cannot be answered merely by examining the plan document. Instead, an examination of facts external to the plan document would be necessary to conclude that the plan improperly excluded employees based on age or service. As we previously indicated, there are no facts present to indicate that this plan provision, excluding workers by codes, violates section 410(a) of the Code. Consequently, this exclusion does not violate section 410(a).

b. Issue 2. Definite Written Program Requirement

The District contends that the definite written program requirement is not satisfied because there is no specific, objective criteria. In the plan identifying common-law employees and further, that allowing the employer to define an individual as an employee only if the employee is reported on the payroll records of an affiliated company gives the employer discretion in determining who can participate in the plan by specifying how they are paid, i.e., on the payroll or by some other method such as accounts payable. Basically, the District presents the same contention as under section 410 of the Code with respect to the plan’s exclusion of independent contractors, namely, that it is not possible to determine from the plan document which employees will participate in the plan.

We believe that, for the same reasons that we discussed with reference to section 410(a) of the Code, the definite written program requirement is not violated by the exclusion of workers who were engaged as independent contractors but later determined to be employees. Although it can be difficult to determine accurately whether a worker is an independent contractor or an employee, the terms have independent legal significance. Further, the reference to the payroll system is in no sense ambiguous. Given the plan language, workers, whether engaged as employees on the payroll or in some other status, can determine whether they are covered by the plan. So, too, can the employer, trustees, and plan administrator.

As we have indicated, we believe that a plan must be definite as to which workers are covered and which workers are not and that the employer must communicate this essential fact to the employees. We agree with the District that the plan terms cannot leave the determination of which employees are covered to the employer’s discretion and that section 1.401-1(a)(2) of the regulations would be violated by plan provisions that permitted such discretion. Clearly, an employee should be able to enforce his or her rights based on the written plan document, and a plan that is not definite enough to enable an employee to determine coverage status so as to enforce rights is fatally flawed.

Section 402(a)(l) of ERISA has a comparable requirement that retirement plans “be established and maintained pursuant to a written agreement.” The ERISA conference report in explaining this requirement stated that a written plan is to be required in order that every employee may, on examining the plan document, determine exactly what his rights and obligations are under the plan. A written plan is required so the employees may know who is responsible for operating the plan. Conference Report 93-1260(1974) (reprinted in 1974-3 C.B. 415). We believe that this ERISA requirement is a corollary to the Code requirement of a definite written program that has long been required of a tax-qualified retirement plan. This requirement first appeared in Reg. 103, Sec. 19. 1655(a)(1)-1(a), which was added by T.D. 5278, for taxable years beginning after December 31, 1941.

A plan does not fail this requirement simply because facts extrinsic to the plan document need to be examined to determine which workers are covered by the plan. For example, if a plan covers certain classifications of employees, facts and circumstances must be examined to determine whether a particular worker fits into the covered classifications.

The Code contains pension plan rules that are premised on the fact that plans may cover particular classifications of employees. There are rules that recognize that a plan may cover collectively bargained employees or non-collectively bargained employees in section 410(b)(3) and section 413(b). Also, section 410(b)(2)(A) recognizes that a plan may benefit “such employees as qualify under a classification set up by the employer.”

Further, section 1.410(a)-3(d) of the regulations recognizes that a plan may limit its coverage to specified job classifications.

The Service has published revenue rulings describing situations in which qualified plans covered only certain classifications of employees. This limited coverage was not raised as an issue involving impermissible discretion. In Rev. Rul. 70-384, 1970-2 C.B. 87, the plan covered only supervisors. In Rev. Rul. 74-256, 1974-1 C.B. 94, the plan covered salaried employees in contrast to hourly employees. In Rev. Rul. 70-283, 1970-2 CR. 26, the plan covered nonunion employees.

Just because a plan can cover a particular category of employees and because it is permissible for an employer, in the exercise of its business judgment, to assign a worker to a particular category, does not mean that every category set forth in a plan is acceptable. We disagree with the taxpayer’s suggestion that no further inquiry is appropriate. A category like the impermissible category discussed in Rev. Rul. 74-466, 1974-2 C.B. 131 (employees approved by the trustees) is not acceptable. There may be other categories that leave the employer arbitrary and unbridled discretion and that are based on no independent business reason such that the category does not satisfy the definite written program requirement. For example, if the plan said that it covered employees who were on a list and there was no business reason for the list and a particular worker could be added to or removed from the list by the employer at any time, then an argument could be made that such a plan provision fails the definite written program requirement. We do not now suggest that such an argument be raised. We believe such a plan provision would be unusual and that a plan that meets the test below will be acceptable.

We believe the appropriate inquiry as to whether or not a particular category is acceptable is whether, given the particular facts of the employer and the plan provision, is it clear whether or not a particular employee is or is not in the plan. That is, is it clearly understood by the employees, the plan administrator, and the plan fiduciaries when they examine all the facts, which employees are covered by the plan and which employees are excluded? If this question can be answered in the affirmative, then the plan passes the definite written program requirement. Whether the question is being asked as to the present situation or is being asked on a retrospect [sic] basis, the test is the same. Thus, what is definite today should be definite tomorrow and the same answer should obtain with respect to a particular worker. On the other hand, if given knowledge of the same facts a reasonable person would not be able to tell who was covered or who was excluded, then the plan fails the test. Similarly, if the answer can change with respect to a particular employee when the question is asked on a retrospective basis, the classification is suspect.

We now turn to the facts in this case to see if the use of work and job codes in the context of the employer’s business satisfies the definite written program requirement. The “X” code workers that are excluded are basically rehired union employees who are on an inactive seniority list. The “Y” code workers that are excluded are hired to work on specific contracts and have a different compensation package, including coverage in another retirement plan. Here, the excluded workers know who they are. Further, it is undisputed that if any person looked at the facts with respect to a particular worker that person would know if the worker fit within the enumerated categories. Nor is there any question that at a subsequent time, an employee could be retroactively determined to have been a member of these excluded classes. Further, the employer has demonstrated that there is a business purpose for these categories. For these reasons, we believe that the plans satisfy the definite written program requirement.

c. Issue 3. Cash-Out Requirements

Prior to the enactment of the Taxpayer Relief Act of 1997 (TRA’97), section 411(a)(11)(A) of the Code provided that if the present value of any non-forfeitable accrued benefit exceeded $3,500, a plan met the requirements of section 411(a)(11) only if such plan provided that such benefit could not be immediately distributed without the consent of the participant. TRA’97 changed this cash-out limit to $5,000, effective for plan years beginning after August 5, 1997.

Interpreting the law prior to the enactment of TRA’97, section 1.411(a)-11(c)(3) of the regulations provides that the written consent of a participant is required before the commencement of the distribution of any portion of the participant’s accrued benefit if the present value of the non-forfeitable total accrued benefit is greater than $3,500. If the present value does not exceed $3,500, the consent requirements are deemed satisfied, and the plan may distribute such portion to the participant as a single sum. The regulation further provides that, if the present value determined at the time of a distribution to the participant exceeds $3,500, then the present value at any subsequent time is deemed to exceed $3,500; this is commonly referred to as the “lookback rule.”

Section 1.417(e)1(b)(2) of the regulations provides that written consent of the participant and, if the participant is married at the annuity starting date and the benefit is to be paid in a form other than a qualified joint and survivor annuity (QJSA), the participant’s spouse (or if either the participant or the spouse has died, the survivor) is required before the commencement of the distribution of any part of an accrued benefit if the present value of the non-forfeitable benefit is greater than $3,500. No consent is required before the annuity starting date if the present value of the non-forfeitable benefit is not more than $3,500. If the present value of the accrued benefit at the time at any distribution exceeds $3,500, the present value of the accrued benefit at any subsequent time will be deemed to exceed $3,500.

Effective December 31, 1998, final and temporary regulations were published under Code sections 411(a)(7), 411(a)(11), and 417(e)(1). These regulations provide guidance relating to the increase from $3,500 to $5,000 of the limit on distributions from qualified retirement plans that can be made without participant consent. This increase is contained in TRA’97.

In addition, these regulations eliminate, for most distributions, the “lookback rule” pursuant to which the qualified plan benefits of certain participants are deemed to exceed this limit on mandatory distributions.

In determining whether a participant’s non-forfeitable accrued benefit may be distributed without consent during plan years beginning on or after August 6, 1997, the now cash-out limit of $5,000 is permitted to be applied as though it were in effect for any plan years, including those beginning before August 6, 1997. In addition, these temporary regulations eliminate for many distributions the “lookback rule” under section 1.411(a)-11(c)(3) of the regulations. Under these regulations, a plan may provide that the present value of a participant’s non-forfeitable accrued benefit may be distributed without consent if that present value does not exceed the cash-out limit as determined at the time of the current distribution without regard to the present value of the participant’s benefit at the time of an earlier distribution. However, section 1.411(a)-11T(c)(3)(1) of the temporary regulations, which in effect eliminates the “lookback rule,” applies only to distributions made on or after March 22, 1999.

In this case, the plan amendment fails to satisfy section 1.411(a) 11(c)(3) of the regulations which applies to distributions made on or before March 22, 1999. Thus, the plan provisions in section 11.04 relating to mandatory distributions that do not require employee consent fail to satisfy section 411(a)(11)(A) of the Code for the period from the effective date of the amendment of March 2, 1998, through March 21, 1999.

Conclusions

We conclude that Plans 1 and 2 may exclude from plan participation employees who either (1) are not reported on the payroll records of affiliated companies as common-law employees (even if a court or administrative agency determines that such individuals are common-law employees and not independent contractors) or (2) are identified by either a specified job code or work status code on the employer’s payroll records, and still satisfy the requirements of section 410(a) of the Internal Revenue Code and section 1.410(a)-3(d) of the Income Tax Regulations.

We further conclude that the eligibility provisions of Plan 1 and Plan 2 do not prevent each plan from satisfying the requirement that a plan must be a definite written program.

Section 11.04 of Plan 1, and sections 11.02, 13.06, and 14.02 of Plan 2 as provided in the proposed amendments of March 2, 1998, fail to satisfy the requirements of section 411(a)(11) of the Code and sections 1.411(a)-11(c) (3) of the Income Tax Regulations for the period from March 2, 1998, through March 21, 1999.

Notes

1. The term “employee,” as used in a qualified plan, may include certain individuals who are not common-law employees. For example, an independent contractor may be treated as an employee with respect to a plan established by the independent contractor by reason of section 401(c) of the Code. Similarly, a full-time life insurance salesman is treated as an employee for qualified plan purposes. These statutory expansions of the term are not relevant for purposes of this technical advice memorandum.

2. Revenue Ruling 87-41, 1987-1 C.B. 296, contains a list of 20 factors courts had applied in determining whether a common law employment relationship exists. However, in order to better reflect the factors courts now appear to consider relevant, the Internal Revenue Service now makes this determination by exploring three primary categories of evidence: behavioral control, financial control, and relationship of the parties.

3. The discussion of this case is, of course, based solely on published court opinions.

4. The court remanded the case for a “determination of any questions of individual eligibility for benefits that may remain following issuance of this opinion and for calculation of the damages or benefits due the various class members.” Vizcaino v. Microsoft Corp., 97 F.3d 1187, 1200 (9th Cir. 1996), aff’d, 120 F.3d 1006 (9th Cir. 1997). See also Vizcaino v. Microsoft Corp., 173 F.3d 713 (9th Cir. 1999).

5. Exclusions permitted under section 410(a) may cause a plan to fail to meet the coverage standards of section 410(b). The latter is a separate inquiry, which is not at issue in this case.

H

Equal Employment Opportunity Commission Guidelines on Application of EEO Laws to Contingent Workers

DATE: 12/03/97

1.     SUBJECT: Enforcement Guidance: Application of EEO Laws to Contingent Workers Placed by Temporary Employment Agencies and Other Staffing Firms.

2.     PURPOSE: This document provides guidance regarding the application of the antidiscrimination statutes to temporary, contract, and other contingent employees.

3.     EFFECTIVE DATE: Upon receipt.

4.     EXPIRATION DATE: As an exception to EEOC Order 205.001, Appendix B, Attachment 4, Section a(5), this Notice will remain in effect until rescinded or superseded.

5.     ORIGINATOR: Title VII/EPA/ADEA Division, Office of Legal Counsel.

6.     INSTRUCTIONS: File after Section 605 of Volume II of the Compliance Manual.

Executive Summary

This Guidance addresses the application of the federal employment discrimination statutes to individuals placed in job assignments by temporary employment agencies, contract firms, and other firms that hire workers and place them in job assignments with the firms’ clients. The term “staffing firm” is used in this document to refer to these types of firms.

Staffing firm workers are generally covered under the antidiscrimination statutes. This is because they typically qualify as “employees” of the staffing firm, the client to whom they are assigned, or both. Thus, staffing firms and the clients to whom they assign workers may not discriminate against the workers on the basis of race, color, religion, sex, national origin, age, or disability.

The guidance makes clear that a staffing firm must hire and make job assignments in a nondiscriminatory manner. It also makes clear that the client must treat the staffing firm worker assigned to it in a nondiscriminatory manner, and that the staffing firm must take immediate and appropriate corrective action if it learns that the client has discriminated against one of the staffing firm workers. The document also explains that staffing firms and their clients are responsible for ensuring that the staffing firm workers are paid wages on a nondiscriminatory basis. Finally, the guidance describes how remedies are allocated between a staffing firm and its client when the EEOC finds that both have engaged in unlawful discrimination.

\s\

Gilbert F. Casellas, Chairman

Table of Contents

Introduction

Staffing Service Work Arrangements

Coverage Issues

Discriminatory Assignment Practices

Discrimination at Work Site

Discriminatory Wage Practices

Allocation of Remedies

Charge Processing Instructions

Introduction

This Guidance addresses the application of Title VII of the Civil Rights Act of 1964 (Title VII), the Age Discrimination in Employment Act (ADEA), the Americans With Disabilities Act (ADA), and the Equal Pay Act (EPA) to individuals placed in job assignments by temporary employment agencies and other staffing firms, i.e., “contingent workers.” The term “contingent workers” generally refers to workers who are outside an employer’s “core” workforce, such as those whose jobs are structured to last only a limited period of time, are sporadic, or differ in any way from the norm of full-time, long-term employment.

This guidance focuses on a large subgroup of the contingent workforce—those who are hired and paid by a “staffing firm,” such as a temporary employment agency or contract firm, but whose working conditions are controlled in whole or in part by the clients to whom they are assigned.

Recent statistics compiled by the National Association of Temporary and Staffing Services (NATSS) show that the temporary help industry currently employs more than 2.3 million individuals.[1] That number represents a 100% increase since 1991, when 1.15 million individuals were employed in temporary help jobs. NATSS statistics also show that the professional segment of the temporary help industry (including occupations in accounting, law, sales, and management) has risen significantly.

A 1995 survey by the Bureau of Labor Statistics (BLS) showed that workers paid by temporary employment agencies were more likely to be female and African American than workers in traditional job arrangements,[2] while workers provided by contract firms were disproportionately male.[3] BLS found that workers paid by temporary help agencies were heavily concentrated in administrative support and laborer occupations and earned 60% of the traditional worker wage.[4] The largest proportion of contract workers was employed in the services industry, and female contract workers earned slightly less than traditional workers while male contract workers earned more. BLS also found that contract and temporary workers had lower rates of health insurance and pension coverage than traditional workers, and that the majority of temporary workers would have preferred traditional work arrangements.

Staffing firms may assume that they are not responsible for any discrimination or harassment that their workers confront at the clients’ work sites. Similarly, some clients of staffing firms may assume that they are not the employers of temporary or contract workers assigned to them, and that they therefore have no EEO obligations toward these workers. However, as this guidance explains, both staffing firms and their clients share EEO responsibilities toward these workers. The Commission has addressed in previous guidance several of the coverage issues discussed in this document.[5] However, because use of contingent workers is increasing, it is important to set out an updated and unified policy that more specifically explains how the antidiscrimination laws apply to this segment of the workforce.

This document provides guidance concerning the following issues:

■     coverage under the EEO laws, including coverage of workers assigned to federal agencies;

■     liability of staffing firms and/or clients for discriminatory hiring, assignment, or wage practices;

■     liability of staffing firms and/or clients for unlawful discrimination or harassment at the assigned work site; and

■     allocation of damages where both the staffing firm and its client violate EEO laws.

Staffing Service Work Arrangements

The activities of the following types of staffing firms are addressed in this guidance[6]:

Temporary Employment Agencies

Unlike a standard employment agency, a temporary employment agency employs the individuals that it places in temporary jobs at its clients’ work sites. The agency recruits, screens, hires, and sometimes trains its employees. It sets and pays the wages when the worker is placed in a job assignment, withholds taxes and social security, and provides workers’ compensation coverage. The agency bills the client for the services performed.

While the worker is on a temporary job assignment, the client typically controls the individual’s working conditions, supervises the individual, and determines the length of the assignment.

Contract Firms

Under a variety of arrangements, a firm may contract with a client to perform a certain service on a long-term basis and place its own employees, including supervisors, at the client’s work site to carry out the service. Examples of contract firm services include security, landscaping, janitorial, data processing, and cafeteria services.

Like a temporary employment agency, a contract firm typically recruits, screens, hires, and sometimes trains its workers. It sets and pays the wages when the worker is placed in a job assignment, withholds taxes and social security, and provides workers’ compensation coverage.

The primary difference between a temporary agency and a contract firm is that a contract firm takes on full operational responsibility for performing an ongoing service and supervises its workers at the client’s work site.

Other Types of Staffing Firms

There are many variants on the staffing firm/client model. For example, “facilities staffing” is an arrangement in which a staffing firm provides one or more workers to staff a particular client operation on an ongoing basis, but does not manage the operation.

Under another model, a client of a staffing firm puts its workers on the firm’s payroll, and the firm leases the workers back to the client. The purpose of this arrangement is to transfer responsibility for administering payroll and benefits from the client to the staffing firm. A staffing firm that offers this service does not recruit, screen, or train the workers.

The term “staffing firm” is used in this document to describe generically these types of firms, although more specific terms are used where necessary for purposes of clarity.

Coverage Issues

This section sets forth criteria for determining whether a staffing firm worker qualifies as an “employee” within the meaning of the antidiscrimination statutes or an independent contractor; whether the staffing firm and/or its client qualifies as the worker’s employer(s); and whether the staffing firm or its client can be liable for discriminating against the worker even if it does not qualify as the worker’s employer. This section also discusses coverage of staffing firm workers assigned to jobs in the federal government and coverage of workers assigned to jobs in connection with welfare programs. Finally, this section explains the method for counting workers of a staffing firm or its client to determine whether either entity has the minimum number of employees to be covered under the applicable antidiscrimination statute.

1.     Are staffing firm workers “employees” within the meaning of the federal employment discrimination laws?

Yes, in the great majority of circumstances.[7] The threshold question is whether a staffing firm worker is an “employee” or an “independent contractor.” The worker is a covered employee under the antidiscrimination statutes if the right to control the means and manner of her work performance rests with the firm and/or its client rather than with the worker herself. The label used to describe the worker in the employment contract is not determinative. One must consider all aspects of the worker’s relationship with the firm and the firm’s client.[8] As the Supreme Court has emphasized, there is “no shorthand formula or magic phrase that can be applied to find the answer… all incidents of the relationship must be assessed with no one factor being decisive.”[9] Factors that indicate that the worker is a covered employee include:[10]

(a)  the firm or the client has the right to control when, where, and how the worker performs the job;

(b)  the work does not require a high level of skill or expertise;

(c)  the firm or the client rather than the worker furnishes the tools, materials, and equipment;

(d)  the work is performed on the premises of the firm or the client;

(e)  there is a continuing relationship between the worker and the firm or the client;

(f)  the firm or the client has the right to assign additional projects to the worker;

(g)  the firm or the client sets the hours of work and the duration of the job;

(h)  the worker is paid by the hour, week, or month rather than for the agreed cost of performing a particular job;

(i)  the worker has no role in hiring and paying assistants;

(j)  the work performed by the worker is part of the regular business of the firm or the client;

(k)  the firm or the client is itself in business;

(l)  the worker is not engaged in his or her own distinct occupation or business;

(m)  the firm or the client provides the worker with benefits such as insurance, leave, or workers’ compensation;

(n)  the worker is considered an employee of the firm or the client for tax purposes (i.e., the entity withholds federal, state, and social security taxes);

(o)  the firm or the client can discharge the worker; and

(p)  the worker and the firm or client believe that they are creating an employer–employee relationship.

This list is not exhaustive. Other aspects of the relationship between the parties may affect the determination of whether an employer–employee relationship exists. Furthermore, not all or even a majority of the listed criteria need be met.

Rather, the fact-finder must make an assessment based on all of the circumstances in the relationship between the parties.

EXAMPLE 1:

A temporary employment agency hires a worker and assigns him to serve as a computer programmer for one of the agency’s clients. The agency pays the worker a salary based on the number of hours worked as reported by the client. The agency also withholds social security and taxes and provides workers’ compensation coverage. The client establishes the hours of work and oversees the individual’s work. The individual uses the client’s equipment and supplies and works on the client’s premises. The agency reviews the individual’s work based on reports by the client. The agency can terminate the worker if his or her services are unacceptable to the client. Moreover, the worker can terminate the relationship without incurring a penalty. In these circumstances, the worker is an “employee.”

2.     Is a staffing firm worker who is assigned to a client an employee of the firm, its client, or both?

Once it is determined that a staffing firm worker is an “employee,” the second question is who is the worker’s employer. The staffing firm and/or its client will qualify as the worker’s employer(s) if, under the factors described in Question 1, one or both businesses have the right to exercise control over the worker’s employment. As noted above, no one factor is decisive, and it is not necessary even to satisfy a majority of factors. The determination of who qualifies as an employer of the worker cannot be based on simply counting the number of factors. Many factors may be wholly irrelevant to particular facts. Rather, all of the circumstances in the worker’s relationship with each of the businesses should be considered to determine if either or both should be deemed his or her employer. If either entity qualifies as the worker’s employer, and if that entity has the statutory minimum number of employees (see Question 6), then it can be held liable for unlawful discriminatory conduct against the worker. If both the staffing firm and its client have the right to control the worker, and each has the statutory minimum number of employees, they are covered as “joint employers.”[11]

a. Staffing Firm

The relationship between a staffing firm and each of its workers generally qualifies as an employer–employee relationship because the firm typically hires the worker, determines when and where the worker should report to work, pays the wages, is itself in business, withholds taxes and social security, provides workers’ compensation coverage, and has the right to discharge the worker. The worker generally receives wages by the hour or week rather than by the job and often has a continuing relationship with the staffing firm. Furthermore, the intent of the parties typically is to establish an employer–employee relationship.[12] In limited circumstances, a staffing firm might not qualify as an employer of the workers that it assigns to a client. For example, in some circumstances, a client puts its employees on the staffing firm’s payroll solely in order to transfer the responsibility of administering wages and insurance benefits. This is often referred to as employee leasing. If the firm does not have the right to exercise any control over these workers, it would not be considered their “employer.”[13]

b. Client

A client of a temporary employment agency typically qualifies as an employer of the temporary worker during the job assignment, along with the agency. This is because the client usually exercises significant supervisory control over the worker.[14]

EXAMPLE 2:

Under the facts of Example 1, above, the temporary employment agency and its client qualify as joint employers of the worker because both have the right to exercise control over the worker’s employment.

EXAMPLE 3:

A staffing firm hires charging party (CP) and sends her to perform a long term accounting project for a client. Her contract with the staffing firm states that she is an independent contractor. CP retains the right to work for others, but spends substantially all of her work time performing services for the client, on the client’s premises. The client supervises CP, sets her work schedule, provides the necessary equipment and supplies, and specifies how the work is to be accomplished. CP reports the number of hours she has worked to the staffing firm. The firm pays her and bills the client for the time worked. It reviews her work based on reports by the client and has the right to terminate her if she is failing to perform the requested services. The staffing firm will replace her with another worker if her work is unacceptable to the client.

In these circumstances, despite the statement in the contract that she is an independent contractor, both the staffing firm and the client are joint employers of CP.[15]

Clients of contract firms and other types of staffing firms also qualify as employers of the workers assigned to them if the clients have sufficient control over the workers, under the standards set forth in Question 1, above.[16] For example, the client is an employer of the worker if it supplies the work space, equipment, and supplies, and if it has the right to control the details of the work to be performed, to make or change assignments, and to terminate the relationship. On the other hand, the client would not qualify as an employer if the staffing firm furnishes the job equipment and has the exclusive right, through on-site managers, to control the details of the work, to make or change assignments, and to terminate the workers.

EXAMPLE 4:

A staffing firm provides janitorial services for its clients. It hires the workers and places them on each client’s premises under the supervision of the contract firm’s own managerial employees. The firm’s manager sets the work schedules, assigns tasks to the janitors, provides the equipment they need to do the job, and supervises their work performance. The client has no role in controlling the details of the work, making assignments, or setting the hours or duration of the work. Nor does the client have authority to discharge the worker. In these circumstances, the staffing firm is the worker’s exclusive employer; its client is not a joint employer.

EXAMPLE 5:

A staffing firm provides landscaping services for clients on an ongoing basis. The staffing firm selects and pays the workers, provides health insurance, and withholds taxes. The firm provides the equipment and supplies necessary to do the work. It also supervises the workers on the clients’ premises. Client A reserves the right to direct the staffing firm workers to perform particular tasks at particular times or in a specified manner, although it does not generally exercise that authority. Client A evaluates the quality of the workers’ performance and regularly reports its findings to the firm. It can require the firm to remove the worker from the job assignment if it is dissatisfied. The firm and the Client A are joint employers.

3.     Can a staffing firm or its client be liable for unlawfully discriminating against a staffing firm worker even if it does not qualify as the worker’s employer?

An entity that has enough employees to qualify as an employer under the applicable EEO statute can be held liable for discriminating against an individual who is not its employee. The antidiscrimination statutes not only prohibit an employer from discriminating against its own employees, but also prohibit an employer from interfering with an individual’s employment opportunities with another employer.[17] Thus, a staffing firm that discriminates against its client’s employee or a client that discriminates against a staffing firm’s employee is liable for unlawfully interfering in the individual’s employment opportunities.[18]

EXAMPLE 6:

A staffing firm assigned one of its employees to maintain and repair a client’s computers. The firm supplied all the tools and direction for the repairs. The technician was on the client’s premises only sporadically over a three- to four-week period and worked independently while there. The client did not report to the firm about the number of hours worked or about the quality of the work. The client had no authority to make assignments or require work to be done at particular times. After a few visits, the client asked the contract firm to assign someone else, stating that it was not satisfied with the worker’s computer repair skills. However, the worker believes that the true reason for the client’s action was racial bias.

The client does not qualify as a joint employer of the worker because it had no ongoing relationship with the worker, did not pay the worker or firm based on the hours worked, and had no authority over hours, assignments, or other aspects of the means or manner by which the work was achieved. However, if the client’s request to replace the worker was due to racial bias, and if the client had 15 or more employees, it would be liable for interfering in the worker’s employment opportunities with the staffing firm.

EXAMPLE 7:

A company puts its employees on the payroll of a staffing firm solely in order to transfer the responsibility of administering wages and insurance benefits for the company’s workers. The staffing firm administers a health insurance policy for its client’s workers that does not cover AIDS-related illness. Two workers file ADA charges against the staffing firm and the client. The staffing firm claims that it is not an employer of the workers and therefore falls outside ADA coverage.

The staffing firm does not qualify as a joint employer of the workers because it does not have the requisite degree of control—it did not hire the workers, establish their wage rates or hours, control the conditions of work, manage personnel disputes, or have the right to fire the workers. Nevertheless, the firm shares liability with its client for the discriminatory health insurance plan if it has 15 or more employees of its own to fall under the coverage of the ADA.[19] This is because the firm’s administration of the insurance plan interferes in the workers’ access to employment opportunities or benefits.[20]

4.     Do the same coverage principles apply when a staffing firm assigns a worker to a federal agency?

The principles regarding joint employer coverage are the same. Thus, a federal agency qualifies as a joint employer of an individual assigned to it if it has the requisite control over that worker, as discussed in Questions 1 and 2. If so, and if the agency discriminates against the individual, it is liable whether or not the individual is on the federal payroll.[21]

In contrast to private employers, a federal agency that does not qualify as a joint employer of the worker assigned to it cannot be found liable for discrimination under a “third-party interference” theory. This is because Title VII, the ADEA, and Section 501 of the Rehabilitation Act only permit claims against the federal government by “employees or applicants for employment.”[22]

5.     Are workers participating in work-related activities in connection with welfare programs protected by the federal employment discrimination laws? If so, who is the employer of such a worker? What types of claims might arise?

a. Employee Status

Welfare recipients participating in work-related activities[23] are protected by the federal antidiscrimination statutes if they are “employees” within the meaning of the federal employment discrimination laws.[24] See Question 1. The simple fact of participation in one of these activities is not dispositive of the question of whether the federal employment discrimination laws apply. Rather, the same analysis applies which is used to determine whether any other worker is covered by the federal employment discrimination laws. Under the criteria that have been set out, welfare recipients would likely be considered employees in most of the work activities described in the new welfare law, including unsubsidized and subsidized public and private sector employment, work experience, and on-the-job training programs.[25] On the other hand, individuals engaged in activities such as vocational education, job search assistance, and secondary school attendance would probably not be covered.[26]

b. Employer Status

While some workers participating in these programs will have a single employer, others may have joint employers. For example, a state or local welfare agency may function as a staffing firm and the “direct” employer may function as the client. In some cases, a state or local welfare agency may contract with a temporary employment agency to place the welfare recipients in job assignments. The determination of whether any or all of these entities are employers of the worker is based on the same criteria set forth in answer to Questions 1 and 2 that apply to any other employment situation. The fact that an entity does not pay the worker a salary does not, by itself, defeat a finding of an employment relationship. Moreover, even if an entity is not the worker’s employer, it can be found liable under the employment discrimination laws based on the interference theory explained in the answer to Question 3.

c. Types of Claims

Types of claims which may arise include, for example, harassment, discriminatory assignments, discriminatory termination, failure to provide reasonable accommodation to persons covered under the Americans With Disabilities Act, and retaliation.

6.     Which workers are counted when determining whether a staffing firm or its client is covered under Title VII, the ADEA, or the ADA?

The staffing firm and the client each must count every worker with whom it has an employment relationship.[27] Although a worker assigned by a staffing firm to a client may not appear on the client’s payroll, (s)he must be counted as an employee of both entities if they qualify as joint employers.[28] Questions 1 and 2, above, set forth the legal standards for determining whether a worker has an employment relationship with either the staffing firm or its client, or both.

The Supreme Court has made clear that a respondent must count each employee from the day that the employment relationship begins until the day that it ends, regardless of whether the employee is present at work or on leave on each working day during that period.[29] Thus, a client of a staffing firm must count each worker assigned to it from the first day of the job assignment until the last day. The staffing firm also must count the worker as its employee during every period in which the worker is sent on a job assignment.

Staffing firms are typically covered under the antidiscrimination statutes, because their permanent staff plus the workers that they send to clients generally exceeds the minimum statutory threshold. Clients may or may not be covered, depending on their size. In cases where questions are raised regarding coverage, the investigator should ask the respondent to name and provide records regarding every individual who performed work for it, including all individuals assigned by staffing firms and any temporary, seasonal, or other contingent workers hired directly by the respondent. If the investigator has questions about the documents produced and cannot otherwise obtain the necessary information, he or she may consider deposing the respondent. The investigator should then determine which of the named individuals qualified as employees of the respondent rather than independent contractors, according to the standards set forth in Questions 1 and 2, above.

Discriminatory Assignment Practices

A staffing firm is obligated, as an employer, to make job assignments in a nondiscriminatory manner.[30] It also is obligated as an employment agency to make job referrals in a nondiscriminatory manner. The staffing firm’s client is liable if it sets discriminatory criteria for the assignment of workers. The following question and answer explore these issues in detail.

7. If a worker is denied a job assignment by a staffing firm because its client refuses to accept the worker for discriminatory reasons, is the staffing firm liable? Is the client?

a. Staffing Firm

The staffing firm is liable for its discriminatory assignment decisions. Liability can be found on any of the following bases: 1) as an employer of the workers assigned to clients (for discriminatory job assignments); 2) as a third-party interferer (for discriminatory interference in the workers’ employment opportunities with the firm’s client); and/or 3) as an employment agency for (discriminatory job referrals).[31]

The fact that a staffing firm’s discriminatory assignment practice is based on its client’s requirement is no defense. Thus, a staffing firm is liable if it honors a client’s discriminatory assignment request or if it knows that its client has rejected workers in a protected class for discriminatory reasons and for that reason refuses to assign individuals in that protected class to that client. Furthermore, the staffing firm is liable if it administers on behalf of its client a test or other selection requirement that has an adverse impact on a protected class and is not job-related for the position in question and consistent with business necessity. 42 U.S.C. § 2000e-2(k).

b. Client

A client that rejects workers for discriminatory reasons is liable either as a joint employer or third-party interferer if it has the requisite number of employees to be covered under the applicable antidiscrimination statute.

EXAMPLE 8:

A staffing firm that provides job placements for nurses receives a job order from an individual client for a white nurse to provide her with home-based nursing care. The firm agrees to refer only white nurses for the job. The firm is violating Title VII, both as an employment agency for its discriminatory referral practice and as an employer for the discriminatory job assignment. The client is not covered by Title VII because she does not have 15 or more employees.

EXAMPLE 9:

A temporary employment agency receives a job order for a temporary receptionist. The client requires that the individual assigned to it speak English fluently because a large part of the job entails communication with English-speaking persons who call the client or who come to the client’s work place. The agency assigns an Asian American individual who speaks English fluently, but with an accent. The client insists that the agency replace her with someone who can speak unaccented English. The agency complies with that request and sends an individual who speaks English fluently with no accent.

The Asian American individual files a charge with the EEOC. The investigator determines that English fluency was necessary for the job. However, he further determines that CP’s accent does not interfere with her ability to communicate and that she has effectively performed similar jobs. The investigator properly concludes that both the client and the staffing firm are liable for terminating CP on the basis of her national origin.

EXAMPLE 10:

A staffing firm provides machine operators to its clients. One of its clients requires that all workers assigned to it pass a certain paper and pencil test. The firm administers the test to its available workers and refers only those who pass the test. An African American individual who is denied an assignment with the client files charges against both the staffing firm and its client, alleging that administration of the test results in the disproportionate exclusion of African Americans. An investigation shows that the test does have an adverse impact on African Americans and does not accurately measure the skills that are necessary for job performance. Therefore, both the staffing firm and its client are in violation of Title VII.

Discrimination at Work Site

A client of a staffing firm is obligated to treat the workers assigned to it in a nondiscriminatory manner. Where the client fails to fulfill this obligation, and the staffing firm knows or should know of the client’s discrimination, the firm must take corrective action within its control.[32] The following questions and answers explore these issues in detail.

8.     If a client discriminates against a worker assigned by a staffing firm, who is liable?

Client: If the client qualifies as an employer of the worker (see Questions 1 and 2), it is liable for discriminating against the worker on the same basis that it would be liable for discriminating against any of its other employees.

Even if the client does not qualify as an employer of the worker, it is liable for discriminating against that individual if the client’s misconduct interferes with the worker’s employment opportunities with the staffing firm, and if the client has the minimum number of employees to be covered under the applicable discrimination statute. See Question 3.

Staffing Firm: The firm is liable if it participates in the client’s discrimination. For example, if the firm honors its client’s request to remove a worker from a job assignment for a discriminatory reason and replace him or her with an individual outside the worker’s protected class, the firm is liable for the discriminatory discharge. The firm also is liable if it knew or should have known about the client’s discrimination and failed to undertake prompt corrective measures within its control.[33]

The adequacy of corrective measures taken by a staffing firm depends on the particular facts. Corrective measures may include, but are not limited to: 1) ensuring that the client is aware of the alleged misconduct; 2) asserting the firm’s commitment to protect its workers from unlawful harassment and other forms of prohibited discrimination; 3) insisting that prompt investigative and corrective measures be undertaken; and 4) affording the worker an opportunity, if (s)he so desires, to take a different job assignment at the same rate of pay. The staffing firm should not assign other workers to that work site unless the client has undertaken the necessary corrective and preventive measures to ensure that the discrimination will not recur. Otherwise, the staffing firm will be liable along with the client if a worker later assigned to that client is subjected to similar misconduct.[34]

EXAMPLE 11:

A temporary receptionist placed by a temporary employment agency is subjected to severe and pervasive unwelcome sexual comments and advances by her supervisor at the assigned work site. She complains to the agency, and the agency informs its client of the allegation. The client refuses to investigate the matter, and instead asks the agency to replace the worker with one who is not a “troublemaker.” The agency tells the worker that it cannot force the client to take corrective action, finds the worker a different job assignment, and sends another worker to complete the original job assignment.

The client is liable as an employer of the worker for harassment and for retaliatory discharge.

The temporary employment agency also is liable for the harassment and retaliatory discharge because it knew of the misconduct and failed to undertake adequate corrective action. Informing the client of the harassment complaint was not sufficient—the agency should have insisted that the client investigate the allegation of harassment and take immediate and appropriate corrective action. The agency should also have asserted the right of its workers to be free from unlawful discrimination and harassment, and declined to assign any other workers until the client undertook the necessary corrective and preventive measures. The agency unlawfully participated in its client’s discriminatory misconduct when it acceded to the client’s request to replace the worker with one who was not a “troublemaker.” If the replacement worker is subjected to similar harassment, the agency and the client will be subject to additional liability.

EXAMPLE 12:

A staffing firm provides computer services for a company that has more than 15 employees. The staffing firm assigns an individual to work on-site for that client. When the client discovers that the worker has AIDS, it tells the staffing firm to replace him because the client’s employees fear infection. The staffing firm alerts the client that they are both prohibited from discriminating against the worker, and that such a discharge would violate the ADA. The client nevertheless continues to insist that the firm remove the worker from the work assignment and replace him with someone else. The staffing firm has no choice but to remove the worker. However, it declines to replace him with another worker to complete the assignment because to do so would constitute acquiescence in the discrimination. Furthermore, the firm offers the worker a different job assignment at the same rate of pay. The client is liable for the discriminatory discharge, either as an employer or third-party interferer. The staffing firm is not liable because it took immediate and appropriate corrective action within its control.

9.     If a staffing firm sends its employee on a job assignment with a federal agency and the individual is subjected to discrimination while on the assignment, is the federal agency liable? Is the staffing firm? What procedures should the individual follow in filing a complaint?

The federal agency is liable for discriminating against the worker if it qualifies as an employer of the worker. If the federal agency does not qualify as an employer of the staffing firm worker under the criteria in Questions 1 and 2, it will not be liable for discriminating against that worker under the statutes enforced by the EEOC. A federal agency is liable for employment discrimination under these statutes only where it has sufficient control to be deemed an employer of the worker. See Question 4.

The staffing firm is liable if it participated in the federal agency’s discrimination or if it knew or should have known of the discrimination and failed to intervene, under the principles discussed in Question 8, above.

If the staffing firm worker seeks to pursue a complaint against the federal agency as his or her employer, (s)he should contact an EEO Counselor at the federal agency within 45 days of the date of the alleged discrimination. If the individual also seeks to pursue a claim against the staffing firm, (s)he should file a separate charge with an EEOC field office. In such circumstances, the EEOC investigator should alert the individual as to the different time frames and procedures in the federal and private sectors.[35] The investigator should also contact the EEO office of the federal agency once the individual files the federal sector complaint in order to coordinate the federal and private sector investigations.[36]

Discriminatory Wage Practices

A staffing firm may not discriminate in the payment of wages on the basis of race, sex, religion, national origin, age, or disability. Its clients share that obligation.

10.   If a staffing firm assigns a male and female to a client to perform substantially equal work, and the female is paid a lower wage than the male, would the firm and/or the client be subject to Equal Pay Act or Title VII liability?

Under the EPA, men and women must receive equal pay for equal work.[37] The jobs need not be identical, but they must be substantially equal. It is job content, not job titles, that determines whether jobs are substantially equal. Specifically, a sex-based wage disparity violates the EPA if the jobs are in the same establishment, require substantially equal skill, effort, and responsibility, are performed under similar working conditions, and if no statutory defense applies. Wage differences that are not based on sex, but on bona fide distinctions between temporary and permanent workers, can be justified under the EPA as based on a “factor other than sex.”[38] Both the staffing firm and its client are liable for a violation of the Equal Pay Act if they both qualify as “employers” of the worker bringing the complaint.[39]

A violation of the EPA also constitutes a violation of Title VII as long as there is Title VII coverage.[40] Furthermore, a sex-based wage disparity violates Title VII even if the jobs are not substantially equal under EPA standards if there is other evidence of wage discrimination.[41] Moreover, an entity with 15 or more employees is liable under Title VII for wage discrimination even if it does not qualify as an employer of the worker assigned to it, if the wage discrimination interferes in the worker’s employment opportunities.

EXAMPLE 13:

A temporary employment agency assigned CP (female) to a temporary job as a hospital aide. CP discovered that the agency had also assigned a male to a temporary job as an “orderly” at the same hospital at a higher wage. CP files charges against the agency and the hospital, alleging that her job and that of the male orderly were substantially equal, and that the wage disparity violated the Equal Pay Act and Title VII. CP’s charge against the hospital also challenges a disparity between her wages and those of permanent male aides and orderlies at the hospital.

The investigator determines that the temporary employment agency and the hospital were joint employers of CP and that both entities had control over the rates of pay for the hospital aide and orderly jobs. The investigator also determines that the temporary aide and orderly jobs were substantially equal under EPA standards, and that no defense applies. Therefore, he finds that the agency and the hospital are both liable under the EPA and Title VII on the claim that the temporary aide and orderly should have received the same wage. The investigator further determines that the wage differential between the temporary and permanent aide and orderly jobs was based on a factor other than sex, since the hospital paid all its temporary workers less than permanent workers filling the same jobs, regardless of sex. Therefore, “no cause” is found on this latter claim.

Allocation of Remedies

11.   If the Commission finds reasonable cause to believe that both a staffing firm and its client have engaged in unlawful discrimination, how are back wages and damages allocated between the respondents?

Where the combined discriminatory actions of a staffing firm and its client result in harm to the worker, the two respondents are jointly and severally liable for back pay, front pay, and compensatory damages. This means that the complainant can obtain the full amount of back pay, front pay, and compensatory damages from either one of the respondents alone or from both respondents combined.[42] Punitive damages under Title VII and the ADA[43] and liquidated damages under the ADEA[44] are individually assessed against and borne by each respondent in accordance with its respective degree of malicious or reckless misconduct.[45] This is because punitive damages are designed not to compensate the victim for his or her harm, but to punish the respondent.[46] Of course, no respondent can be required to pay a sum of future pecuniary damages, damages for emotional distress, and punitive damages, in excess of its applicable statutory cap. The investigator should contact the legal unit in his or her office for advice in determining how to allocate damages between the parties.

Computation of Monetary Relief

The first step is to compute lost wages (including back and front pay), compensatory damages for both pecuniary loss and emotional distress, and punitive damages.[47] This computation should be made without regard to the statutory caps on damages[48] and, except for punitive damages, without regard to either respondent’s ability to pay.[49] This initial computation will establish the charging party’s total wage and other compensable losses, as well as the full calculation of punitive damages.

Back Pay, Front Pay, and Past Pecuniary Damages

The next step is to determine the allocation between the respondents of back and front pay and past pecuniary damages. The charging party can obtain the full amount of these remedies because they are not subject to the statutory caps. The Commission can pursue the entire amount from either the staffing firm or the client, or from both combined.[50] However, the total amount actually paid cannot exceed the sum of back and front wages and past pecuniary damages owed to the worker.

Application of the Statutory Cap on Damages

The final step is to determine each respondent’s liability for compensatory and punitive damages subject to the statutory caps. The total amount paid by a respondent for compensatory damages for emotional distress and future pecuniary harm, and for punitive damages, cannot exceed its statutory cap. Thus, while the initial determination of the appropriate amount of compensatory and/ or punitive damages is made without regard to the caps, the caps may affect the allocation of damages between two respondents as well as the total damages paid to the charging party. In applying the caps to the actual allocation of damages, the following principles apply:

For compensatory damages subject to the caps, each respondent is responsible for any portion of the total damages up to its cap.

For punitive damages, each respondent is only responsible for the damages which have been assessed against it and only up to its applicable statutory cap.

After the fact-finder has determined the amount of compensatory damages for emotional distress and future pecuniary harm, and the amount of punitive damages for which either or both respondents are liable, these amounts should be allocated between the two respondents in order to yield the maximum payable relief for the charging party.

If the total compensatory damages are within the sum of the two respondents’ caps, the damages should be allocated to assure that the full amount is paid.

If one or both respondents are liable for punitive damages as well as compensatory damages, and the total sum of damages is within the applicable caps, the damages should be allocated, both between the respondents and between compensatory and punitive damages for each respondent, to assure full payment. Thus, each respondent should pay the full amount of punitive damages for which it is liable, and any portion of the compensatory damages up to its statutory cap. If the sum of damages exceeds the sum of the applicable caps, the damages should be allocated, both between the respondents and between compensatory and punitive damages for each respondent, to maximize the payment to the charging party.

EXAMPLE 14:

CP was assigned by Staff Serve to work as a security guard at a store called Value U.S.A. (“Value”). CP was subjected to persistent and egregious racial epithets by two supervisory employees of the store. CP complained several times to both a higher level manager at Value and to a supervisor at Staff Serve, but neither took any action to address the problem. After being subjected to egregious racial epithets that involved his family, CP informed the manager at Value and the supervisor at Staff Serve that the situation was intolerable. These individuals told CP to stop complaining and to live with these epithets as the price of holding the job. CP stopped reporting to work and asked Staff Serve to assign him elsewhere, but the firm failed to do so. CP was unable to find work for eight months.

CP files a charge against Staff Serve and Value. The investigator determines that both are liable for the racial harassment and constructive discharge. The investigator further determines that CP is due $40,000 in back pay and $60,000 in damages for emotional distress and that Staff Serve and Value are jointly and severally liable for these amounts. Although Value’s conduct was at least as egregious as Staff Serve’s, the investigator determines that Value’s financial position is relatively weak, and that a punitive damage award of $30,000 against Value is appropriate, as compared to $50,000 for Staff Serve.

Staff Serve employs 137 employees (counting its regular staff people and the workers it has sent on assignment) and is subject to the $100,000 damages cap. Value employs 45 workers and is subject to the $50,000 cap on damages.

In conciliation, the investigator determines that Staff Serve and Value should work out a division of the $40,000 in back pay, for which they are jointly and severally liable. The investigator further determines that the damages should be allocated as follows: Staff Serve should pay $40,000 and Value $20,000 in compensatory damages, and Staff Serve should pay $50,000 and Value $30,000 in punitive damages. CP can thus obtain the full amount of damages due him, with neither respondent’s liability exceeding its cap.

EXAMPLE 15:

Same facts as in Example 14, but CP only names Staff Serve as a respondent because Value has gone bankrupt. The sum of compensatory and punitive damages assessed by the Commission is $110,000 ($60,000 for emotional distress and $50,000 in punitive damages assessed against Staff Serve). The Commission pursues $100,000 in combined damages due to Staff Serve’s statutory cap. The Commission and Staff Serve may agree to deduct the $10,000 in excess of the caps from either the emotional distress or the punitive damages. The Commission also pursues the full $40,000 in back pay from Staff Serve, which is not subject to the cap.

EXAMPLE 16:

Same facts as Example 14, except that both Staff Serve and Value are subject to the $50,000 cap. CP could obtain only a total of $100,000 in damages, even though the sum of compensatory and punitive damages was $140,000. The investigator works with CP and the respondents to determine how to allocate the damages between compensatory and punitive damages. The full amount of back pay remains payable since it is not subject to the caps.

Charge Processing Instructions

When a charge is filed by a worker who was hired by a temporary agency, contract firm, or other staffing firm and who alleges discrimination by the staffing firm or the firm’s client, consider the following questions (refer to the questions and answers in the guidance for detailed information):

Coverage

1.     Is the charging party (CP) an employee or an independent contractor? (Q&A 1)

Determine whether the right to control the means and manner of CP’s work performance rested with the staffing firm and/or the client or with the worker herself. Consider the factors listed in Question and Answer 1 of this guidance and all other aspects of CP’s relationship to the firm and its client.

If CP is an independent contractor, dismiss the charge for lack of jurisdiction. If CP is an employee, determine who qualifies as his or her employer. It is possible that both the staffing firm and its client qualify as joint employers. In that regard consider the following:

2.     Is CP an employee of the staffing firm? (Q&A 2(a))

Consider the factors listed in Question 1 as they apply to the relationship between CP and the staffing firm.

3.     Is CP an employee of the firm’s client? (Q&A 2(b))

Consider the factors listed in Question 1 as they apply to the relationship between CP and the client.

Even if the client does not qualify as CP’s employer, it is still covered under the applicable antidiscrimination statute if it interfered on a discriminatory basis with CP’s employment opportunities with the staffing firm and has the requisite number of employees. (Q&A 3) The same is true if the staffing firm does not qualify as CP’s employer. However, a federal agency can only be held liable as an employer, not as a third-party interferer. (Q&A 4)

If CP is a welfare recipient alleging discrimination in a work-related activity connected with a welfare program, the above considerations apply to determine coverage. (Q&A 5) In such circumstances, the state or local welfare agency may function as a staffing firm and the employer for whom CP performed work as the client.

4.     If there is a question about coverage, does the staffing firm and/or the client have the minimum number of employees to be covered under the applicable antidiscrimination statute? (Q&A 6)

Ask the respondent to name and provide records regarding each individual who performed work for it during the applicable time period, including individuals assigned by staffing firms and any temporary, seasonal, or other contingent workers hired directly by the respondent. Determine which of these individuals qualified as employees rather than independent contractors.

Assignment Practices (Q&A 7)

If CP alleges that a staffing firm declined to assign him or her to its client for discriminatory reasons, consider the following questions:

1.     Does the evidence show that the staffing firm denied CP a job assignment for discriminatory reasons?

If so, the staffing firm is liable as an employer of CP for its discriminatory assignment practice, as a third-party interferer, and/or as an employment agency for its discriminatory referral practice.

2.     Does the evidence show that the client set discriminatory criteria for assignments by the staffing firm?

If so, the client is liable either as a joint employer of CP or a third-party interferer.

Discrimination at Work Site (Q&A 8, 9)

If CP alleges that (s)he was subjected to discrimination while performing a job assignment for the staffing firm’s client, consider the following questions:

1.     Client: Does the evidence show that the client discriminated against CP?

If so, the client is liable as CP’s employer or as a third-party interferer. However, if the client is a federal agency it can only be held liable as an employer.

2.     Staffing firm:

a.     Does the evidence show that the staffing firm participated in its client’s discrimination, e.g., by honoring the client’s discriminatory request to replace CP with someone outside his or her protected class?

b.     Does the evidence show that the staffing firm knew or should have known of its client’s discrimination and failed to take immediate and appropriate corrective measures within its control?

If the answer to (a) or (b) is “yes,” the staffing firm is liable for its discrimination.

Discriminatory Wage Practices (Q&A 10)

If CP alleges that the staffing firm paid discriminatory wages for his or her work for the firm’s client, consider the following:

1.     Is there an Equal Pay Act violation? Did the staffing firm assign a person of the opposite sex to the same client to perform substantially equal work and pay that individual a higher wage?

If so, the staffing firm is liable for the EPA violation. The client also can be found liable if it qualified as CP’s joint employer.

2.     Is there a violation of Title VII, the ADEA, or the ADA?

A violation of the EPA also constitutes a violation of Title VII as long as there is Title VII coverage.

A sex-based wage disparity violates Title VII even if the jobs are not substantially equal under EPA standards, if there is other evidence of wage discrimination. Title VII also prohibits wage discrimination based on race, national origin, and religion.

If the respondent committed wage discrimination in violation of Title VII, the ADEA, or the ADA, it is liable as CP’s employer or as a third-party interferer.

Allocation of Remedies (Q&A 11)

If both the staffing firm and its client have unlawfully discriminated against CP, remedies can be allocated as follows:

1.     CP can obtain the full amount of back pay, front pay, and compensatory damages from either respondent or from both combined.

2.     Punitive damages under Title VII and the ADA, and liquidated damages under the ADEA, are individually assessed against each respondent according to its degree of malicious or reckless misconduct.

3.     The total amount paid by a respondent for future pecuniary damages, damages for emotional distress, and punitive damages cannot exceed its statutory cap.

Damages should be allocated between the respondents in a way that maximizes the payable relief to CP. Contact the legal unit for advice in determining the allocation.

Notes

1. June 18, 1997, News Release of the National Association of Temporary and Staffing Services.

2. Seasonal and temporary foreign employees performing work for companies in this country form another category of the contingent workforce. The Commission intends to address at a future date particular issues regarding coverage of these workers.

3. Bureau of Labor Statistics, U.S. Dept. of Labor, Report 900, Contingent and Alternative Employment Arrangements (August 1995).

4. For a discussion of wage data for contingent workers, see Steven Hipple and Jay Stewart, Earnings and benefits of workers in alternative work arrangements, Monthly Labor Review 46 (October 1996).

5. See Policy Statement on control by third parties over the employment relationship between an individual and his/her direct employer, Compliance Manual Section 605, Appendix F (BNA) 605:0087 (5/20/87); Policy Statement on the concepts of integrated enterprise and joint employer, Compliance Manual Section 605, Appendix G (BNA) 605:0095 (5/6/87); Policy Statement on Title VII Coverage of Independent Contractors, Compliance Manual Section 605, Appendix H (BNA) 605:0105 (9/4/87); and Policy Statement: What constitutes an employment agency under Title VII, how should charges against employment agencies be investigated, and what remedies can be obtained for employment agency violations of the Act? Compliance Manual (BNA) N:3935 (9/20/91).

The above-referenced policy documents set forth some general principles regarding coverage under the antidiscrimination statutes, and they remain in effect. The current guidance explains more specifically how the coverage principles apply to workers who are hired by staffing firms and placed in job assignments with the firms’ clients.

6. For a detailed explanation of the various types of staffing service work arrangements, see Edward A. Lenz, Co-Employment—A Review of Customer Liability Issues in the Staffing Services Industry, 10 The Labor Lawyer 195, 196-99 (1994).

7. See, infra, cases cited in notes 12, 14, and 15.

8. The coverage principles set forth here apply not only to workers who are hired by staffing firms and assigned to the firms’ clients, but also to temporary, seasonal, part-time, and other contingent workers who are hired directly by employers.

9. Nationwide Mutual Insurance Co. v. Darden, 503 U.S. 318, 324 (1992) (quoting National Labor Relations Board v. United Ins. Co. of America, 390 U.S. 254, 258 (1968)) (emphasis added).

10. The listed factors are drawn from Darden, 503 U.S. at 323–324 (quoting Community for Creative Non-Violence v. Reid, 490 U.S. 730, 751–752 (1989)); Rev. Ruling 87-41, 1987-1 Cum. Bull. 296 (cited in Darden, 503 U.S. at 325); and Restatement (Second) of Agency § 220(2) (1958) (cited in Darden, 503 U.S. at 325). The Court in Darden held that the “common law” test governs who qualifies as an “employee” under the Employee Retirement Income Security Act of 1974 (ERISA). That test, as described by the Court, is indistinguishable from the “hybrid test” for determining an employment relationship adopted by the EEOC in the Policy Statement on Title VII Coverage of Independent Contractors, Compliance Manual Section 605, Appendix G (BNA) 605:0105 (9/4/87). Although the Supreme Court has not had occasion to address the standards that govern who is an “employee” under Title VII, the ADEA, and the ADA, the rationale in Darden should apply. This is because the ERISA definition of “employee” that the Court interpreted in Darden is identical to the definition of “employee” in Title VII, the ADEA, and the ADA.

Courts have stated that the definition of “employee” is broader under the Fair Labor Standards Act (FLSA), of which the Equal Pay Act is a part, than under the other EEO statutes. However, there is no significant functional difference between the tests. Under the FLSA, employees are those who, as a matter of economic reality, are dependent upon the business to which they render service. See 29 C.F.R. § 1620.8 (1996); Hodgson v. Griffin & Brand of McAllen Inc., 471 F.2d 235 (5th Cir.) (under FLSA’s “economic realities” test, fruit and vegetable company qualified as joint employer of harvest workers supplied by crew leaders), reh’g denied, 472 F.2d 1405 (5th Cir.), cert. denied, 414 U.S. 819 (1973). All three tests (common law, hybrid, and economic realities) consider similar factors and often result in the same conclusions as to “employee” status.

11. For additional guidance on criteria for determining whether two or more entities are joint employers of a charging party, see EEOC’s Policy Statement on the concepts of integrated enterprise and joint employer, Compliance Manual Section 605, Appendix G (BNA) 605:0095 (5/6/87).

12. For cases holding that a staffing firm is an “employer” of the workers it sends on job assignments, see Magnuson v. Peak Technical Services Inc., 808 F. Supp. 500, 508 (E.D. Va. 1992) (personnel firm that provided employees to clients pursuant to service contracts and the worker that it assigned to one of its clients “clearly had the type of direct employer–employee relationship that is typically the subject of Title VII lawsuits”), aff’d mem., 40 F.3d 1244 (4th Cir. 1994); Amarnare v. Merrill, Lynch, Pierce, Fenner & Smith, 611 F. Supp. 344, 349 (D.C.N.Y. 1984) (worker paid by “Mature Temps” employment agency and assigned to Merrill Lynch for temporary job assignment was employee of both Mature Temps and Merrill Lynch during period of assignment), aff’d mem., 770 F.2d 157 (2d Cir. 1985); Cf. NLRB v. Western Temporary Servs. Inc., 821 F.2d 1258, 1266–67 (7th Cir. 1987) (NLRB correctly determined that temporary employment service and its client were joint employers of temporary worker); Maynard v. Kenova Chemical Company, 626 F.2d 359, 362 (4th Cir. 1980) (temporary employee injured while working on defendant’s premises could not sue defendant in tort because he was employee of both defendant and temp agency, and workers’ compensation provided sole remedy).

The Commission disagrees with the rulings of the District Court of Delaware in Williams v. Caruso, 966 F. Supp. 287 (D. Del. 1997), and Kellam v. Snelling Personnel Services, 866 F. Supp. 812 (D. Del. 1994), aff’d mem., 65 F.3d 162 (3d Cir. 1996). In Williams, the court ruled that a temporary employment agency was not a Title VII employer of a temporary worker whom it hired and placed in a job assignment. The court followed its earlier reasoning in Kellam, in which it declined to count the workers assigned by a temporary employment agency as its employees on the ground that the agency did not supervise the workers on a day-to-day basis. In the Commission’s view, the court in both cases placed undue emphasis on daily supervision of job tasks and underestimated the significance of other factors indicating an employment relationship.

13. See, e.g., Astrowsky v. First Portland Mortgage Corp., 887 F. Supp. 332 (D. Me. 1995) (holding that employee leasing firm was not a joint employer of workers that it leased back to original employer; firm only processed paychecks and made tax withholdings but did not exercise any control over employees; original employer remained exclusive employer of the workers for purposes of EEO coverage).

14. See Reynolds v. CSX Transportation Inc., 115 F.3d 860 (11th Cir. 1997) (finding that temporary employment agency’s client qualified as employer of worker assigned to it and upholding jury award for retaliation by client); King v. Booz-Allen & Hamilton Inc., No. 83 Civ. 7420 (MJL), 1987 WL 11546, n.3 (S.D.N.Y. May 21, 1987) (finding that plaintiff who was paid by temporary employment agency and assigned to work at Booz-Allen was an employee of Booz-Allen); Amarnare, 611 F. Supp. at 349 (finding that temporary employment agency’s client qualified as joint employer of worker assigned to it).

15. See Rev. Rul. 87-41, 1987-1 Cum. Bull. 296, 298–99, cited in Nationwide Mutual Insurance Company v. Darden, 503 U.S. 318, 324 (1992) (concluding on above facts that the staffing firm was the individual’s employer, but not addressing the status of the client vis-à-vis the worker).

16. For examples of cases finding that a client of a staffing firm can qualify as a joint employer of the worker assigned to it, see Poff v. Prudential Insurance Co. of America, 882 F. Supp. 1534 (E.D. Pa. 1995) (where plaintiff was hired by computer services contractor and assigned to work on-site at insurance company, issue of fact existed as to whether insurance company exercised sufficient control over the manner and means by which plaintiff’s work was accomplished to qualify as employer); 808 F. Supp. at 508-10 (where car company contracted with staffing firm for plaintiff’s services and assigned her to work at its car dealership, genuine issue of fact was raised as to whether car company, dealership, and staffing firm all qualified as her joint employers); Guerra v. Tishman East Realty, 52 Fair Empl. Prac. Cas. (BNA) 286 (S.D.N.Y. 1989) (security guard employed by management firm who worked in building owned by insurance company could seek to prove that insurance company exercised sufficient control over him to qualify as his “employer”); EEOC v. Sage Realty, 507 F. Supp. 599 (S.D.N.Y. 1981) (building management company that contracted with cleaning company for services of building lobby attendant qualified as joint employer of lobby attendant; contractor carried lobby attendant on its payroll but management company supervised her day-to-day work).

For examples of cases finding that the client did not qualify as a joint employer of the contract worker because the client did not have sufficient control over the worker, see Rivas v. Federacion de Asociaciones Pecuarias, 929 F.2d 814 (1st Cir. 1991) (client of shipping services contractor was not a joint employer of workers who unloaded ships; although client set time for ship unloading, had some disciplinary authority over foremen, and directed order of unloading, contractor selected, scheduled, and supervised the workers and handled disciplinary matters); King v. Dalton, 895 F. Supp. 831 (E.D. Va. 1995) (Navy was not joint employer of worker assigned by contract firm to work on project due to insufficient direct supervisory control over the daily details of the plaintiff’s work).

17. See 42 U.S.C. § 2000e-2(a) (Title VII), 29 U.S.C. § 623(a) (ADEA), and 42 U.S.C. § 12112(a) (ADA), which do not limit their protections to a covered employer’s own employees, but rather protect an “individual” from discrimination. Section 503 of the ADA, 42 U.S.C. § 12203(b), additionally makes it unlawful to “interfere with any individual in the exercise or enjoyment of…any right granted or protected by this chapter.” The EPA, 29 U.S.C. § 206, limits its protections to an employer’s own employees, and therefore third-party interference theory does not apply.

For cases allowing staffing firm workers to bring claims against the firms’ clients as third-party interferers, see King v. Chrysler Corp., 812 F. Supp. 151 (E.D. Mo. 1993) (cashier employed by company that operated cafeteria on automobile company’s premises could sue automobile company for failing to take sufficient corrective action to remedy sexually hostile work environment; Title VII does not specify that employer committing an unlawful employment practice must employ the injured individual); Fairman v. Saks Fifth Avenue, 1988 U.S. Dist. LEXIS 13087 (W.D. Mo. 1988) (plaintiff who was employed by cleaning contractor to perform cleaning duties at store and who was allegedly discharged due to her race could proceed with Title VII action against store; store claimed that it was not plaintiff’s employer because it did not pay her wages, supervise her or terminate her; however, even if the store was not plaintiff’s employer, it could be sued for improperly interfering with her employment opportunities with the cleaning contractor); Amarnare, 611 F. Supp. at 349 (temporary employee assigned by “Mature Temps” to work for Merrill Lynch could challenge discrimination by Merrill Lynch either on basis that Merrill Lynch was her joint employer or that Merrill Lynch interfered with her employment opportunities with Mature Temps).

18. See Policy Statement on control by third parties over the employment relationship between an individual and his/her direct employer, Compliance Manual Section 605, Appendix F (BNA) 605:0087 (5/20/87).

19. While Title I of the ADA only applies to entities with 15 or more employees, the Commission has not yet addressed the scope of the interference provision in Section 503, which applies to all titles of the ADA and does not contain a specific coverage limitation. See note 17.

20. See Carparts Distribution Ctr. v. Automotive Wholesalers, 37 F.3d 12, 17–18 (1st Cir. 1994) (trade association and its administering trust for health benefit plan provided by plaintiff’s employer were sued under Title I for limiting coverage of AIDS; court held that defendants were covered under Title I if they functioned as plaintiff’s employer with respect to his health care coverage or if they affected plaintiff’s access to employment opportunities); Spirt v. Teachers Insurance and Annuity Ass’n, 691 F.2d 1054, 1063 (2d Cir. 1982) (association that managed retirement plans for college and university employees could be found liable for using sex-based mortality tables to calculate benefits; although association was not plaintiff’s “employer” in any commonly understood sense, the term “employer” under Title VII encompasses any party who significantly affects worker’s access to employment opportunities), vacated and remanded sub nom Long Island University v. Spirt, 463 U.S. 1223 (1983), reinstated on remand, 735 F.2d 23 (2d Cir.), cert. denied, 469 U.S. 883 (1984).

21. See Mares v. Marsh, 777 F.2d 1066 (5th Cir. 1985) (in determining whether individual is a federal employee for purposes of Title VII coverage, key issue is extent to which government exercises control over that individual). For guidance on procedures in handling joint federal sector/private sector complaints, see Question 9.

22. 42 U.S.C. § 20003-16(a) (Title VII); 29 U.S.C. § 633(a) (ADEA); 29 U.S.C. § 794a (Rehabilitation Act, incorporating remedies, procedures, and rights set forth in 42 U.S.C. § 2000e-16). See King v. Dalton, 895 F. Supp. at 836 n.7 (plain terms of § 2000e-16 require a plaintiff to be an employee of the defendant agency); Spirides v. Reinhardt, 613 F.2d 826, 829 (D.C. Cir. 1979) (§ 2000e-16 “cover[s] only those individuals in a direct employment relationship with a government employer”).

23. A variety of work and work-related activities may be required as a condition of receipt of welfare, food stamps, or other benefits. Under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, P.L. 104-193, 110 Stat. 2105 (1996), for example, welfare recipients may be required to perform work activities, which are defined to include unsubsidized employment, subsidized private or public sector employment, work experience, on-the-job training, job search and job readiness assistance, community service programs, vocational educational or job skills training, educational activities, or child care services. Section 103 of the Welfare Reform Act, 110 Stat. 2133, amending Part A of Title IV of the Social Security Act, 42 U.S.C. § 601, et seq. See also Section 824 of the Welfare Reform Act, 110 Stat. 2323, amending Section 6 of the Food Stamp Act of 1977, 7 U.S.C. § 2015.

24. The Balanced Budget Act of 1997, P.L. 105-33, 111 Stat. 251 (1997), requires each state that receives a grant from the Secretary of Labor as a “welfare-to-work state” to establish a procedure for handling complaints by participants in work activities who allege certain violations, including gender discrimination. The Act does not preempt application of Title VII, the ADEA, the ADA, or the EPA. See Morton v. Mancari, 417, U.S. 535, 550 (1973). Therefore, welfare recipients who perform work activities and qualify as “employees” are covered under the antidiscrimination statutes enforced by the EEOC.

25. Title VII specifically makes it unlawful to discriminate in admission to or employment in any program established to provide apprenticeship or other training. 42 U.S.C. § 2000e-2(d). The ADA and the ADEA also prohibit discrimination in job training and apprenticeship programs. 42 U.S.C. § 12112(a); 29 C.F.R. § 1625.21.

26. The Commission notes that other federal statutes prohibit discrimination in federally assisted education and training programs. See, e.g., Title VI of the Civil Rights Act of 1964, 42 U.S.C.§ 2000d, et seq.; Title IX of the Education Amendments of 1972, 42 U.S.C. § 1681, et seq., and Section 504 of the Rehabilitation Act of 1973, 29 U.S.C. § 794. Complaints about discrimination in education or other non-employment programs should be referred to the Offices for Civil Rights in the federal agencies that fund such programs.

27. Title VII and the ADA apply to any employer who has15 or more employees for each working day in each of 20 or more calendar weeks in the current or preceding calendar year. 42 U.S.C. § 2000e(b). The ADEA applies to any employer who has 20 or more employees for each working day in each of 20 or more calendar weeks in the current or preceding calendar year. 29 U.S.C. § 630(b). Counting issues do not arise in EPA claims because that Act applies to any employer who has more than one employee engaged in commerce or in the production of goods for commerce, unless an exception applies. 29 C.F.R. § 1620.1–1620.7.

28. Cf. 29 C.F.R. § 825.106(d) (1996) (under the Family and Medical Leave Act, employees jointly employed by two employers must be counted by both employers, whether or not they are maintained on both employers’ payrolls, in determining employer coverage and employee eligibility).

29. EEOC & Walters v. Metropolitan Educ. Enterprises, 117 S. Ct. 660 (1997). For guidance on how to count employees when determining whether a respondent satisfies the jurisdictional prerequisite for coverage, see Enforcement Guidance on Equal Employment Opportunity Commission & Walters v. Metropolitan Educational Enterprises, 117 S. Ct. 660 (1997), Compliance Manual (BNA) N:2351 (5/2/97).

30. Staffing firms and their clients are subject to the same record preservation requirements as other employers that are covered by the antidiscrimination statutes. They therefore must preserve all personnel records that they have made relating to job assignments or any other aspect of a staffing firm worker’s employment for a period of one year from the date of the making of the record or the personnel action involved, whichever occurs later. Personnel records relevant to a discrimination charge or an action brought by the EEOC or the U.S. Attorney General must be preserved until final disposition of the charge or action. 29 C.F.R. § 1602.14, 1627.3(b). The Commission can pursue an enforcement action where the respondent fails to keep records pertaining to all its contingent and non-contingent employees and applicants for employment.

31. Section 701(c) of Title VII defines the term “employment agency” as “any person regularly undertaking with or without compensation to procure employees for an employer or to procure for employees opportunities to work for an employer and includes an agent of such a person.” For further guidance, see Policy Guidance: What constitutes an employment agency under Title VII, how should charges against employment agencies be investigated, and what remedies can be obtained for employment agency violations of the Act? Compliance Manual (BNA) N:3935 (9/29/91).

32. The questions and answers in this section assume that the staffing firm is an “employer” of the worker.

33. See EEOC Guidelines on Sexual Harassment, 29 C.F.R. § 1604.11(3) (1996) (an employer is liable for harassment of its employee by a nonemployee if it knew or should have known of the misconduct and failed to take immediate and appropriate corrective action within its control). See also Caldwell v. ServiceMaster Corp. and Norrell Temporary Services, 966 F. Supp. 33 (D.D.C. 1997) (joint employer temporary agency is liable for discrimination against temporary worker by agency’s client if agency knew or should have known of the discrimination and failed to take corrective measures within its control); Magnuson v. Peak Technical Servs., 808 F. Supp. 500, 511-14 (E.D. Va. 1992) (where plaintiff was subjected to sexual harassment by her supervisor during a job assignment, three entities could be found liable: staffing firm that paid her salary and benefits, automobile company that contracted for her services, and retail car dealership to which she was assigned; staffing firm and automobile company were held to standard for harassment by nonemployees, under which an entity is liable if it had actual or constructive knowledge of the harassment and failed to take immediate and appropriate corrective action within its control); EEOC v. Sage Realty, 507 F. Supp. 599, 612–613 (S.D.N.Y. 1981) (cleaning contractor and joint employer building management company found jointly liable for sex discrimination against lobby attendant on contractor’s payroll where management company required attendant to wear revealing costume that subjected her to harassment by passersby, and where plaintiff was discharged for refusing to continue wearing outfit; court rejected contractor’s argument that management company was exclusively liable because it had set the costume requirement; contractor knew of plaintiff’s complaints of harassment, and there was no evidence that it was powerless to remedy the situation); cf. Capitol EMI Music Inc., 311 N.L.R.B. No. 103, 143 L.R.R.M. (BNA) 1331 (May 28, 1993) (in joint employer relationships in which one employer supplies employees to the other, National Labor Relations Board holds both joint employers liable for unlawful employee termination or other discriminatory discipline if the non-acting joint employer knew or should have known that the other employer acted against the employee for unlawful reasons and the former has acquiesced in the unlawful action by failing to protest it or to exercise any contractual right it might possess to resist it).

34. Cf. Paroline v. Unisys Corp., 879 F.2d 100, 107 (4th Cir. 1989) (employer is liable where it anticipated or reasonably should have anticipated that plaintiff would be subjected to sexual harassment yet failed to take action reasonably calculated to prevent it; “[a]n employer’s knowledge that a male worker has previously harassed female employees other than the plaintiff will often prove highly relevant in deciding whether the employer should have anticipated that the plaintiff too would become a victim of the male employee’s harassing conduct”), vacated in part on other grounds, 900 F.2d 27 (4th Cir. 1990).

35. If the federal agency refuses to accept the complaint based on a belief that the staffing firm worker is not its employee, the worker can file an appeal with the Commission’s Office of Federal Operations.

36. If the federal agency does not wish to coordinate the investigations, then the EEOC office should proceed independently. If the federal agency refuses to provide documents or testimony requested by the EEOC investigator, the Commission can issue a subpoena to compel production of the evidence.

37. The EPA applies to any employer that has more than one employee engaged in commerce or in the production of goods for commerce, unless a statutory exception applies. 29 U.S.C. § 203(s).

38. See Compliance Manual Section 708.5(3) (BNA) 708:0023. As that subsection explains, in determining whether a wage differential between temporary and permanent employees is based on a factor other than sex, the following issues should be considered: 1) whether the wage differential is applied uniformly to males and females; 2) whether the differential conforms with the nature and duration of the job; and 3) whether the differential conforms with a nondiscriminatory customary practice within the industry and establishment.

39. See 29 C.F.R. § 1620.8 (1996) (two or more employers may be jointly or severally responsible for compliance with EPA requirements applicable to employment of a particular employee). For guidance on elements of an EPA claim, see Compliance Manual Sections 704 and 708 (BNA) 704:001 and 708:001, et seq. Cf., 29 C.F.R. § 791.2 (1996) (regulations issued by Wage and Hour Division, Department of Labor, on Joint Employment Relationship under FLSA) (joint employers are individually and jointly responsible for compliance with FLSA, including overtime requirements).

The EPA, unlike Title VII, the ADA, and the ADEA, only permits claims by employees against their employers, not against third-party interferers.

40. If the EEOC determines that the client had no involvement in or control over the wages paid to the worker, it may decline to pursue relief against the client.

41. For guidance on wage discrimination claims under Title VII, see Compliance Manual Section 633 (BNA) 633:001, et seq. Title VII prohibits wage discrimination on the basis of race, national origin, and religion, as well as sex.

42. However, even where there is joint liability, neither a charging party nor the Commission is obliged to pursue a claim against both entities; nor does one party have a right to bring the other into the proceeding or a right of contribution from the other. See Northwest Airlines Inc. v. Transport Workers Union of America, 451 U.S. 77, 91–95 (1981); EEOC v. Gard Corp. v. Tall Services Inc., 795 F. Supp. 1070, 1071–72 (D. Kan. 1992).

43. Punitive damages are not available against federal, state, and local government agencies.

44. Liquidated damages under the ADEA are punitive in nature. Trans World Airlines v. Thurston, 469 U.S. 111, 125 (1985). Therefore, each respondent individually bears a liquidated damages award under the ADEA.

45. See Hafner v. Brown, 983 F.2d 570, 573 (4th Cir. 1992) (holding under 42 U.S.C. § 1983 that compensatory damages are joint and several but punitive damages are borne by each defendant individually); Erwin v. County of Manitowoc, 872 F.2d 1292, 1296 (7th Cir. 1989) (same); Bosco v. Serhant, 836 F.2d 271, 280–81 (7th Cir. 1987) (tort principles require joint and several liability for compensatory damages but not punitive damages), cert. denied, 108 S. Ct. 2824 (1988); Hurley v. Atlantic City Police Dept., 933 F. Supp. 396, 420–23 (D.N.J. 1996) (reaching same conclusion in a Title VII case).

46. The respondents are also jointly and severally liable for liquidated damages in EPA claims because such damages are compensatory in nature. Laffey v. Northwest Airlines, 740 F.2d 1071, 1096 (D.C. Cir. 1984), cert. denied, 469 U.S. 1181 (1985); Marshall v. Bruner, 668 F.2d 748, 753 (3d Cir. 1982).

47. Compensatory and punitive damages are available in Title VII and ADA cases, and in retaliation cases under the ADEA and the EPA. The ADEA and EPA damages, which are not subject to statutory caps, are available pursuant to a 1977 amendment to the Fair Labor Standards Act that authorizes both legal and equitable relief for retaliation claims. 29 U.S.C. § 216(b). See Moskowitz v. Trustees of Purdue University, 5 F.3d 279, 283–84 (7th Cir. 1993) (FLSA amendment allows common law damages where plaintiff is retaliated against for exercising his rights under ADEA); Soto v. Adams Elevator Equip. Co., 941 F.2d 543, 551 (7th Cir. 1991) (FLSA amendment authorizes compensatory and punitive damages for retaliation claims under EPA, in addition to lost wages and liquidated damages).

48. 42 U.S.C. § 1981a(c)(2).

49. The financial position of the respondent is a relevant factor in assessing punitive damages. City of Newport v. Fact Concerts Inc., 453 U.S. 47, 270 (1981).

For guidance on the various factors to consider in calculating compensatory and punitive damages, see Enforcement Guidance: Compensatory and Punitive Damages Available under § 102 of the Civil Rights Act of 1991, Compliance Manual (BNA) N:6071 (7/14/92).

50. See EEOC v. Sage Realty, 507 F. Supp. 599, 612–13 (finding two joint employers responsible for harassment of worker and holding them jointly and severally liable for back pay).

I

EEOC Guidelines on Application of the Americans With Disabilities Act to Contingent Workers

DATE: 12/22/00

1.     SUBJECT: EEOC Enforcement Guidance on the Application of the ADA to Contingent Workers Placed by Temporary Agencies and Other Staffing Firms

2.     PURPOSE: This enforcement guidance explains how some provisions of Title I of the Americans with Disabilities Act of 1990 apply to staffing firms and their clients.

3.     EFFECTIVE DATE: Upon receipt.

4.     EXPIRATION DATE: As an exception to EEOC Order 205.001, Appendix B, Attachment 4, § a(5), this Notice will remain in effect until rescinded or superseded.

5.     ORIGINATOR: ADA Division, Office of Legal Counsel.

6.     INSTRUCTIONS: File after Section 902 of Volume II of the Compliance Manual.

\s\
Ida L. Castro, Chairwoman

Table of Contents

Introduction

Disability-Related Inquiries and Medical Examinations

Reasonable Accommodation and Undue Hardship

Qualification Standards, Employment Tests, and Other Selection Criteria

Introduction

Staffing firms provide “opportunities to build a work history, experience different types of jobs, and increase…employment marketability and earning potential through enhancement of work skills.”[1] A recent study suggests that employment through the staffing firm industry can provide “[a] critical means for people with disabilities to move from unemployment to competitive permanent employment.”[2] Because less than one-third of Americans with severe disabilities are employed,[3] the opportunity to enter the workforce and to move to stable, permanent employment through staffing firms should be fully encouraged and facilitated. There is still uncertainty, however, about how some provisions of Title I of the Americans With Disabilities Act of 1990 (ADA)[4] apply to staffing firms and their clients.[5] For this reason, the U.S. Equal Employment Opportunity Commission (EEOC or the Commission) has determined that further guidance is necessary to promote full access by people with disabilities to this important source of employment.

This guidance addresses unique ADA issues not addressed in the EEOC’s 1997 enforcement guidance on the application of the EEO laws to contingent work arrangements (Contingent Workers Guidance).[6] For example, the ADA has requirements regarding disability-related inquiries and medical examinations, reasonable accommodation, and qualification standards that screen out individuals on the basis of disability.[7] The ADA also prohibits an employer from participating in a contractual or other arrangement or relationship that has the effect of subjecting its own qualified applicant or employee with a disability to prohibited discrimination.[8] This guidance should be used in conjunction with the Contingent Workers Guidance, as well as with other EEOC enforcement guidance on specific ADA topics such as reasonable accommodation and disability-related questions and medical examinations.

Basic staffing firm work arrangements involving temporary employment agencies, contract firms, facilities staffing firms, lease-back firms, and welfare-to-work programs are described in the Contingent Workers Guidance.[9] The term “staffing firm” is used in this document to describe generically all of these types of work arrangements, although more specific terms are used where necessary for clarity.

The Contingent Workers Guidance discusses several bases on which a staffing firm, its client, or both may be liable for violations of the federal employment discrimination laws.[10] These bases of liability may be summarized as follows:

A staffing firm or its client that qualifies as an employer of a staffing firm worker[11] may be liable for:

■      its own discrimination against the worker; or

■      discrimination by the other entity if it either:

■      participates in the discrimination; or

■      knew or should have known of the discrimination and failed to take corrective action within its control.[12]

A staffing firm that does not qualify as a worker’s employer may still be liable for discrimination if it:

■      interferes with the worker’s ADA rights[13]; or

■      qualifies as an employment agency, in that it refers potential employees to employers or provides employers with the names of potential employees.[14]

Finally, a client that does not qualify as a staffing firm worker’s employer still may be liable if it interferes with the worker’s ADA rights, except if that client is a federal agency.[15]

Disability-Related Inquiries and Medical Examinations

In General

Under the ADA, a covered entity, including a staffing firm, may not make disability-related inquiries or require medical examinations before making an offer of employment. A covered entity may do several things before an offer of employment, however, to evaluate whether an applicant is qualified for the job, including asking about an applicant’s ability to perform specific job functions; asking about an applicant’s non-medical qualifications and skills, such as education, work history, and required certifications and licenses; and asking applicants to describe or demonstrate how they would perform job tasks.

In general, a covered entity may not ask questions on an application or in an interview about whether an applicant will need reasonable accommodation to perform the functions of the job. This is because these questions are likely to elicit information about whether an applicant has a disability. Under certain circumstances, however, a covered entity may ask an applicant whether she or he needs a reasonable accommodation to perform the functions of the job, and if so, what type.[16] These questions are permitted where:

■      the covered entity reasonably believes that the applicant will need a reasonable accommodation because of an obvious disability;

■      the covered entity reasonably believes that the applicant will need a reasonable accommodation because of a hidden disability that the applicant has voluntarily disclosed; or

■      an applicant has voluntarily disclosed that s/he needs a reasonable accommodation to perform the job.[17]

A covered entity may ask disability-related questions or require medical examinations after it has made an offer of employment and before the applicant begins work duties, if it does so for all entering employees in the same job category, regardless of disability.[18]

Disability-related inquiries and medical examinations of employees are permitted only if they are job-related and consistent with business necessity or in other limited circumstances.[19]

Offer of Employment

Since an employer has considerable latitude in asking disability-related questions or requiring medical examinations after an offer is made, it is critical to determine what constitutes a job offer in the context of staffing firm arrangements.

1.     Does a staffing firm’s offer to place an individual on its roster for possible consideration in the future for temporary work assignments with its clients constitute an “offer of employment” under the ADA?

No. None of the factors indicating a relationship of employment[20] between an individual and a staffing firm or staffing firm’s client exist when the individual is placed on the roster. Typically, a staffing firm and an individual applying for a temporary work assignment with the staffing firm do not intend to create an employer–employee relationship at this stage. The parties merely agree that: (1) the staffing firm will consider the individual for specific work assignments in the future; and (2) the individual will consider accepting assignments in the future depending on his or her availability and the desirability of the assignment.

Additionally, no job functions or duties are performed until after the staffing firm worker accepts an offer of an assignment with a client. Performance of job functions is implicitly included among the factors that show that a relationship is one of employment. For example, the most critical factor—the staffing firm’s and/or client’s control over when, where, and how the worker performs work duties—is necessarily absent when no job functions are being performed.

EXAMPLE 1:
CP applies for work with Jobmart, a temporary employment agency. A Jobmart associate interviews CP to find out about his skills, education, experience, and the types of work assignments he would be willing to accept. The associate informs CP that the agency will contact him when an appropriate assignment becomes available. Jobmart has not made CP an offer of employment, and therefore may not make disability-related inquiries or require medical examinations.

2.     What constitutes an offer of employment to a staffing firm worker?

Generally, the offer occurs when a staffing firm worker is given an assignment with a particular client. After a staffing firm offers an individual an actual work assignment with one of its clients and the individual accepts the offer, the factors indicating an employment relationship are present. Once an individual has been given an assignment with a client, the staffing firm typically pays wages, withholds taxes and social security, and provides benefits and workers’ compensation coverage to the individual, while the client typically controls when, where, and how the individual performs work duties.[21] Therefore, a staffing firm or client violates the ADA if it asks disability-related questions or requires a medical examination of an individual before an assignment to a particular client is made.[22]

Some staffing firms have contracts with numerous clients to provide similar services on a long-term basis, such as janitorial, security, landscaping, etc. Typically, such firms place their own employees, including supervisors, at the clients’ work sites and assume full operational responsibility for providing ongoing services. Under such circumstances, an offer of employment may occur prior to the designation of a particular location where work is to be performed, as long as the workers are guaranteed positions somewhere and specific assignments are made soon after the offer.

EXAMPLE 2:
Clean Sweep is a contract firm that hires workers to perform housekeeping duties at its clients’ offices. Clean Sweep assumes full operational responsibility for providing housekeeping services. Because of the high turnover in housekeeping jobs, Clean Sweep knows that each week several positions will become available at its clients’ offices, but it often does not know which clients will need workers until a day or two before the assignment is supposed to begin. Clean Sweep tells CP to report to its office on Monday morning at 8 a.m. to be given an assignment. Clean Sweep has made CP an offer of employment.

3.     To what extent may a staffing firm or its client make disability-related inquiries or require medical examinations after an offer of employment has been made?

After a staffing firm offers an applicant an actual work assignment with a client and before his or her duties begin, the staffing firm or client may ask any disability-related questions or require any medical examinations it chooses, as long as it does so for all individuals entering the same job category.[23] Of course, the offer of a work assignment may be conditioned on the results of post-offer disability-related questions and medical examinations.

EXAMPLE 3:
After CP is interviewed for laboratory technician positions, Tempsmart offers him an assignment with a federal agency’s research laboratory. The federal agency requires that all of its laboratory technicians be tested for Hepatitis B and C before starting work. Since an offer of employment has been made to CP, Tempsmart may, consistent with the ADA, require the tests for Hepatitis B and C. The federal agency also may require the tests, consistent with the Rehabilitation Act.

If, however, a qualified individual is screened out because of a disability, the staffing firm or client must show that the exclusionary criterion is “job-related and consistent with business necessity,” and that there was no reasonable accommodation that would have enabled the individual to meet the criterion.[24] In addition, if an offer is withdrawn for reasons related to safety, the employer must show that the individual poses a “direct threat.”[25] (For more information about a staffing firm’s or client’s use of qualification standards, including the results of medical examinations that screen out individuals on the basis of disability, see Question 11).

4.     If a staffing firm or client requires a medical examination, may it revoke an offer of employment if the results of the examination are not received before the assignment begins?

Yes. Because the ADA allows an employer to obtain medical information only after an offer of employment (as long as it does so for all entering employees in the same job category), where an applicant is unable to provide requested medical information before an assignment begins, the staffing firm or client may revoke the offer.

EXAMPLE 4:
Same facts as example 3. The laboratory technician position that CP is offered is scheduled to begin in three days. If CP is unable to provide the results of tests for Hepatitis B and C before then, the offer may be revoked.

Where possible, staffing firms should notify applicants ahead of time of medical information or examinations needed for certain types of work assignments. This enables applicants to obtain in advance the information needed for specific assignments that may need to be filled on short notice.[26]

EXAMPLE 5:
Same facts as example 3, except that Tempsmart notifies CP at the interview that he will have to be tested for Hepatitis B and C before he begins most laboratory technician assignments. A week later, at 3:00 P.M., when the federal agency requests a laboratory technician who can begin work the next morning, Tempsmart offers the assignment to CP and reminds him that the agency requires him to be tested for Hepatitis B and C. Because of Tempsmart’s advance notice, CP has already been tested by his own physician. The physician faxes the results to Tempsmart in time for CP to start the next day.

Disability-Related Inquiries and Medical Examinations of Employees

5.     May a staffing firm or client ask disability-related questions or require a medical examination of a staffing firm worker once s/he is employed (i.e., during the work assignment)?

Yes, if the questions or examinations are job-related and consistent with business necessity.[27] Generally, a disability-related inquiry or medical examination of an employee may be “job-related and consistent with business necessity” when an employer “has a reasonable belief, based on objective evidence, that: (1) an employee’s ability to perform essential job functions will be impaired by a medical condition; or (2) an employee will pose a direct threat[28] due to a medical condition.”[29] Disability-related inquiries and medical examinations that follow up on a request for reasonable accommodation when the disability or need for accommodation is not known or obvious, as well as certain types of periodic medical examinations and monitoring, also may be job-related and consistent with business necessity. Additionally, such questions or examinations of staffing firm workers while they are on a work assignment are permitted if they are required by another federal law or regulation.[30]

The questions or examinations must not exceed the scope of the specific medical condition and its effect on the staffing firm worker’s ability, with or without reasonable accommodation, to perform essential job functions or to work without posing a direct threat.[31] Thus, for example, if a staffing firm worker asks for a reasonable accommodation, and the disability and/or the need for accommodation is not obvious, the staffing firm or its client may ask the worker for reasonable documentation of his/her disability and functional limitations.[32] Like any medical information that an employer has about an applicant or employee, information obtained as the result of lawful disability-related inquiries or medical examinations of an employee must be kept confidential.[33]

Reasonable Accommodation and Undue Hardship

The ADA requires employers to provide reasonable accommodation to the known physical or mental limitations of otherwise qualified individuals with disabilities who are employees or applicants for employment, unless it would impose undue hardship.[34] Undue hardship means significant difficulty or expense and focuses on the resources and circumstances of the particular employer in relation to the cost or difficulty of providing a specific accommodation.[35] The ADA also prohibits employers from denying employment opportunities to qualified applicants or employees with disabilities because of the need to provide a reasonable accommodation.[36]

6.     Which entity—the staffing firm or its client—is obligated to provide a reasonable accommodation for the application process?

Typically, only the staffing firm is an applicant’s prospective employer[37] during the application process because it has not yet identified the client for which the applicant will work. In such cases, only the staffing firm is obligated to provide a reasonable accommodation for the application process.

EXAMPLE 6:
Workfast, a staffing firm, requires all applicants to fill out a job application form. CP, who is substantially limited in her ability to perform manual tasks because of muscular dystrophy, tells a Workfast associate that she will need assistance in filling out the application form.

Workfast alone is obligated to provide the accommodation, absent undue hardship.

Where a client sends an applicant to apply for work with it through a staffing firm, the client will usually qualify as a prospective employer and, as such, will be obligated along with the staffing firm to provide reasonable accommodation for the application process.

EXAMPLE 7:
EconoShop sends all applicants for temporary positions to apply through Workfast, a staffing firm. EconoShop and Workfast are both obligated to provide reasonable accommodations for the application process for individuals with disabilities who are applicants for temporary positions with EconoShop.

While a client is generally not required to provide reasonable accommodations for the application process, a client that qualifies as a joint employer of staffing firm workers may still violate the ADA if it continues to obtain workers through a staffing firm although it knows or has reason to know that the firm does not provide reasonable accommodation for the application process. This is because a client that qualifies as a joint employer of staffing firm workers may be liable for a staffing firm’s discrimination if the client knows or has reason to know of the discrimination and fails to take corrective action within its control.[38]

EXAMPLE 8:
A federal agency hires graphic artists through Sleek Design, a contract firm. Individuals with disabilities have complained to the federal agency that Sleek Design has denied them reasonable accommodations needed for the application process. Assuming that the federal agency qualifies as the joint employer of staffing firm workers, it will violate the Rehabilitation Act if it continues to obtain workers through Sleek Design.

7.     Where a staffing firm and its client are joint employers of a staffing firm worker with a disability, are both obligated to provide a reasonable accommodation that the worker needs on the job?

Yes. Because each qualifies as an employer of the staffing firm worker, each is obligated to provide a reasonable accommodation needed on the job, absent undue hardship,[39] if it has notice of the need for the accommodation.

EXAMPLE 9:
Just-jobs, a temporary employment agency, sends CP, who is deaf, to perform maintenance work for XYZ Corp. Both qualify as CP’s employer because Just-jobs hires CP and pays his wages, and XYZ supervises and directs CP’s work. CP informs Just-jobs that he will need a sign language interpreter for a one-hour safety orientation program that XYZ Corp. requires all employees to attend. Just-jobs lets XYZ know about CP’s need for an interpreter. Just-jobs and XYZ are both obligated to provide a reasonable accommodation.

If it is not clear what accommodation should be provided, both entities should engage in an informal interactive process with the worker to clarify what s/he needs and to identify the appropriate reasonable accommodation.[40]

It may be mutually beneficial for the staffing firm and its clients to specify in their contracts with one another which entity will provide reasonable accommodations that are required on the job or how the costs of accommodations will be shared. In this way, the question of which entity will provide an accommodation can be anticipated and resolved before a request is actually received, thereby eliminating unnecessary delay in providing the accommodation. A staffing firm and its clients may, through a contract, allocate responsibility for providing reasonable accommodations in any way they choose. Any contractual arrangement between a staffing firm and a client, however, does not alter their obligations under the ADA.[41]

8.     Can a staffing firm or its client claim undue hardship if a reasonable accommodation cannot be provided quickly enough to enable a staffing firm worker to begin, or to complete, a temporary work assignment in a timely manner?

Yes. Some temporary jobs become available on short notice and last for only a brief period of time, during which certain tasks must be completed. In such cases, a staffing firm or client can establish undue hardship by showing that the work assignment had to be filled on short notice and that the accommodation could not be provided quickly enough to enable the staffing firm worker to timely begin or complete a temporary work assignment.

EXAMPLE 10:
CP applies with All-temps for craft work. CP wears a prosthesis in place of her missing left hand and is substantially limited in her ability to perform manual tasks. In mid-October, All-temps offers CP a temporary assignment, to begin the next day, as a wood cutter with Masters, a manufacturer of small wooden toys. The assignment is to last for two weeks, during which time Masters needs to complete production of a specified number of toys in anticipation of holiday sales that will begin in November. CP tells All-temps that she can perform the job with a reasonable accommodation—an inexpensive adaptive device that she has used to perform similar work for other employers. Because neither All-temps nor Masters has the device, it must be ordered, and it will take about a week to receive. The accommodation results in an undue hardship for both All-temps and Masters.

EXAMPLE 11:
Same facts as example 10, except that the temporary work assignment does not begin for three weeks. Because there is adequate time for All-temps and Masters to provide the requested reasonable accommodation, neither can show undue hardship.

The fact that a staffing firm and its client have a very short period of time within which to provide an accommodation will not alone constitute undue hardship. For example, it is often possible to quickly provide qualified sign language interpreters for people who are deaf. Resources are also available to provide readers for people who are blind on short notice. Staffing firms and their clients should anticipate these types of requests for reasonable accommodations and plan for how to provide them expeditiously when a request is made. (See Question 7 above.)

9.     Where a staffing firm and its client are both obligated to provide a reasonable accommodation for a staffing firm worker with a disability, how should cost-related undue hardship be assessed?

Where a staffing firm and its client are both obligated to provide a reasonable accommodation, the following principles apply:

■      Where a reasonable accommodation would involve significant expense[42] for both the staffing firm and the client, even if their resources were combined, both can show undue hardship.

EXAMPLE 12:
CP applies for temporary work with All-temps and is offered an assignment with XYZ Corp. Because of her disability, CP needs adaptive equipment to use XYZ’s machines. Neither All-temps nor XYZ Corp. has sufficient resources of its own to purchase the equipment. Moreover, even when All-temps’ and XYZ Corp.’s assets are combined, acquisition of the equipment would still result in significant expense. All-temps and XYZ Corp. can show undue hardship.

Where the resources of the staffing firm and the client together are sufficient to provide an accommodation without undue hardship, either entity may still show undue hardship if it can demonstrate that:

■      its resources alone are insufficient to provide the reasonable accommodation without undue hardship; and

■      it made good faith, but unsuccessful, efforts to obtain contribution from the other entity.[43]

EXAMPLE 13:
Same facts as example 12, except that the adaptive equipment would not result in significant expense when the resources of the two are combined. All-temps makes good faith efforts to get XYZ to contribute to the cost of the equipment, but XYZ refuses. All-temps can show undue hardship. XYZ Corp. cannot show undue hardship, even if its own resources would have been insufficient to provide the accommodation, because it refused to contribute to the accommodation’s cost.

Where a reasonable accommodation would have resulted in significant expense for a staffing firm, and it has made good faith, but unsuccessful, efforts to obtain a contribution to the cost from the client, it has an undue hardship defense. However, it should offer the worker the next available assignment for which s/he is qualified.[44] To avoid future liability for participating in the discriminatory conduct of the client, the staffing firm should inform the client of its obligation to provide reasonable accommodation and it should not assign other workers to that work site until the client agrees to abide by its ADA obligation to provide reasonable accommodation.[45]

Where a reasonable accommodation would have resulted in significant expense for a client and it has made good faith, but unsuccessful, efforts to obtain a contribution to the cost from the staffing firm, the client has an undue hardship defense. To avoid future liability for participating in the discriminatory conduct of the staffing firm, the client should inform the staffing firm of its obligation to provide reasonable accommodation and it should not obtain other workers through the staffing firm until the firm agrees to abide by its ADA obligation to provide reasonable accommodation.[46]

EXAMPLE 14:
X-Perts, a staffing firm, receives a request from its client, Clutter Corp., a manufacturer of household appliances, to fill a position editing its operating manuals. CP, a staffing firm worker who is blind, needs adaptive equipment to perform the editing work on Clutter’s computers. The equipment would result in significant expense for either X-Perts or Clutter Corp. alone, but together they can provide the full cost without either one incurring undue hardship. Both X-Perts and Clutter Corp. must contribute to the cost of the adaptive equipment.

If X-Perts refuses to contribute to the cost of the accommodation, it has violated the ADA. Clutter Corp. can show undue hardship, but should inform X-Perts of its commitment to provide reasonable accommodation and should not obtain other workers through X-Perts until X-Perts agrees to abide by its ADA obligation to provide reasonable accommodation.

If Clutter Corp. refuses to contribute, it has violated the ADA. X-Perts can show undue hardship, but should offer the worker the next available assignment for which the worker is qualified. X-Perts also should inform Clutter Corp. of its commitment to provide reasonable accommodation and should not assign other workers to that work site until Clutter Corp. agrees to abide by its ADA obligation to provide reasonable accommodation.

Where an entity’s own resources are sufficient to provide an accommodation without undue hardship, it must do so, even if the other entity refuses to contribute to the cost of the accommodation.

EXAMPLE 15:
Same facts as example 14, except that Clutter Corp. can provide the accommodation alone without undue hardship. Clutter Corp. asks X-Perts, the staffing firm, to pay part of the cost of the accommodation, but X-Perts refuses. Clutter Corp. must still provide the accommodation and does not have an undue hardship defense.[47]

A staffing firm or client that refuses to contribute to the cost of a reasonable accommodation may be liable for a failure to provide a reasonable accommodation, even if the other entity provides it.[48]

10.   Where a staffing firm and its client are joint employers of a staffing firm worker with a disability, may one entity claim undue hardship where providing the accommodation is solely within the other’s control?

Yes, if it can demonstrate that it has made good faith, but unsuccessful, efforts to obtain the other’s cooperation in providing the reasonable accommodation.[49]

A staffing firm that asserts undue hardship under these circumstances should offer the worker the next available work assignment for which s/he is qualified, should inform the client of its commitment to provide reasonable accommodation, and should not assign other workers to that work site until the client agrees to abide by its ADA obligation to provide reasonable accommodation.

A client that asserts undue hardship under these circumstances should inform the staffing firm of its commitment to provide reasonable accommodation, and it should not obtain other workers through the staffing firm until the staffing firm agrees to abide by its ADA obligation to provide reasonable accommodation.[50]

EXAMPLE 16:
CP, who has Down syndrome, has been sent by Goodstaff, a staffing firm, to various clients to work as a kitchen helper performing simple food preparation tasks. CP has no difficulty performing any of the tasks but, because of his disability, he sometimes gets confused about the order in which the tasks are to be done. As a reasonable accommodation, Goodstaff has provided CP with posters picturing the tasks in the proper sequence that have enabled him to perform his job functions correctly. Goodstaff provides CP with posters for a kitchen helper position with Bon Banquet and offers to adjust them to Bon Banquet’s business practices, if necessary. Bon Banquet refuses to let CP use the posters, however, and discharges him when he is unable to complete the tasks in the right order. Goodstaff can show undue hardship, but should offer CP the next available position for which CP is qualified. Goodstaff should also inform Bon Banquet of its commitment to provide reasonable accommodation and should not assign other workers to that work site until Bon Banquet agrees to abide by its ADA obligation to provide reasonable accommodation.

Qualification Standards, Employment Tests, and Other Selection Criteria

The ADA prohibits an employer from using a qualification standard, employment test, or other selection criterion that screens out or tends to screen out an individual with a disability or class of individuals with disabilities, unless the standard, test, or criterion, as used by the covered entity, is job-related for the position to which it is being applied and consistent with business necessity.[51]

If the standard, test, or criterion is shown to be job-related and consistent with business necessity, an employer still must consider whether there is a reasonable accommodation that will enable an otherwise qualified individual with a disability to satisfy it.[52] With regard to health and safety standards that screen out qualified individuals because of disability, an employer must demonstrate that the requirement, as applied to an individual, satisfies the “direct threat” standard.[53]

11.   Is a staffing firm that uses a qualification standard to disqualify a worker because of his/her disability liable for violating the ADA? Is the client also liable?

Where the staffing firm and client are joint employers of staffing firm workers, the following principles apply to the use of qualification standards (including the use of the results of medical examinations):

A staffing firm will be liable for violating the ADA where:

■      it applies a qualification standard, either directly or at its client’s direction, that screens out an individual on the basis of disability and is not job-related and consistent with business necessity; or

■      it knows or has reason to know that a client is applying a qualification standard that is not job-related and consistent with business necessity to screen out a staffing firm worker on the basis of disability and fails to take corrective action within its control.

A client will be liable for violating the ADA where:

■      it applies a qualification standard, either directly or through a staffing firm, that screens out an individual on the basis of disability and is not job-related and consistent with business necessity; or

■      it knows or has reason to know that a staffing firm is applying a qualification standard that is not job-related and consistent with business necessity to screen out a staffing firm worker on the basis of disability and fails to take corrective action within its control.

If the qualification standard is job-related and consistent with business necessity, the staffing firm and client must consider whether there is a reasonable accommodation that will enable a staffing firm worker with a disability to meet the standard.

EXAMPLE 17:
XYZ Corp. hires temporary secretaries through Quality Workers. XYZ tells Quality Workers that it requires all secretaries to have a driver’s license. CP applies for secretarial positions with Quality Workers and is offered a position with XYZ. Quality Workers withdraws its offer when it discovers that CP does not have a driver’s license because of his disability. XYZ Corp. requires its secretaries to have a driver’s license so that they can run errands for XYZ’s executives, although it is not an essential function of the job. Having a driver’s license, therefore, is not job-related and consistent with business necessity. XYZ and Quality Workers have violated the ADA.

EXAMPLE 18:
Same facts as example 17, except that XYZ does not tell Quality Workers about the driver’s license requirement. CP, however, informs Quality Workers that, when he showed up at XYZ’s offices, XYZ refused to allow him to perform the secretarial job because he did not have a driver’s license. CP further explains that he does not have a driver’s license because of his epilepsy. In this situation, Quality Workers must take corrective action within its control in order to avoid liability under the ADA. Quality Workers should offer CP the next available position for which he is qualified, inform XYZ of its ADA obligations, and should not assign other workers to XYZ until it agrees to abide by these obligations.

12.   How does the ADA apply to the administration and use of pre-employment tests in contingent work arrangements?

Many staffing firms administer their own pre-employment tests to screen applicants or administer tests at the direction of a client. Under the ADA, a covered entity must provide reasonable accommodations to an individual with a disability to ensure that a test accurately measures what it purports to measure, and not the particular skills (e.g., sensory, manual, or speaking skills) that are affected by the disability, unless these are the skills the test is actually intended to measure.[54] Moreover, where a test does measure the skills affected by an applicant’s disability, a covered entity may not use the test results to exclude the individual, unless it can show that the skill is necessary to perform an essential function and that there is either no reasonable accommodation available to enable the individual to perform the function, or any necessary accommodation would result in undue hardship.[55] In other words, use of the test results must be job-related and consistent with business necessity.

In the context of contingent work arrangements, therefore, the following principles apply where the staffing firm and client qualify as joint employers of staffing firm workers with disabilities:

A staffing firm will be liable under the ADA if it:

■      fails to provide a necessary reasonable accommodation, absent undue hardship, in connection with a pre-employment test that it administers to an individual with a disability either directly or on a client’s behalf;

■      uses the results of a test that it administers directly or on a client’s behalf to exclude an individual with a disability, where the use of such results is not job-related and consistent with business necessity; or

■      knows or has reason to know that a client is administering or using pre-employment tests in a manner that discriminates against staffing firm workers with disabilities on the basis of disability and fails to take corrective action within its control.

A client will be liable under the ADA if it:

■      fails to provide a necessary reasonable accommodation, absent undue hardship, for an individual with a disability in connection with any test administered by the client directly or by the staffing firm on the client’s behalf;

■      uses the results of any pre-employment test administered by it directly, or by the staffing firm on its behalf, to exclude an individual on the basis of disability, where the use of such results is not job-related and consistent with business necessity; or

■      knows or has reason to know that a staffing firm is administering or using pre-employment tests in a manner that discriminates against staffing firm workers with disabilities on the basis of disability and fails to take corrective action within its control.

EXAMPLE 19:
Pro-staff, a staffing firm, gives a pre-employment test to all applicants for temporary positions designed to measure their aptitude for performing certain types of jobs. The test is made up of 100 multiple choice questions, and an applicant records his or her answers by punching a small hole on the answer sheet next to his or her chosen response. A machine then grades the test. CP, who has quadriplegia that substantially limits his ability to perform manual tasks, requests, as a reasonable accommodation, that he be allowed to give his answers orally to someone who can record them to ensure that each hole is completely punched. Assuming that the accommodation would not result in undue hardship, Pro-staff will violate the ADA by refusing to provide it.

EXAMPLE 20:
Same facts as example 19. CP and other individuals with disabilities inform Items Inc., which qualifies as a joint employer of staffing firm workers, that Pro-staff is refusing to provide reasonable accommodations for the pre-employment test. Because Items Inc. knows or has reason to know that Pro-staff is violating the ADA by failing to provide reasonable accommodations for qualified applicants with disabilities, Items Inc. must inform Pro-staff of its obligation to provide reasonable accommodation and should not obtain other workers through Pro-staff until Pro-staff agrees to abide by this ADA obligation.[56]

EXAMPLE 21:
Stock-up, a grocery store, hires cashiers, stockers, inventory clerks, and maintenance workers through Super-temps, a staffing firm. Stock-up asks Super-temps to administer a math test to applicants for all of Stock-up’s positions and instructs Super-temps not to refer anyone for any of the positions who has not passed the test. CP, who has mental retardation that substantially limits his cognitive abilities, is unable to pass the test, even with a reasonable accommodation. The test is not job-related and consistent with business necessity for the stocker or maintenance worker positions. Super-temps and Stock-up, therefore, will violate the ADA if they exclude CP from these positions based on his test results, assuming he can perform the essential functions of the jobs with or without a reasonable accommodation.

Notes

1.    Peter David Blanck, The Emerging Role of the Staffing Industry in the Employment of Persons With Disabilities: A Case Report on Manpower Inc. (Iowa City, Iowa), 1998, at 6 [hereinafter Manpower Report].

2.    Id.

3.    Bureau of the Census, U.S. Department of Commerce, Disabilities Affect One-Fifth of All Americans: Proportion Could Increase in Coming Decades (Census Brief No. 97-5, 1997).

4.    42 U.S.C. § 12101–12117, 12201–12213 (1994) (codified as amended). Pursuant to the Rehabilitation Act Amendments of 1992, the ADA’s employment standards apply to all nonaffirmative action employment discrimination claims of individuals with disabilities who are federal employees or applicants for federal employment. Pub. L. No. 102-569 § 503(b), 106 Stat. 4344, 4424 (1992) (codified as amended at 29 U.S.C. § 791(g) (1994)). Accordingly, the analysis in the guidance applies to federal sector complaints of nonaffirmative action employment discrimination arising under section 501 of the Rehabilitation Act of 1973. It also applies to employment discrimination under section 504 of the Rehabilitation Act. 29 U.S.C. § 793(d), 794(d) (1994).

5.    See, e.g., People With Disabilities—Temporary Employment Options, President’s Committee on Employment of People With Disabilities, at http://www.pcepd.gov (last visited December 4, 2000). www.pcepd.gov.

6.    Enforcement Guidance: Application of EEO Laws to Contingent Workers Placed by Temporary Employment Agencies and Other Staffing Firms, 8 FEP Manual (BNA) 405:7551 (1997) [hereinafter Contingent Workers Guidance]. This enforcement guidance can be found on EEOC’s Web site, eeoc.gov.

7.    See EEOC Enforcement Guidance on Reasonable Accommodation and Undue Hardship Under the Americans with Disabilities Act, 8 FEP Manual (BNA) 405:7601 (1999) [hereinafter Reasonable Accommodation Guidance]; Enforcement Guidance: Disability-Related Inquiries and Medical Examinations of Employees Under the Americans with Disabilities Act (ADA) of 1990, 8 FEP Manual (BNA) 405:7701 (2000) [hereinafter Disability-Related Inquiries and Medical Examinations of Employees); Enforcement Guidance: Preemployment Disability-Related Questions and Medical Examinations, 8 FEP Manual (BNA) 405:7191 (1995) [hereinafter Preemployment Questions and Examinations]. These enforcement guidance documents can be found on EEOC’s Web site, eeoc.gov.

8.    42 U.S.C. § 12112(b)(2) (1994); 29 C.F.R. § 1630.6 (2000).

9.    Contingent Workers Guidance, supra note 6, at 3–4, 8 FEP at 405:7551, 7553.

10. Id. at 7–13 (Q&As 2–3), 8 FEP at 405:7555–59.

11. To determine whether a staffing firm or its client qualifies as the employer of a staffing firm worker, see id. at 7–11 (Q&A 2), 8 FEP at 405:7555–58. A staffing firm worker must qualify as an “applicant” or “employee” within the meaning of federal antidiscrimination statutes of at least one of the entities in order for there to be liability under Title I of the ADA. Id. at 4–7 (Q&A 1), 8 FEP at 405:7554–55. Often, a staffing firm and its client will be joint employers of a staffing firm worker. For information on how to determine whether entities are joint employers, see Section 2: Threshold Issues, [Vol. I] EEOC Compl. Man. (BNA) 605:i (May 12, 2000).

12. Contingent Workers Guidance, supra note 6, at 19–22 (Q&A 8), 8 FEP at 405:7563–64.

13. ADA section 102(a) does not limit its protections to an employer’s own employees, but rather protects an “individual” from discrimination. See 42 U.S.C. § 12112(a) (1994); 29 C.F.R. § 1630.4 (2000). Thus, an employer is prohibited from interfering with a person’s employment opportunities with another employer, even if s/he is not its employee. Contingent Workers Guidance, supra note 6, at 11–13 (Q&A 3), 8 FEP at 405:7558–59. ADA section 503 also protects “an individual” and is not limited in its applicability to covered entities. See 42 U.S.C. § 12203 (1994); 29 C.F.R. § 1630.12 (2000). In contrast, a federal agency cannot be found liable for discrimination under a “third-party interference” theory. Contingent Workers Guidance, supra note 6, at 13–14 (Q&A 4), 8 FEP at 405:7559.

14. The ADA prohibits employment agencies from engaging in all of the same types of discrimination as other covered entities. See 42 U.S.C. § 12111–12112 (1994); 29 C.F.R. § 1630.2(b), 1630.4 (2000). Therefore, the ADA requirements discussed in the following sections apply to staffing firms when they act as employment agencies.

15. See supra note 13.

16. See Pre-employment Questions and Examinations, supra note 7, at 6–7 (section entitled “The Pre-Offer Stage,” sixth Q&A), 8 FEP at 405:7193–94.

17. Id.

18. 42 U.S.C. § 12112(d) (1994); 29 C.F.R. § 1630.14 (1998) (emphasis added). Generally, any medical information obtained must be kept confidential. 42 U.S.C. § 12112(d)(3) (1994); 29 C.F.R. § 1630.14(b)(1)–(2) (2000).

19. 42 U.S.C. § 12112(d)(4) (1994); 29 C.F.R. § 1630.14(c) (2000). For a more complete discussion of the circumstances under which employers may make disability-related inquiries or require medical examinations of employees, see Q&A 5 below.

20. For a discussion of the factors indicating an employment relationship, see Contingent Workers Guidance, supra note 6, at 4–7 (Q&A 1), 8 FEP at 405:7554–55.

21. See id. at 7–11 (Q&A 2); 8 FEP at 405:7555–58.

22. The Commission’s position is consistent with Congress’ reasons for prohibiting disability-related inquiries and medical examinations until after an offer of employment. Congress established this process so that individuals will know whether they have been denied employment because of a medical condition, and thus for the Commission to say otherwise would be to undermine Congressional intent. See S. Rep. No. 101–116, at 39 (1989); H.R. Rep. No. 101-485, pt. 2, at 72–73 (1990); H.R. Rep. No. 101-485, pt. 3, at 42–43 (1990); see also Pre-employment Questions and Examinations, supra note 7, at 1 (“Background”), 8 FEP at 405:7191.

23. A staffing firm may, but is not required to, ask the same disability-related questions or require the same medical examinations each time it sends a particular worker on an assignment in the same job category. Therefore, the staffing firm need only make disability-related inquiries and require medical examinations the first time it offers a worker an assignment in a particular job category. If the staffing firm chooses to administer the same questions or examinations each time it offers a position in a particular job category, however, that policy must be uniformly applied.

24. 42 U.S.C. § 12112(b)(6) (1994); 29 C.F.R. § 1630.10, 1630.14(b)(3) (2000); 29 C.F.R. pt. 1630 app. § 1630.14(b) (2000).

25. Under current regulations applicable to federal sector employers, a federal agency must also demonstrate that there are no criteria available that would screen out fewer individuals with disabilities. 29 C.F.R. § 1614.203(d)(1)(ii) (2000). In March 2000, the Commission issued a Notice of Proposed Rulemaking regarding proposed revisions to 29 C.F.R. § 1614.203 to implement the ADA’s nondiscrimination standards for federal sector employers. See 65 Fed. Reg. 11019, 2000 WL 226980 (3/1/00). As of the date of issuance of this Guidance, the Commission is proceeding with the rulemaking process.

25. 29 C.F.R. § 1630.15(b)(2), 1630.2(r) (2000).

26. Of course, for many types of temporary work assignments, a worker’s medical condition is inconsequential.

27. 42 U.S.C. § 12112(d)(4) (1994); 29 C.F.R. § 1630.14(c) (2000).

28. “Direct threat” means a significant risk of substantial harm that cannot be eliminated or reduced by reasonable accommodation. 29 C.F.R. § 1630.2(r) (1998). Direct threat determinations must be based on an individualized assessment of the individual’s present ability to safely perform the essential functions of the job, considering a reasonable medical judgment relying on the most current medical knowledge and/or best available objective evidence. Id. To determine whether an employee poses a direct threat, the following factors should be considered: (1) the duration of the risk; (2) the nature and severity of the potential harm; (3) the likelihood that potential harm will occur; and, (4) the imminence of the potential harm. Id.

29. The Commission explained this standard in its enforcement guidance, EEOC Enforcement Guidance on the Americans With Disabilities Act and Psychiatric Disabilities at 15, 8 FEP Manual (BNA) 405:7461, 7468–69 (1997) [hereinafter ADA and Psychiatric Disabilities]. This enforcement guidance can be found at EEOC’s Web site, eeoc.gov.

30. See 29 C.F.R. § 1630.15(e) (2000) (It may be a defense to a charge of discrimination…that a challenged action is required or necessitated by another Federal law or regulation…).

31. See Disability-Related Inquiries and Medical Examinations of Employees, supra note 7, at 25–26 (Q&A 12), 8 FEP at 405:7714.

32. 29 C.F.R. pt. 1630 app. § 1630.9 (2000); see also Reasonable Accommodation Guidance, supra note 7, at 12–15 (Q&A 6), 8 FEP at 405:7607–08; Disability Related Inquiries and Medical Examinations of Employees, supra note 7, at 20–21 (Q&A 7), 8 FEP at 405:7711.

33. 42 U.S.C. § 12112(d)(3) (1994); 29 C.F.R. § 1630.14(b)(1)–(2) (2000).

34. The Commission has set forth the ADA principles on reasonable accommodation and undue hardship in the Reasonable Accommodation Guidance, supra note 7.

35. Id. at 2–7 (section entitled “General Principles”), 8 FEP at 405:7601–04; see also 42 U.S.C. § 12111(10) (1994); 29 C.F.R. § 1630.2(p) (2000); 29 C.F.R. pt. 1630 app. § 1630.2(p) (2000) (explaining term “undue hardship”).

36. 42 U.S.C. § 12112(b)(5)(B) (1994); 29 C.F.R. § 1630.9(b) (2000).

37. A staffing firm is also obligated as an employment agency to provide reasonable accommodation for the application process. See supra note 14 and accompanying text.

38. See infra pp. 2–3 (stating this general principle of liability).

39. Where providing a reasonable accommodation is within the sole control of one entity that fails or refuses to provide it, the other can show undue hardship. See infra Q&A 9.

40. See Reasonable Accommodation Guidance, supra note 7, at 11–12 (Q&A 5), 8 FEP at 405:7606–07, for further information on the informal interactive process. As part of that process, the staffing firm and its client may share medical information about an individual submitted in connection with a request for reasonable accommodation where it is necessary to identify and provide needed accommodations. Generally, any medical information obtained by the staffing firm or client must be kept confidential. 42 U.S.C. § 12112(d)(3) (1994); 29 C.F.R. § 1630.14(b)(1)–(2) (2000). However, the ADA includes an exception for supervisors and managers who need to be told about necessary restrictions on the work or duties of the employee and about necessary reasonable accommodations. 42 U.S.C. § 12112(d)(3) (1994); 29 C.F.R. § 1630.14(b) (1)–(2) (2000). (Staffing firms and clients are subject to the ADA’s confidentiality provisions if they qualify as a worker’s employer. A staffing firm is subject to such provisions as an employment agency, as well. Even if a staffing firm or client does not qualify as a worker’s employer, it is prohibited from interfering with the worker’s exercise or enjoyment of ADA rights. See 42 U.S.C. § 12203(b) (1994); 29 C.F.R. § 1630.12(b) (2000)).

41. The ADA contains a specific provision which says that a covered entity cannot evade its obligations under the law through a contractual or other relationship. See 42 U.S.C. § 12112(b)(2) (1994); 29 C.F.R. § 1630.6 (2000). Thus, both the staffing firm and the client remain responsible under the ADA to ensure that the accommodation is provided. If either the staffing firm or client breaches a contractual obligation to provide a reasonable accommodation, the other entity may have a breach of contract action for the cost of providing the accommodation and for other costs. See 29 C.F.R. pt. 1630 app. § 1630.6 (2000).

42. See 42 U.S.C. § 12111(10) (1994) (defining “undue hardship” as significant difficulty or expense); 29 C.F.R. § 1630.2(p) (2000) (same).

43. Where a staffing firm and a client have both contributed to the cost of a reasonable accommodation, they may specify in a contract which one will keep it. If an entity breaches its contractual obligation, the other may have a breach of contract remedy.

44. See Contingent Workers Guidance, supra note 6, at 19–22 (Q&A 8), 8 FEP at 405:7563–64 (staffing firm is liable if it knew or should have known about a client’s discrimination and failed to take prompt corrective measures within its control, such as affording the worker an opportunity to take a different job assignment).

45. Id.

46. Id.

47. If Clutter Corp. has a contract with X-perts according to which X-perts is required to pay all or part of the cost of reasonable accommodations, then Clutter Corp. may have a breach of contract claim against X-perts. See 29 C.F.R. pt. 1630 app. § 1630.6 (2000).

48. In such a situation, the EEOC might pursue injunctive relief against the entity that refuses to contribute to the cost of the accommodation.

49. For example, a staffing firm is not in a position to make structural changes to its client’s premises and can establish undue hardship by demonstrating that it has made good faith, but unsuccessful, efforts to get the client to make the changes. See Reasonable Accommodation Guidance, supra note 7, at 60–61 (Q&A 46), 8 FEP at 405:7633–34.

50. See Contingent Workers Guidance, supra note 6, at 19–22 (Q&A 8), 8 FEP at 405:7563–64 (asserting that client may be liable if knows or has reason to know of staffing firm’s discrimination and fails to take corrective action within its control).

51. 42 U.S.C. § 12112(b)(6) (1994); 29 C.F.R. § 1630.10 (2000). A qualification standard, employment test, or other selection criterion may be job-related and consistent with business necessity if it is related to a person’s ability to perform the essential functions of a position. 29 C.F.R. pt. 1630 app. § 1630.10 (2000); 29 C.F.R. § 1630.15(b), 29 C.F.R. pt. 1630 app. § 1630.15(b) (2000).

52. 29 C.F.R. pt. 1630 app. § 1630.10 (2000). Under current federal sector regulations, a federal agency must also be able to demonstrate that there is no qualification standard available that would screen out fewer individuals with disabilities. 29 C.F.R. § 1614.203(d)(1)(ii) (2000). See supra note 24 (noting ongoing rulemaking process to revise 29 C.F.R. § 1614.203 to incorporate the ADA nondiscrimination standards).

53. See 29 C.F.R. § 1630.2(r) (2000).

54. 29 C.F.R. § 1630.11 (2000); 29 C.F.R. pt. 1630 app. § 1630.11 (2000).

55. Id.

56. See Contingent Workers Guidance, supra note 6, at 19–22 (Q&A 8), 8 FEP at 405:7563-64 (staffing firm is liable if it knew or should have known about a client’s discrimination and failed to take prompt corrective measures within its control, such as affording the worker an opportunity to take a different job assignment).

Questions and Answers

Enforcement Guidance: Application of the ADA to Contingent Workers Placed by Temporary Agencies and Other Staffing Firms

Introduction

Why did the EEOC issue this Guidance?

■     Contingent workers placed by staffing firms, including for example, temporary, contract, and leased workers, represent a growing segment of the labor force. Employment through staffing firms is particularly critical for individuals with disabilities who are seeking to move into the workforce.

■     In 1997, the Commission issued an enforcement guidance titled, “Application of EEO Laws to Contingent Workers Placed by Temporary Employment Agencies and Other Staffing Firms” (“Contingent Workers Guidance”) that dealt generally with the liability of staffing firms and their clients for violations of federal employment discrimination laws.

■     This guidance addresses unanswered questions in the prior guidance and explains the responsibilities of staffing firms and their clients in complying with requirements unique to the ADA, including, for example, reasonable accommodation and rules concerning disability-related questions and medical examinations.

What ADA issues does this Guidance address?

■     This guidance focuses primarily on the allocation of responsibilities between employers and staffing firms.

■     The most important issues covered in the guidance are:

–   the circumstances in which staffing firms and their clients may ask disability-related questions or require medical examinations of applicants and employees (Questions 1–5);

–   the extent to which a staffing firm and its clients are required to provide reasonable accommodations for staffing firm workers with disabilities (Questions 6–10); and

–   a staffing firm’s and client’s liability for using qualification standards and pre-employment tests that discriminate on the basis of disability (Questions 11 and 12).

■     This guidance does not include a detailed discussion of when an entity is an employer or when a staffing firm and its client are joint employers. These concepts are fully discussed in the Contingent Workers Guidance.

For more information about the issues discussed in the Guidance, please consult the question numbers referenced throughout this document.

To whom does this Guidance apply?

■     The Guidance applies to private and to state and local government employers with 15 or more employees. Federal sector employers also are covered by the Guidance, as the result of the 1992 amendments to the Rehabilitation Act.

■     The ADA’s requirements generally apply to “qualified individuals with disabilities.” However, the discussion of disability-related inquiries and medical examinations in the Guidance applies to all applicants and employees, whether they have disabilities or not.

Disability-Related Inquiries and Medical Examinations

The ADA sets forth rules about when covered entities may ask disability-related questions or require medical examinations of applicants and employees. This Guidance deals with these requirements in the unique setting of contingent work arrangements.

What constitutes an offer of employment to a staffing firm worker? (Questions 1 and 2)

■      Generally, the offer occurs when the worker receives an assignment with a specific client. A staffing firm’s placement of someone on its roster for future consideration does not constitute an offer of employment because typically there is no employment relationship at that point.

What types of disability-related questions and medical examinations are permitted after an offer of employment has been made to a staffing firm worker? (Questions 3, 5)

■     After an offer has been made, a staffing firm or its client may ask any disability-related questions or require any medical examinations that it chooses, as long as it does so for all applicants for the same job. However, if the staffing firm or client wants to withdraw the offer from an applicant with a disability based on the answers to these questions or the results of medical examinations, it has to show that the applicant either: (1) cannot perform the essential functions of the job, even with a reasonable accommodation; or (2) would pose a direct threat (i.e., a significant risk of substantial harm).

■     During the work assignment, a staffing firm or its client generally may ask a staffing firm worker disability-related questions or require a medical examination only where it has a reasonable belief that a medical condition will make the worker unable to do the job or will result in a direct threat.

What if a job becomes available on very short notice and there isn’t time for a staffing firm worker to provide needed medical information? (Question 4)

■     The offer may be withdrawn. However, a staffing firm should consider telling an applicant what medical information will be needed before a particular assignment is made. That way, the applicant can obtain the needed information and provide it quickly if a particular assignment becomes available on short notice.

Reasonable Accommodation and Undue Hardship

Which entity—the staffing firm or its client—has to provide a reasonable accommodation for the application process? (Question 6)

■     Typically, only the staffing firm will have to provide reasonable accommodations for the application process, since no particular client has been identified as a prospective employer.

■     However, when a client sends an applicant to apply for work with it through the staffing firm, both the staffing firm and the client must provide reasonable accommodation for the application process.

■     Even though a client does not usually have an obligation to provide a reasonable accommodation in the application process, it might still violate the ADA if it is a joint employer of staffing firm workers, and it knows or has reason to know that the staffing firm is not providing reasonable accommodations for the application process but fails to take corrective action within its control.

Where a staffing firm and its client are joint employers of a staffing firm worker with a disability, which one has to provide reasonable accommodations needed on the job? (Question 7)

■     Both the staffing firm and the client are obligated to provide a reasonable accommodation needed on the job, absent undue hardship, if they have notice of the need for it. The staffing firm and client may wish to set out in their contracts how reasonable accommodations will be provided and who will pay for them.

What happens if a job becomes available on short notice and there is no time for the staffing firm or client to provide a reasonable accommodation? (Question 8)

■     Some temporary work assignments become available on short notice and last only a brief period of time, during which certain tasks have to be completed. In these circumstances, the staffing firm or its client could establish undue hardship by showing that the job became available on short notice and the accommodation could not be provided quickly enough to enable the staffing firm worker to timely begin or complete a temporary assignment.

What does the Guidance say about how staffing firms and their clients should determine cost-related undue hardship? (Question 9)

■     Where the resources of the staffing firm and its client together are insufficient to provide an accommodation without significant expense, both have an undue hardship defense.

■     A staffing firm or client whose resources are insufficient to provide the accommodation also may have an undue hardship defense if it made good faith, but unsuccessful, efforts to have the other entity contribute to the accommodation’s cost.

■     Where a staffing firm and its client are both obligated to provide a reasonable accommodation, the entity that refuses to contribute to the accommodation’s cost may be liable for failing to provide the accommodation. If the other entity is able to provide the accommodation without undue hardship, it must do so.

What should a staffing firm or client do if providing the accommodation is solely within the control of the other entity, e.g., where the accommodation requires changes to the client’s workplace? (Question 10)

■     Where a staffing firm and its client are joint employers of a staffing firm worker with a disability, one entity may claim undue hardship where providing the accommodation is solely within the other entity’s control if it made good faith, but unsuccessful, efforts to obtain the other’s cooperation in providing the reasonable accommodation.

Qualification Standards, Employment Tests, and Other Selection Criteria

What does the Guidance say about the liability of staffing firms and their clients for the use of discriminatory job standards? (Question 11)

■     Job standards that staffing firms and their clients use that exclude an individual with a disability from employment have to be job-related and consistent with business necessity.

■     If the qualification standard is not job-related and consistent with business necessity, the staffing firm is liable for violating the ADA if it is applying either its own standard or its client’s standard. The client is liable if it requested the staffing firm to use the standard or if it used the standard directly.

■     A staffing firm also may be liable if it knows or has reason to know that a client is using a discriminatory qualification standard and fails to take corrective action within its control. The same is true of a client that knows or has reason to know that a staffing firm is using a discriminatory qualification standard.

■     If the qualification standard is job related and consistent with business necessity, the staffing firm and/or the client must consider whether there is a reasonable accommodation that will enable a staffing firm worker with a disability to meet the standard.

How does the ADA apply to the administration of pre-employment tests in the contingent work setting? (Question 12)

■     A staffing firm and a client must make reasonable accommodations so that individuals with disabilities can take any tests they administer directly or at the other entity’s direction.

■     Also, a staffing firm and its client may not use tests results to screen out individuals from employment on the basis of disability, unless use of the test results is job-related and consistent with business necessity.

■     Finally, if the staffing firm or its client knows that the other entity is discriminating with respect to pre-employment testing, then it must take corrective action within its control in order to avoid liability under the ADA.

J

Occupational Safety and Health Administration Record-Keeping Rules

Table of Contents

OSHA Rule on Employees Covered by Record-Keeping Requirements

OSHA Record-KeepingInstruction—Frequently Asked Questions

Employers’ Responsibilities Toward Temporary Employees

OSHA Field Operations Manual

Clarification of OSHA Safety Requirements Between a Temporary Staffing Agency and Its Client

OSHA Rule on Employees Covered by Record-Keeping Requirements

Excerpt from Department of Labor regulations relating to occupational injury and illness recording and reporting requirements (66 Fed. Reg. 6131, Jan. 19, 2001)

Section 1904.31 Covered employees.

(a) Basic requirement.

You must record on the OSHA 300 Log the recordable injuries and illnesses of all employees on your payroll, whether they are labor, executive, hourly, salary, part-time, seasonal, or migrant workers. You also must record the recordable injuries and illnesses that occur to employees who are not on your payroll if you supervise these employees on a day-to-day basis. If your business is organized as a sole proprietorship or partnership, the owner or partners are not considered employees for record-keeping purposes.

(b) Implementation.

1.     If a self-employed person is injured or becomes ill while doing work at my business, do I need to record the injury or illness? No, self-employed individuals are not covered by the OSH Act or this regulation.

2.     If I obtain employees from a temporary help service, employee leasing service, or personnel supply service, do I have to record an injury or illness occurring to one of those employees? You must record these injuries and illnesses if you supervise these employees on a day-to-day basis.

3.     If an employee in my establishment is a contractor’s employee, must I record an injury or illness occurring to that employee? If the contractor’s employee is under the day-to-day supervision of the contractor, the contractor is responsible for recording the injury or illness. If you supervise the contractor employee’s work on a day-to-day basis, you must record the injury or illness.

4.     Must the personnel supply service, temporary help service, employee leasing service, or contractor also record the injuries or illnesses occurring to temporary, leased, or contract employees that I supervise on a day-to-day basis? No, you and the temporary help service, employee leasing service, personnel supply service, or contractor should coordinate your efforts to make sure that each injury and illness is recorded only once: either on your OSHA 300 Log (if you provide day-to-day supervision) or on the other employer’s OSHA 300 Log (if that company provides day-to-day supervision).

OSHA Record-Keeping Instruction— Frequently Asked Questions

U.S. Department of Labor
Occupational Safety and Health Administration

DIRECTIVE NUMBER: CPL 2-00-1350
EFFECTIVE DATE: December 30, 2004
SUBJECT: Record-Keeping Policies and Procedures Manual PURPOSE: This Instruction transmits enforcement information and provides changes and additions to CPL 02-00-131/CPL 2-0.131 of January 1, 2002, Chapter 1; Paragraph V; Federal Program Changes and Chapter 5, Frequently Asked Questions on OSHA’s record-keeping regulations.[1]
SCOPE: OSHA-wide

Executive Summary

This instruction is the Record-Keeping Policies and Procedures Manual (RKM) for the new record-keeping rule that was published in the Federal Register on January 19, 2001. This manual is divided into five chapters:

Chapter 1—Background;
Chapter 2—Enforcement Policies and Procedures;
Chapter 3—Standard Alleged Violation Elements (SAVEs); Chapter 4—Comparison of Old and New Rule;
Chapter 5—Frequently Asked Questions.

Chapter 5–Frequently Asked Questions

Paragraph X—Section 1904.31: Covered Employees

Question 31-1. How is the term “supervised” in section 1904.31 defined for the purpose of determining whether the host employer must record the work-related injuries and illnesses of employees obtained from a temporary help service?

The host employer must record the recordable injuries and illnesses of employees not on its payroll if it supervises them on a day-to-day basis. Day- to-day supervision occurs when “in addition to specifying the output, product or result to be accomplished by the person’s work, the employer supervises the details, means, methods, and processes by which the work is to be accomplished.”

Question 31-2. If a temporary personnel agency sends its employees to work in an establishment that is not required to keep OSHA records, does the agency have to record the recordable injuries and illnesses of these employees?

A temporary personnel agency need not record injuries and illnesses of those employees that are supervised on a day-to-day basis by another employer. The temporary personnel agency must record the recordable injuries and illnesses of those employees it supervises on a day-to-day basis, even if these employees perform work for an employer who is not covered by the record-keeping rule.

Paragraph XI—Section 1904.32: Annual Summary

Question 32-1. How do I calculate the “total hours worked” on my annual summary when I have both hourly and temporary workers?

To calculate the total hours worked by all employees, include the hours worked by salaried, hourly, part-time, and seasonal workers, as well as hours worked by other workers you supervise (e.g., workers supplied by a temporary help service). Do not include vacation, sick leave, holidays, or any other nonwork time even if employees were paid for it. If your establishment keeps records of only the hours paid or if you have employees who are not paid by the hour, you must estimate the hours that the employees actually worked.

Employers’ Responsibilities Toward Temporary Employees

OSHA Standard Interpretations—Hazard Communication Standard

U.S. Department of Labor
Occupational Safety and Health Administration February 3, 1994
Mr. Michael F. Moreau
National Employment Service Corporation
95 Albany Street Suite 3
Portsmouth, New Hampshire 03801

Dear Mr. Moreau:

This is in response to your inquiry of May 3, concerning the Occupational Safety and Health Administration’s Hazard Communication Standard (HCS), 29 CFR 1910.1200.

Your question/concerns/clarification on employers’ responsibilities towards temporary employees, particularly in regard to the HCS. Your questions will be answered in the order that you presented them:

1.     Who is responsible for hazard communication training of the temporary employee. The [temp] agency or the client employer?

OSHA considers temporary employment agencies who send their own employees to work at other facilities to be employers whose employees may be exposed to hazards. Since it is your company, which maintains a continuing relationship with its employees, but another employer (the client) who creates and controls the hazards, there is a shared responsibility for assuring that your employees are protected from the workplace hazards. The client has the primary responsibility of such protection. The “lessor employer” likewise has a responsibility under the Occupational Safety and Health Act.

In meeting the requirements of OSHA’s Hazard Communication standard the lessor employer would, for example, be expected to provide the training and information requirements specified by the HCS section (h)(1). Client employers would then be responsible for providing site-specific training and would have the primary responsibility to control potential exposure conditions. The client, of course, may specify what qualifications are required for supplied personnel, including training in specific chemicals or personal protective equipment (PPE). Contracts with your client employer and your employees should clearly describe the responsibilities of both parties in order to ensure that all requirements of the regulation are met.

2.     Who is responsible for the provision and assured use of appropriate personal protective equipment by the temporary employees?

Client employers would be responsible for providing PPE for site-specific hazards to which employees may be exposed. However, again, the client may specify the services that it wants the lessor employer to supply, including provision of PPE for the placed employees. Contracts with the client employer should clearly describe the responsibilities of both parties in order to ensure that all requirements of OSHA’s regulations are met.

3.     When medical surveillance or monitoring is indicated, who is responsible for conducting the monitoring and maintaining records?

The client employer must offer and perform the required medical surveillance or evaluations. The lessor employer must ensure that the records of the required medical surveillance or evaluations are maintained in accordance with the appropriate OSHA standards.

4.     Is the temporary help service required to maintain cumulative exposure data (e.g., 30-day lead exposure, six months noise exposure, etc.) when the employee works for several different companies during the year?

Yes, the temporary help service must maintain employee records in accordance with the appropriate OSHA standard (e.g., the Lead standard, the Occupational Noise Exposure standard, etc.). However, the client employer must perform the site characterization and monitoring of exposure to hazardous chemicals on the work site.

5.     If 29 CFR 1910.1200(h) requires training on hazardous chemicals in the work area at the time of the initial assignment and whenever a new hazard was introduced into their work place, when does the initial assignment begin and who is responsible for the initial training and the ongoing training?

The lessor employer would be expected to provide some generic training and client employers would be responsible for providing site-specific training, or training to update employees on new hazards in the workplace. Please see the answer to question 1 for a further explanation.

6.     How does hazard communication training tie into the SIC code 7363?

The current HCS final rule covers all Standard Industrial Classification (SIC) codes. In 1987 the Office of Management and Budget (OMB) prevented OSHA from enforcing HCS in the construction industry. On OMB’s advice, OSHA published a statement of concurrence in the Federal Register on August 8, 1988 (Volume 53, page 29822). However, on August 19, 1988, the U.S. Court of Appeals for the Third Circuit invalidated OMB’s actions as being outside OMB’s authority under the Paperwork Reduction Act (see United Steelworkers of America v. Pendergrass, 855 F.2d 108 (3rd Cir. 1988), Ex. 4-190). As ordered by the Court, OSHA published a notice in the Federal Register on February 15, 1989 (Volume 54, page 6886) to inform affected employers and employees that all provisions of the HCS would be in effect in all industries, and set March 17, 1989, as the date for initiation of programmed compliance inspections.

We hope this information is helpful. If you have any further questions please contact the Office of Health Compliance Assistance at (202) 219-8036.

Sincerely,

\s\
Roger A. Clark, Director
Directorate of Compliance Programs National Employment Service Corporation
5 Albany Street, Suite 3
Portsmouth, New Hampshire 03801

May 3, 1993 OSHA
Attn: Roger Clark
Director of Compliance Programs Room N3468
200 Constitution Ave. N.W.
Washington D.C. 22102

Subject: Temporary Help Supply Service

Dear Roger,

I am writing to you as requested by Tom Galassi of your office. I own a temporary service which provided industrial temporary employees to perform various tasks in different plants. There are several questions that I wish you could clarify for me.

1.     Who is responsible for hazard communication training of the temporary employee. The agency or the client employer?

2.     Who is responsible for the provision and assured use of appropriate personal protection equipment by the temporary employees?

3.     When medical surveillance or monitoring is indicated, who is responsible for conducting the monitoring and maintaining records?

4.     Is the temporary help service required to maintain cumulative exposure data (e.g., 30-day lead exposure, 6 months noise exposure, etc.) when the employee works for several different companies during the year?

5.     If 29 CFR 1910.1200(h) requires training on hazardous chemicals in the work area at the time of the initial assignment and whenever a new hazard was introduced into their work place. When does the initial assignment begin and who is responsible for the initial training and the ongoing training?

6.     How does hazard communication training tie into the SIC Code 7363?

Your clarification of these questions would be appreciated.

Yours Truly,
\s\
Michael F. Moreau
President

OSHA Field Operations Manual

OSHA Directive Number: CPL-02-00-160
Effective August 2, 2016

Chapter 4 — Violations

I. Basis of Violations

A. Standards and Regulations.

1. Section 5(a)(2) of the Act states that each employer has a responsibility to comply with occupational safety and health standards promulgated under the Act, which includes standards incorporated by reference. For example, the American National Standards Institute (ANSI) standard A92.2 – 1969, “Vehicle Mounted Elevating and Rotating Work Platforms,” including appendix, is incorporated by reference as specified in §1910.67. Only the mandatory provisions, i.e., those containing the word “shall” or other mandatory language of standards incorporated by reference, are adopted as standards under the Act.

2. The specific standards and regulations are found in Title 29 Code of Federal Regulations (CFR) 1900 series. Subparts A and B of 29 CFR 1910 specifically establish the source of all the standards, which serve as the basis for violations. Standards are subdivided as follows as per OIS Application…

NOTE: The most specific provision of a standard shall be used for citing violations.

3. Definition and Application of Vertical and Horizontal Standards.

Vertical standards are standards that apply to a particular industry or to particular operations, practices, conditions, processes, means, methods, equipment, or installations. Horizontal standards are other (more general) standards applicable to multiple industries. See §1910.5(c).

4. Application of Horizontal and Vertical Standards.

If a CSHO is uncertain whether to cite under a horizontal or a vertical standard when both may be applicable, the supervisor or the Area Director shall be consulted. The following guidelines shall be considered:

a. When a hazard in a particular industry is covered by both a vertical (e.g., 29 CFR 1915) and a horizontal (e.g., 29 CFR 1910) standard, the vertical standard shall take precedence even if the horizontal standard is more stringent.

b. In situations covered by both a horizontal (general) and a vertical (specific) standard where the horizontal standard appears to offer greater protection, the horizontal (general) standard may be cited only if its requirements are not inconsistent or in conflict with the requirements of the vertical (specific) standard. To determine whether there is a conflict or inconsistency between the standards, an analysis of the intent of the two standards must be performed. For the horizontal standard to apply, the analysis must show that the vertical standard does not address the precise hazard involved, even though it may address related or similar hazards.

EXAMPLE 4-1: When employees are connecting structural steel, §1926.501(b)(15) may not be cited for fall hazards above 6 feet since that specific situation is covered by §1926.760(b)(1) for fall distances of more than 30 feet.

c. If the particular industry does not have a vertical standard that covers the hazard, then the CSHO shall use the horizontal (general industry) standard.

d. When determining whether a horizontal or a vertical standard is applicable to a work situation, the CSHO shall focus attention on the particular activity an employer is engaged in rather than on the nature of the employer’s general business.

e. Hazards found in construction work that are not covered by a specific 29 CFR 1926 standard shall not normally be cited under 29 CFR 1910 unless that standard has been identified as being applicable to construction. See Incorporation of General Industry Safety and Health Standards Applicable to Construction Work, 58 FR 35076 (June 30, 1993).

f. If a question arises as to whether an activity is deemed “construction” for purposes of the Act, contact the Directorate of Construction (DOC). See §1910.12, Construction Work.

g. For the application of standards in the maritime industries (29 CFR Parts 1915, 1917, 1918, and 1919) see Chapter 10 Section III, Maritime.

5. Violation of Variances. The employer’s requirement to comply with a standard may be modified through granting of a variance, as outlined in Section 6(d) of the Act.

a. In the event that the employer is not in compliance with the requirements of the variance, a violation of the controlling standard shall be cited with a reference in the citation to the variance provision that has not been met.

b. If, during an inspection, CSHOs discover that an employer has filed a variance application regarding a condition that is an apparent violation of a standard, the Area Director or designee shall determine whether the variance request has been granted. If the variance has not been granted, a citation for the violative condition may be issued.

B. Employee Exposure.

A hazardous condition that violates an OSHA standard or the general duty clause shall be cited only when employee exposure can be documented. The exposure(s) must have occurred within the six months immediately preceding the issuance of the citation to serve as a basis for a violation, except where the employer has concealed the violative condition or misled OSHA, in which case the citation must be issued within six months from the date when OSHA learns, or should have known, of the condition. The RSOL should be consulted in such cases.

1. Determination of Employer/Employee Relationship. Whether or not workers are employees of a particular employer depends on several factors, the most important of which is who controls the manner in which employees perform their assigned work. The question of who pays these employees may not be the key factor. For cases where determination of the employer/employee relationship is complex, the Area Director shall seek the advice of the RSOL.

2. Proximity to the Hazard. The actual and/or potential proximity of the employees to a hazard shall be thoroughly documented (i.e., photos, measurements, and employee interviews).

3. Observed Exposure.

a. Employee exposure is established if CSHOs witness, observe, or monitor the proximity or access of an employee to the hazard or potentially hazardous condition.

b. The use of personal protective equipment may not, in itself, adequately prevent employee exposures to a hazardous condition. Such exposures may be cited where the applicable standard requires the additional use of engineering and/or administrative (including work practice) controls, or where the personal protective equipment used is inadequate.

4. Unobserved Exposure. Where employee exposure is not observed, witnessed, or monitored by CSHOs, employee exposure may be established through witness statements or other evidence that exposure to a hazardous condition has occurred or may continue to occur.

a. Past Exposure. In fatality/catastrophe (or other “accident/incident”) investigations, prior exposure(s) may be established if CSHOs establish, through written statements or other evidence, that exposure(s) to a hazardous condition occurred at the time of the accident/incident. Additionally, prior exposures may serve as the basis for a violation when:

■     The hazardous condition continues to exist, or it is reasonably predictable that the same or similar condition could recur;

■     It is reasonably predictable that employee exposure to a hazardous condition could recur when:

–   The employee exposure has occurred in the previous six months;

–   The hazardous condition is an integral part of an employer’s normal operations; and

–   The employer has not established a policy or program to ensure that exposure to the hazardous condition will not recur.

b. Potential Exposure. Potential exposure to a hazardous condition may be established if there is evidence that employees have access to the hazard, and may include one or more of the following:

■     When a hazard has existed and could recur because of work patterns, circumstances, or anticipated work requirements;

■     When a hazard would pose a danger to employees simply by their presence in an area and it is reasonably predictable that they could come into that area during the course of the work, to rest or to eat, or to enter or exit from an assigned work area; or

■     When a hazard is associated with the use of unsafe machinery or equipment or arises from the presence of hazardous materials and it is reasonably predictable that an employee could again use the equipment or be exposed to the materials in the course of work; however

■     If the inspection reveals an adequately communicated and effectively enforced safety policy or program that would prevent or minimize employee exposure, including accidental exposure to the hazardous condition, it would not be reasonably predictable that employee exposure could occur. In such circumstances, no citation should be issued in relation to the condition.

Clarification of OSHA Safety Requirements Between a Temporary Staffing Agency and Its Client

OSHA Standard Interpretations—Hazard Communication Standard; Record-Keeping Regulation

November 21, 2012

Ms. Kathryn Bernard
Executive Vice President and General Counsel Staffmark
435 Elm Street, Suite 300
Cincinnati, OH 45202

Dear Ms. Bernard:

Thank you for your letter to the Occupational Safety and Health Administration (OSHA), in which you request guidance on the distribution of responsibility for certain OSHA safety requirements between a temporary staffing agency and its client. Following our conversation, this letter constitutes OSHA’s interpretation only of the requirements discussed and may not be applicable to any question not delineated within your original correspondence. We apologize for the delay in responding.

Background: Staffmark is a temporary staffing agency (temporary agency) employing workers to fill temporary positions in many different industries. These positions range from secretarial work in offices to machine and forklift operations in industrial settings. Staffmark’s supervisory authority over its placed staff depends on the needs of the client (host employer), and therefore the relationship may vary from project to project.

Question: Your letter presents several scenarios in which the temporary agency and host employer have varying amounts of supervisory authority and work site control. In some cases, the temporary agency has no managers on site, whereas in others, it has low-level supervisors or supervisors with significant authority over workers on site. In each scenario, you ask whether the temporary agency or the host employer is responsible for: (1) OSHA-required safety training; (2) OSHA hazard communication; and (3) OSHA injury reporting and log requirements.

Response: In general, both the temporary agency and the host employer have the responsibility to ensure that training, hazard communication, and record-keeping requirements are fulfilled. Therefore, the issue at hand is the division of responsibility. With each of the scenarios you presented, the extent of responsibility is dependent upon the specific facts of the situation. Information regarding the division of responsibilities with respect to the three particular issues you raised in your letter—training, hazard communication, and record-keeping—appears below. Please note that all documents to which this letter refers are available at www.osha.gov.

To ensure that there is clear understanding of each employer’s role in protecting employees, OSHA recommends that the temporary staffing agency and the host employer set out their respective responsibilities for compliance with applicable OSHA standards in their contract. Including such terms in a contract will ensure that each employer complies with all relevant regulatory requirements, thereby avoiding confusion as to the employer’s obligations.

TRAINING

Although your letter does not inquire about any particular industry or training program, you should know that there are specific OSHA standards which cover training requirements depending on the industry, work site, and job duties to which the temporary agency sends its employees. In general, however, it is the responsibility of the temporary agency to ensure that employees have received proper training. In practice, even when the temporary agency has provided basic training, the host employer provides the workplace-specific training appropriate to the employees’ particular tasks. In order to fulfill its obligation under such circumstances, the temporary agency must have a reasonable basis for believing that the host employer’s training adequately addresses potential hazards employees may be exposed to at the host work site.

HAZARD COMMUNICATION

Both the temporary agency and the host employer are responsible for ensuring that employees are effectively informed and trained regarding exposure to hazardous chemicals. The directive titled Inspection Procedures for the Hazard Communication Standard, 29 CFR § 1910.1200, CPL 02-02-038, specifically discusses this issue:

[Hazard Communication Standard] training of temporary employees is a responsibility that is shared between the temporary agency and the host employer. The host employer holds the primary responsibility for training since the host employer uses or produces chemicals, creates and controls the hazards, and is, therefore, best suited to inform employees of the chemical hazards specific to the workplace environment. The temporary agency, in turn, maintains a continuing relationship with its employees, and would be, at a minimum, expected to inform employees of the requirements of the standard. (CPL 02-02-38, Appendix A, Section h, March 20, 1998)

Please see OSHA’s February 3, 1994,interpretation letter to Michael F. Moreau for further discussion (enclosed).

RECORD-KEEPING

The OSHA injury and illness recording and reporting regulation, 29 CFR § 1904.31, requires that an employer “record on the OSHA 300 Log the recordable injuries and illnesses of all employees on [the employer’s] payroll” and of “employees who are not on [the employer’s] payroll if [the employer] supervise[s] these employees on a day-to-day basis.” 29 CFR § 1904.31(a). The regulation goes on to reiterate that if an employer “obtain[s] employees from a temporary help service, employee leasing service, or personnel supply service,” that the host employer is obligated to record any recordable injuries and illnesses if it “supervise[s] these employees on a day-to-day basis.” Id. § 1904.31(b)(2). Therefore, in your first scenario, in which the host employer has full supervisory control over employees, the host employer is responsible for injury and illness recording and reporting. In your last scenario, in which only the temporary staffing agency exercises day-to-day supervision over employees, the temporary staffing agency is responsible for injury and illness recording. In your other scenarios, the temporary staffing agency and host employer share the supervisory role, so it is not readily apparent which employer must comply with 29 CFR § 1904.31. In that case, OSHA advises that the two employers reach an agreement regarding the responsibilities in question. Please note that only one employer’s log should contain a record of injuries and illnesses of the employees. Id. § 1904.31(b)(4).

Since you are supplying workers to many different industries and OSHA record-keeping requirements can vary between industries, please know that general information on record-keeping requirements is available at http://www.osha.gov/recordkeeping/index.html. For additional information about injury and illness recording and reporting requirements where workers have been sent by a temporary staffing agency, see OSHA’s June 23, 2003,letter available at http://www.osha.gov/pls/oshaweb/owadisp.show_document?p_table=INTERPRETATIONS&p_id=24518.

Last and most importantly, Section 5(a)(1) of the Occupational Safety and Health Act states “that each employer shall furnish to each of his employees employment and a place of employment which are free from recognized hazards that are causing or are likely to cause death or serious physical harm to his employees.” Both the temporary employer and the host employer will be cited, therefore, if OSHA finds that both employers were responsible for the violative condition(s).

Thank you for your interest in occupational safety and health. We hope you find this information helpful. OSHA’s requirements are set by statute, standards, and regulations. Our letters of interpretation do not create new or additional requirements but rather explain these requirements and how they apply to particular circumstances. This letter constitutes OSHA’s interpretation of the requirements discussed. From time to time, letters are affected when the Agency updates a standard, a legal decision impacts a standard, or changes in technology affect the interpretation. To assure that you are using the correct information and guidance, please consult OSHA’s website at http://www.osha.gov. If you have further questions, please feel free to contact the Directorate of Enforcement Programs at (202) 693-2100.

Sincerely,

Thomas Galassi, Director
Directorate of Enforcement Programs

1. Excerpts cited herein are identical to those contained in a prior version of this Manual, CPL 2-00-135, effective January 1, 2002.

Case Index

A

Abraham v. Exxon Corp.,
85 F.3d 1126 (5th Cir. 1996)   ... 33

Add-a-Man,
No. 7-RC-9639 (N.L.R.B. Jan. 26, 1970) (unpublished opinion)   ... 58

Allen v. Tyco Elecs. Corp.,
294 F. Supp. 2d 768 (M.D.N.C. 2003)   ... 42

Alvarado v. Ursua,
No. B172601, 2005 WL 1125180 (Cal. App. May 13, 2005) (unpublished)   ... 16

Amarnare v. Merrill Lynch,
611 F. Supp. 344 (S.D.N.Y. 1984), aff’d, 770 F.2d 157 (2d Cir. 1985)   ... 41, Appendix H 187

Anderson v. Tuboscope Vetco Inc.,
9 P.3d 1013 (Alaska 2000)   ... Appendix C 104

Antonini v. Hanna Industries,
94 Nev. 12, 573 P.2d 1184 (Nev. 1978)   ... Appendix C 106

Arculeo v. On-Site Sales & Marketing LLC,
425 F.3d 193 (2d Cir. 2005)   ... 45

Astrowsky v. First Portland Mortgage Corp.,
887 F. Supp. 332 (D. Me. 1995)   ... Appendix H 187

Atchley v. Nordham Group Inc.,
180 F.3d 1143 (10th Cir. 1999)   ... 43

B

Baker v. Harvey,
No. 01A45313, 2006 WL 755933 (E.E.O.C. Mar. 16, 2006)   ... 43

Baldwin v. Kelly Services Inc.,
121 So.3d 275 (Miss. App. 2013)   ... 16

Barfield v. New York City Health & Hosp. Corp.,
432 F. Supp. 2d 390 (S.D.N.Y. 2006)   ... 22

Barfield v. New York City Health & Hosp. Corp.,
537 F.3d 132 (2d Cir. 2008)   ... 22

Beaulieu v. Northrop Grumman Corp.,
161 F. Supp. 2d 1135 (D. Haw. 2000), aff’d 23 Fed. Appx. 811 (9th Cir. 2001)   ... 42

Benoit v. Test Systems Inc.,
142 N.H. 47, 694 A.2d 992 (N.H. 1997)   ... Appendix C 106

Berry v. Allstate Ins. Co.,
252 F. Supp. 2d 336 (E.D. Tex. 2003), aff’d, 84 Fed. Appx. 442 (5th Cir. 2004)   ... 32, 33

Blagg v. Tech. Group Inc.,
303 F. Supp. 2d 1181 (D. Colo. 2004)   ... 43

Board v. United Ins. Co. of America, 390 U.S. 254 (1968))   ... Appendix H 186

Bosco v. Serhant,
836 F.2d 271 (7th Cir. 1987), cert. denied, 108 S. Ct. 2824 (1988)   ... Appendix H 190

Bowman v. Sunoco Inc.,
620 Pa. 28 (Pa. Apr 25, 2013)   ... 17, Appendix C 107

Boyed v. Dana Inc. et al.,
No. 3:16-CV-2609, 2017 WL 1179058 (N.D. Ohio March 30, 2017)   ... 39

Brankov v. Hazzard,
36 N.Y.S.3d 133 (2016)   ... 42

Bright v. Cargill Inc.,
837 P.2d 348 (Kan. 1992)   ... 16

Brock v. Superior Care Inc.,
840 F.2d 1054 (2d Cir. 1988)   ... 19

Bronk v. Montain States Tel. & Tel.,
140 F.3d 1335 (10th Cir. 1998)   ... 32, 33

Browning-Ferris Industries Inc v. National Labor Relations Board
U.S. Court of Appeals for the D.C. Circuit, No. 16-1063   ... 56

Browning-Ferris Industries of California Inc.
362 NLRB No. 186 (2015)   ... 55

Burrey v. Pac. Gas & Elec., Co.,
1999 U.S. Dist. LEXIS 22619 (N.D. Cal. May 12, 1999)   ... 32

Butts v. Express Personnel Servs.,
73 S.W.3d 825 (Mo. App. 2002)   ... 16

C

Caldwell v. ServiceMaster Corp.,
966 F. Supp. 33 (D.D.C. 1997)   ... 43, Appendix H 189

Callicutt v. Pepsi Bottling Group Inc.,
No. CIV. 00-95-DWF/AJB, 2002 WL 992757 (D. Minn. May 13, 2002)   ... 42

Campbell v. Central Terminal Warehouse,
56 Ohio St. 2d 173, 383 N.E.2d 135 (Ohio 1978)   ... Appendix C 106

Candido v. Polymers Inc.,
166 Vt. 15, 687 A.2d 476 (Vt. 1996)   ... Appendix C 108

Capital Cities/ABC Inc. v. Ratcliff,
141 F. 3d 1405 (10th Cir. 1998)   ... 35

Capitol EMI Music Inc.,
311 N.L.R.B. 997 (1993)   ... 61

Capitol EMI Music Inc.,
311 N.L.R.B. No. 103, 143 L.R.R.M. (BNA) 1331 (May 28, 1993)   ... Appendix H 189

Card v. Curtis Prunty,
No. 91946 (4th District, Idaho, Nov. 21, 1989)   ... 15

Carparts Distribution Ctr. v. Automotive Wholesalers,
37 F.3d 12 (1st Cir. 1994)   ... Appendix H 188

Casey v. Atlantic Richfield Co.,
No. CV 99-06437LGB(AIJX), 2000 WL 657397 (C.D. Cal. Mar. 30, 2000), rev’d, 21 Fed. Appx. 727 (9th Cir. 2001) (unpublished mem. decision)   ... 32, 33

Catani v. Chiodi,
No. CIV. 00-1559, 2001 WL 920025 (D. Minn. Aug. 13, 2001)   ... 22, 79

Cent. Pa. Teamsters Pension Fund v. Power Packaging Inc.,
No. 04-2867, 2005 WL 2522163 (3d Cir. Oct. 12, 2005)   ... 32

Chaney v. Yetter Manufacturing Co.,
315 Ill. App. 3d 823, 248 Ill. Dec. 737, 734 N.E.2d 1028 (Ill. App.), cert. denied 192 Ill.2d 685, 252 Ill. Dec. 76, 742 N.E.2d 326 (Ill. 2000)   ... Appendix C 105

Chavez v. Transload Services L.L.C.,
884 N.E.2d 1258 (Ill. App. 2008)   ... 14

City of Newport v. Fact Concerts Inc.,
453 U.S. 47 (1981)   ... Appendix H 190

Clark v. E.I. Dupont De Nemours & Co. Inc.,
105 F.3d 646 (4th Cir. 1997) (unpublished table decision), cert. denied, 520 U.S. 1259 (1997)   ... 33

Clark v. King County,
No. 95-2-29890-7 SEA (Wash. Super. Ct. King County)   ... 32

Community for Creative Non-Violence v. Reid
490 U.S. 730, 751–752 (1989)   ... 186

Continental Winding Co. & Kelly Servs. Inc.,
305 N.L.R.B. 122 (1991)   ... 58

Contractors’ Labor Pool v. N.L.R.B.,
323 F.3d 1051 (D.C. Cir. 2003)   ... 60

In re Critical Care Support Services Inc.,
138 B.R. 378 (Bankr. E.D.N.Y. 1992)   ... 18

Curry v. CTB McGraw-Hill LLC, No. C 05-04003 JW, 2006 WL 228951 (N.D. Cal. Jan. 30, 2006)   ... 32

Cyronis v. Mart Mgmt. Inc.,
No. 3:09-CV-38(CDL), 2010 WL 339798 (M.D.Ga. Jan. 21, 2010)   ... 14

D

Danek v. Meldrum Manufacturing & Engineering Co.,
312 Minn. 404, 252 N.W.2d 255 (Minn. 1977)   ... Appendix C 105

Day v. Sanders Brothers Inc.,
315 S.C. 95, 431 S.E.2d 629 (S.C. App. 1993)   ... Appendix C 107

Draper v. American Rice Inc.,
No. 01-09-00239-CV, 2010 WL 2991094 (Tex. App. July 29, 2010)   ... 14

Dunkin’ Donuts Mid-Atlantic Distribution Ctr. v. N.L.R.B.,
363 F.3d 437 (D.C. Cir. 2004)   ... 62

Dunn v. Uniroyal Chem. Co.,
192 F. Supp. 2d 557 (M.D. La. 2001)   ... 42

E

In re Earthmovers Inc.,
199 B.R. 62 (Bankr. M.D. Fla. 1996), vacated, appeal dismissed, 242 B.R. 49 (M.D. Fla. 1999)   ... 16

Edes v. Verizon Commc’ns Inc.,
417 F.3d 133 (1st Cir. 2005)   ... 32

Edgin v. Entergy Operations,
961 S.W.2d 724 (Ark. 1998)   ... 17, Appendix C 104

Edward L. Burnette, O.D., PA. v. Commissioner,
68 T.C. 387 (1977)   ... Appendix G 152

EEOC & Walters v. Metropolitan Educ. Enterprises,
117 S. Ct. 660 (1997)   ... Appendix H 189, Appendix H 188

EEOC v. Gard Corp. v. Tall Services Inc.,
795 F. Supp. 1070 (D. Kan. 1992)   ... Appendix H 189

EEOC v. Sage Realty,
507 F. Supp. 599 (S.D.N.Y. 1981)   ... Appendix H 187, Appendix H 189, Appendix H 190

Enforcement Guidance on Equal Employment Opportunity Commission & Walters v. Metropolitan Educational Enterprises   ... 188

Engineered Storage Prods. Co.,
334 N.L.R.B. 1063 (Aug. 10, 2001)   ... 58

English v. Lehigh Cnty. Auth.,
428 A.2d 1343 (Pa. Super. Ct. 1981)   ... 15, Appendix C 107

Erwin v. County of Manitowoc,
872 F.2d 1292 (7th Cir. 1989)   ... Appendix H 190

Evans v. Webster,
832 p.2d 951 (Colo. Ct. App. 1991), cert. denied 1992 Colo. Lexis 582 (Colo. July 7, 1992)   ... Appendix C 104

F

Fairman v. Saks Fifth Avenue,
1988 U.S. Dist. LEXIS 13087 (W.D. Mo. 1988)   ... Appendix H 187

Falge v. Lindoo Installations Inc.,
74 N.E.3d 520 (Ill. App. 2d Dist. 2017)   ... Appendix C 105

Fletcher v. Apache Hose & Belting Co.,
519 N.W.2d 839 (Iowa App. 1994)   ... Appendix C 105

Forks v. Encon Washington LLC,
198 Wash. App. 1021 (Wash. App. March 21, 2017)   ... Appendix C 108

Frank v. Hawaii Planing Mill Foundation,
88 Haw. 140, 963 P.2d 349 (Haw. 1998)   ... Appendix C 105

Freeman v. State of Kansas,
128 F. Supp.2d 1311 (D. Kan. 2001), aff’d, 22 Fed. Appx. 967 (10th Cir. 2001)   ... 42

G

Garza v. Excel Logistics Inc.,
161 S.W.3d 473 (Texas 2005)   ... Appendix C 107

General Motors Corp. v. United States,
91-1 U.S. Tax Cas. (CCH) ¶ 50,032 (E.D. Mich. Dec. 20, 1990)   ... 18

Ghersi v. Salazar,
883 P.2d 1352 (Utah 1994)   ... 15

Goldberg v. John R. Cowley & Bro. Inc.,
292 F.2d 105   ... Appendix E 128

Goodman v. Sioux Steel Co.,
475 N.W.2d 563 (S.D. 1991)   ... Appendix C 107

Grace v. USCAR,
521 F.3d 655 (6th Cir. 2008)   ... 40

Greenhoot Inc.,
205 N.L.R.B. 250 (1973)   ... 58

Guerra v. Tishman East Realty,
52 Fair Empl. Prac. Cas. (BNA) 286 (S.D.N.Y. 1989)   ... Appendix H 187

Guevara v. WCA Waste Corp. et al.,
No. 01–15–01075–CV, 2017 WL 1483320 (Tex. App. April 25, 2017)   ... Appendix C 107

H

H.S. Care L.L.C., 343 N.L.R.B. 659 (2004)   ... 58

Hafner v. Brown,
983 F.2d 570 (4th Cir. 1992)   ... Appendix H 190

Hankins v. Adecco Servs. of Ohio,
No. 17-01-13, 2001 WL 1475801 (Ohio App. Nov. 20, 2001)   ... 66

Harbert v. Healthcare Services Group Inc.,
391 F.3d 1140 (10th Cir. 2004)   ... 40

Hittel v. WOTCO Inc.,
996 P.2d 673 (Wyo. 2000)   ... 15

Hodgson v. Griffin & Brand of McAllen Inc.,
471 F.2d 235 (5th Cir.), reh’g denied, 472 F.2d 1405 (5th Cir.), cert. denied, 414 U.S. 819 (1973)   ... Appendix H 186

Horner v. Boston Edison Co.,
695 N.E.2d 1093 (Mass. App. 1998), cert. denied 705 N.E.2d 276 (Mass. 1998)   ... 17, Appendix C 109

Hunt v. Mo. Dep’t of Corrections,
297 F.3d 735 (8th Cir. 2002)   ... 42

Hurley v. Atlantic City Police Dept.,
933 F. Supp. 396 (D.N.J. 1996)   ... Appendix H 190

I

Interstate Warehousing of Ohio LLC,
333 N.L.R.B. 682 (Mar. 27, 2001)   ... 58

J

J. E. Higgins Lumber Co.,
332 N.L.R.B. 1172 (Oct. 31, 2000)   ... 58

JFC Temps Inc. v. Workmen’s Comp. Appeal Bd.,
680 A.2d 862 (Pa. 1996)   ... 15

Jordan v. City of Bellevue,
No. 98-2-21515-1 SEA (Wash. Super. Ct. King County)   ... 32

K

Kaiser Found. Hosps.,
337 N.L.R.B. 1061 (Aug. 1, 2002)   ... 58

Kaiser v. Millard Lumber Inc.,
255 Neb. 943, 587 N.W.2d 875 (Neb. 1999)   ... Appendix C 106

Kappas v. Andritz,
45 Pa. D. & C.4th 288 (Pa. Com. Pl. Mar. 17, 2000), aff’d without op., 769 A.2d 1215 (Pa. Super. 2000), cert. denied, 782 A.2d 547 (Pa. 2001)   ... 15

Kellam v. Snelling Pers. Servs.,
866 F. Supp. 812 (D. Del. 1994), aff’d without op., 63 F.3d 162 (3d Cir. 1995)   ... 43, 79, Appendix H 187

Kelly v. Geriatric and Medical Services Inc.,
287 N.J. Super 567, 671 A.2d 631 (N.J. Super. Ct. App Div.), aff’d without op. 147 N.J. 42, 685 A.2d 943 (N.J. 1996)   ... Appendix C 106

Kenwal Steel Corp. v. Seyring,
2009 WL 839057 (Ind. App. Mar. 25, 2009)   ... 14

Kenyon v. Second Precinct Lounge,
442 N.W.2d 696 (Mich. App. 1989)   ... 16

Kidder v. Miller-Davis Co.,
455 Mich. 25, 564 N.W.2d 872 (Mich. 1997) Appendix C   ... 105

King v. Booz-Allen & Hamilton Inc.,
No. 83 Civ. 7420 (MJL), 1987 WL 11546 (S.D.N.Y. May 21, 1987)   ... Appendix H 187

King v. Chrysler Corp.,
812 F. Supp. 151 (E.D. Mo. 1993)   ... 42, Appendix H 187

King v. Dalton,
895 F. Supp. 831 (E.D. Va. 1995)   ... Appendix H 187, Appendix H 188

Koch Refining Co. v. Chapa,
11 S.W.3d 153 (Tex. 1999)   ... 15

Koscak v. Mott Metallurgical Corp.,
No. CV 94-0536404s, 1996 WL 409232 (Conn. Super. Ct. July 1, 1996)   ... Appendix C 104

Kunz v. Beneficial Temps.,
921 P.2d 456 (Utah 1996)   ... 16

L

Laffey v. Northwest Airlines,
740 F.2d 1071 (D.C. Cir. 1984), cert. denied, 469 U.S. 1181 (1985)   ... Appendix H 190

Laniok v. Advisory Comm. of Brainerd Mfg. Co. Pension Plan,
935 F. 2d 1360 (2d Cir. 1991)   ... 36

Lee Hosp.,
300 N.L.R.B. 947 (1990)   ... 58

Lines v. Idaho Forest Industries,
872 P.2d 725 (Idaho 1994)   ... 15

Little Rock Elec. Contractors Inc.,
327 N.L.R.B. 932 (1999)   ... 60

Lodgian Inc.,
332 N.L.R.B. 1246 (Nov. 14, 2000)   ... 58

Long Island University v. Spirt,
463 U.S. 1223 (1983), reinstated on remand, 735 F.2d 23 (2d Cir.), cert. denied, 469 U.S. 883 (1984)   ... Appendix H 188

Long v. Pennant Foods Co.,
2013 WL 3388914 (Conn. Super. Ct. June 17, 2013) (unpublished)   ... 15

Lyles v. Alamo Rent-A-Car Inc.,
No. CIV. H-00-786, 2001 WL 135844 (D. Md. Feb. 14, 2001)   ... 42

M

M.B. Sturgis Inc.,
331 N.L.R.B. 1298 (2000)   ... 58

M.J. Daly Co. v. Varney,
695 S.W.2d 400 (Ky. 1985), overruled by U.S. Fidelity & Guar. Co. v. Technical Minerals Inc., 934 S.W.2d 266 (Ky. 1996)   ... 12

MacLachlan v. ExxonMobil Corp.,
350 F.3d 472 (5th Cir. 2003)   ... 32

Madden v. Rolls-Royce Corp.,
No. 1:06-CV-0584-LJM-WTL, 2008 WL 747290 (S.D. Ind. Mar. 18, 2008)   ... 52

Magnuson v. Peak Technical Servs. Inc.,
808 F. Supp. 500 (E.D. Va. 1992)   ... 42, Appendix H 187, Appendix H 187, Appendix H 189

Maikish v. Pac. Gas & Electric Co.,
2d. Civ. No. B098600 (Cal. App. 2d. Jun. 5, 1997) (unpublished decision)   ... 66

March v. Midwest St. Louis, LLC
417 S.W.3d 248, 259 (Mo. 2014)   ... 16

Manpower Inc. of Shelby Cnty.,
164 N.L.R.B. 287 (1967)   ... 58

Mares v. Marsh,
777 F.2d 1066 (5th Cir. 1985)   ... Appendix H 188

Marsh v. Tilley,
606 P.2d 355 (Cal. 1980)   ... 16

Marshall v. Bruner,
668 F.2d 748 (3d Cir. 1982)   ... Appendix H 190

Martin v. Roosevelt Hospital,
426 F.2d 155 [2nd Cir. 1970]   ... 51

Mascari v. San Diego Gas & Elec. Co.,
No. 97-CV-1652K(JFS) (S.D. Cal. filed Sep. 10, 1997)   ... 32

Maynard v. Keynard Chemical Co.,
626 F.2d 359 (4th Cir. 1980)   ... Appendix C 108, Appendix H 187

McComb v. Midwest Rust Proof Co.   ... 128

McGuire v. Tenneco Inc.,
756 S.W.2d 532 (Mo. 1988)   ... Appendix C 106

Meky v. Jetson Specialty Marketing Services, Inc.,
No. 5:16-CV-1020, 2017 WL 878235 (E.D. Pa. March 6, 2017)   ... 39

Metro. Water Dist. of S. Cal. v. Superior Court,
84 P.3d 966 (Cal. 2004)   ... 32

Metz Baking Co.,
100 LA 671 (Mar. 9, 1993)   ... 60

Miller & Anderson Inc.,
364 N.L.R.B No. 39 (2016)   ... 59

Miller v. Defiance Metal Prods. Inc.,
989 F. Supp. 945 (N.D. Ohio 1997)   ... 39

Mingo Logan Coal Co. v. N.L.R.B.,
67 Fed. Appx. 178 (4th Cir. 2003)   ... 62

Mitchell v. Sin Jin Products Co.,
171 F. Supp. 486 (D. Md.)   ... Appendix E 128

Molina v. State Garden Inc.,
31 Mass.   ... 15, Appendix C 109

Montesano v. Xerox Corp. Ret. Income Guar. Plan,
256 F.3d 86 (2d Cir. 2001) (per curiam)   ... 32, 33

Morgan v. ABC Mfr.,
710 So. 2d 1077 (La. 1998)   ... 16

Moskowitz v. Trustees of Purdue University,
5 F.3d 279 (7th Cir. 1993)   ... Appendix H 190

Moss v. Steele Rubber Prods. Inc.,
No. 5:07-CV-76, 2010 WL 1380364 (W.D.N.C. Mar. 29, 2010)   ... 42

Moxley v. Texaco,
No. 00-1518 CM, 2001 WL 840363 (C.D. Cal. Feb. 15, 2001)   ... 32, 33

Mullis v. Mechanics & Farmers Bank,
994 F. Supp. 680 (M.D.N.C. 1997)   ... 42

N

N.L.R.B. v. Town & Country Electric Inc.,
516 U.S. 85 (1995)   ... 60

N.L.R.B. v. W. Temp. Servs.,
821 F.2d 1258 (7th Cir. 1987)   ... 58, Appendix H 187

Nagle v. TrueBlue Inc. et al.,
148 A.3d 946 (Pa. Cmwlth. 2016)   ... Appendix C 107

National Shopmen Pension Fund v. Burtman Iron Works Inc.,
148 F. Supp. 2d 60 (D.D.C. 2001)   ... 33

National Union Fire Insurance Co. v. Tri-State Iron and Metal Co.,
323 Ark. 258, 914 S.W.2d 301 (Ark. 1996)   ... Appendix C 104

Nationwide Mut. Ins. Co. v. Darden,
503 U.S. 318 (1992)   ... 19, 32, Appendix G 151, Appendix G 187

Nationwide Mutual Insurance Co. v. Darden, 503 U.S. 318, 324 (1992)   ... Appendix H 187

Neal v. Manpower Int’l Inc.
No. 3:00-CV-277/LAC, 2001 WL 1923127, at *10 (N.D. Fla. Sept. 17, 2001)   ... 42

Northern Electric Co. v. Phillips,
660 So.2d 1278 (Miss. 1995)   ... Appendix C 105

Northwest Airlines Inc. v. Transport Workers Union of America,
451 U.S. 77 (1981)   ... Appendix H 189

Novenson v. Spokane Culvert & Fabricating Co.,
91 Wash.2d 550, 588 P.2d 1174 (Wash. 1979)   ... Appendix C 108

Numberg v. GTE Transport,
34 Mass. App. 904 (1993)   ... 15, Appendix C 109

O

Otte v. United States,
419 U.S. 43 (1974)   ... 18

Outokumpu Copper Franklin Inc.,
334 N.L.R.B. 263 (June 6, 2001)   ... 58

P

Packard v. Commissioner,
63 T.C. 621 (1975)   ... Appendix G 152

Parker v. Williams & Madjanik Inc.,
239 S.E.2d 487 (S.C. 1977)   ... 16

Paroline v. Unisys Corp.,
879 F.2d 100 (4th Cir. 1989), vacated in part on other grounds, 900 F.2d 27 (4th Cir. 1990)   ... Appendix H 189

Parson v. Procter & Gamble Mfg. Co.,
514 N.W.2d 891 (Iowa 1994)   ... 15

Pate v. Marathon Steel Co.,
777 P.2d 428 (Utah 1989)   ... 15

Pfohl v. Farmers Ins. Group,
No. CV-03-3080 DT (RCX), 2004 WL 554834 (C.D. Cal. 2004)   ... 22

Poe v. Atlas-Soundelier/American Trading & Production Corp.,
132 N.C. App. 472, 512 S.E.2d 760 (N.C. App.), cert. denied 350 N.C. 835, 538 S.E.2d 199 (N.C. 1999)   ... Appendix C 106

Poff v. Prudential Insurance Co. of America,
882 F. Supp. 1534 (E.D. Pa. 1995)   ... Appendix H 187

Porter v. Pathfinder Services Inc.,
683 A.2d 40 (Del. 1996)   ... Appendix C 104

Prof’l Facilities Mgmt. Inc.,
332 N.L.R.B. 345 (Sept. 26, 2000)   ... 58

Professional & Executive Leasing Inc. v. Commissioner,
89 T.C. 225 (1987)   ... Appendix G 152

R

Redd v. Summers,
232 F.3d 933 (D.C. Cir. 2000)   ... 42

Reinking v. Alyeska Pipeline Service Co.,
539 Fed. Appx. 780 (9th Cir. 2013) (unpublished)   ... 32

Reith v. TXU Corp.,
2006 WL 887413 (E.D. Tex. April 4, 2006)   ... 42, 55

Renda v. Adam Meldrum & Anderson Co.,
806 F. Supp. 1071 (W.D.N.Y. 1992)   ... 33

Reynolds v. CSX Transportation Inc.,
115 F.3d 860 (11th Cir. 1997)   ... Appendix H 187

Rhodes v. Alabama Power Co.,
599 so.2d 27 (Ala. 1992)   ... Appendix C 104

Richardson v. Century Prods. Inc.,
163 F. Supp. 2d 771 (N.D. Ohio 2001)   ... 42

Riesgo v. Heidelberg Harris Inc.,
36 F. Supp. 2d 53 (D.N.H. 1997)   ... 43

Rivas v. Federacion de Asociaciones Pecuarias,
929 F.2d 814 (1st Cir. 1991)   ... Appendix H 187

Rodriquez v. Chemical Bank,
No. 117827/95 (Sup. Ct. N.Y. Jun. 11, 1996)   ... 42

Runcorn v. Shearer Lumber Prods. Inc.,
690 P.2d 324 (Idaho 1984)   ... 15

S

Schultz v. Texaco Inc.,
127 F. Supp. 2d 443 (S.D.N.Y. 2001)   ... 32

Schwager v. VHS Acquisition Corp./Vanguard Health Mgmt.,
142 P.3d 1227 (Ariz. App. 2006)   ... 14

Scott v. Altmar,
272 Kan. 1280, 38 P.3d 673 (Kan. 2002)   ... Appendix C 105

Scruggs v. ExxonMobil Pension Plan,
No. 08-6145, 2009 WL 3720034 (10th Cir. Nov. 9, 2009)   ... 33

Secretary of Labor v. Froedtert Mem’l Lutheran Hosp. Inc.,
20 BNA OSHC 1500 (No. 97-1839, Jan. 15, 2004   ... 64

Secretary of Labor v. Manpower Temp. Servs. Inc.,
5 BNA OSHC 1803 (No. 76-980, Jan. 10, 1977) (ALJ)   ... 62

Shaw v. Thrift Drug Inc.,
No. A98-5170, 1999 WL 994020 (E.D. Pa. Nov. 2, 1999)   ... 15

Smith v. Wal-Mart Stores East,
No. Civ.A. 4:04CV-173-M, 2005 WL 2243355 (W.D. Ky. Sept. 14, 2005)   ... 15

Snow v. Lenox International,
662 So. 2d 818 (La. App. 1995)   ... Appendix C 105

SOS Staffing Services Inc. v. Fields,
54 P.3d 761 (Wyo. 2002)   ... 51, Appendix C 109

SOS Staffing Servs. Inc.,
331 N.L.R.B. 815 (2000)   ... 61

Soto v. Adams Elevator Equip. Co.,
941 F.2d 543 (7th Cir. 1991)   ... Appendix H 190

Spirides v. Reinhardt,
613 F.2d 826 (D.C. Cir. 1979)   ... Appendix H 188

Spirt v. Teachers Insurance and Annuity Ass’n,
691 F.2d 1054 (2d Cir. 1982)   ... Appendix H 188

Sully-Miller Contracting Co. v. Cal. Occupational Safety & Health Appeals Bd.,
41 Cal. Rptr. 3d 742 (Cal. App. 2006)   ... 65

Swanson v. White Consol. Indus. Inc.,
77 F.3d 223 (8th Cir. 1996)   ... 15

T

Tedder v. Union Planters Corp.,
No. W1999-01971COA-R3-CC, 2001 WL 589139 (Tenn. App. May 29, 2001)   ... Appendix C 107

Thomas v. Hycon Inc.,
244 F. Supp. 151 (D.D.C. 1965)   ... Appendix C 104

Thomas v. SmithKline Beecham,
297 F. Supp. 2d 773 (E.D. Pa. 2003)   ... 32

Thompson v. Grumman Aerospace Corp.,
78 N.Y.2d 553, 585 N.E.2d 355, 578 N.Y.S.2d 106 (N.Y. 1991)   ... Appendix C 106

Tidd v. Adecco USA Inc.,
No. 07-11214-GAO, 2010 WL 996769 (D. Mass. Mar. 16, 2010)   ... 23

TLI Inc.,
271 NLRB 798 (1984)   ... 55

TradeSource Inc. v. N.L.R.B.,
17 Fed. Appx. 159, 168 L.R.R.M. (BNA) 2799 (4th Cir. Aug. 28, 2001)   ... 61

Trans World Airlines v. Thurston,
469 U.S. 111 (1985)   ... Appendix H 190

Trombetta v. Cragin Fed. Bank for Sav. Employee Stock Ownership Plan,
102 F.3d 1435 (7th Cir. 1996)   ... 33

Trumbull Mem’l Hosp. & W. Reserve Pers.,
338 N.L.R.B. 900 (Apr. 3, 2003)   ... 58

U

United States Fidelity & Guaranty Co. v. Technical Minerals Inc.,
934 S.W. 2d 266 (Ky. 1996)   ... 15, Appendix C 105

United States v. Garami,
184 B.R. 834 (M.D. Fla. 1995)   ... 18

United States v. Silk,
331 U.S. 704 (1947)   ... Appendix D 118

United Steelworkers of America v. Pendergrass,
855 F.2d 108 (3d Cir. 1988)   ... Appendix K 226

V

Va. Polytechnic Inst. & State Univ. v. Frye,
371 S.E.2d 34 (Va. App. 1988)   ... 15

Van Zant v. People Electric Cooperative,
900 P.2d 1008 (Okla. App.), cert. denied (Okla. July 13, 1995)   ... Appendix C 107

Vigil v. Digital Equipment Corp.,
122 N.M. 417, 925 P.2d 883 (N.M. App.), cert denied 122 N.M. 279, 923 P.2d 1164 (N.M. 1996)   ... Appendix C 106

Vizcaino v. Microsoft Corp.,
173 F.3d 713 (9th Cir. 1999), amended by In Re Vizcaino, 184 F.3d 1070   ... passim

Vizcaino v. Microsoft Corp.,
97 F.3d 1187 (9th Cir. 1996), aff’d en banc, 120 F.3d 1006 (9th Cir.1997)   ... 31, 35, Appendix G 152, Appendix G 159

Vizcaino v. Microsoft Corp.,
Nos. C93-178C, C98-1646C (W.D. Wash.)   ... 31

W

Walker Mfg. (United Paperworkers Int’l Union),
No. 25-RC-9373 (N.L.R.B. July 28, 1995) (unpublished decision)   ... 79

Walker v. U.S. Gen. Inc.,
916 P.2d 903 (Utah 1996)   ... 15

Walters v. Modern Aluminum,
699 N.E.2d 671 (1998)   ... Appendix C 105

Watson v. Adecco Employment Servs. Inc.,
252 F. Supp. 2d 1347 (M.D. Fla. 2003)   ... 43

West v. MCI Worldcom Inc.,
205 F. Supp. 2d 531 (E.D. Va. 2002)   ... 42

Whitehead v. Safway Steel Products Inc.,
304 Md. 67, 497 A.2d 803 (Md. 1985)   ... Appendix C 105

Williams v. Caruso,
966 F. Supp. 287 (D. Del. 1997)   ... 43, 79, Appendix H 187

Williams v. Grimes Aerospace Co.,
988 F. Supp. 925 (D.S.C. 1997)   ... 42

Wingfoot Enterprises v. Alvarado,
111 S.W.3d 134 (Tex. 2003)   ... 16

Wirtz v. Marymax Construction Co.   ... 128

Wiseman v. Dynair Tech of Arizona Inc.,
192 Ariz. 413, 966 p.2d 1017 (Ariz. App. 1998)   ... Appendix C 104

Wolf v. Coca Cola Co.,
200 F.3d 1337 (11th Cir. 2000)   ... 32, 33

Subject Index

Subject Index

Administrative acts   ... 18n

Affirmative Action

Executive Order 11246   ... 45–48

Age Discrimination in Employment Act   ... 45, 164

Alternate employer endorsement   ... 15–16

American Recovery and Reinvestment Act   ... 69

Americans With Disabilities Act

Medical questions   ... 53–54

Clients as co-employers   ... 54–55

EEOC guidelines   ... 195–200

Qualification standards, employment tests, and other selection criteria   ... 206–210

Reasonable accommodation   ... 200–206

Exceptions to rules   ... 54

Undue hardship and   ... 55, 200–206

Appendices

Appendix A: State Laws That Regulate Temporary Staffing Firms   ... 85

Appendix B: State Laws That Regulate Employee Leasing Services   ... 91

Appendix C: State Laws Regarding Exclusive Remedy for Special Employers   ... 103

Appendix D: Internal Revenue Service 20-Factor Test for Determining Who Is an Employee   ... 111

Appendix E: U.S. Department of Labor Opinion Letter on Joint Employer Obligations for Minimum Wage and Overtime Pay   ... 125

Appendix F: Federal Tax Provisions Regarding Leased Employees— Internal Revenue Code Section 414(n)   ... 129

Appendix G: IRS Technical Advice Memorandum: Retirement Plans May Exclude Leased Employees   ... 147

Appendix H: Equal Employment Opportunity Commission Guidelines on Application of EEO Laws to Contingent Workers   ... 161

Appendix I: EEOC Guidelines on Application of the Americans With Disabilities Act to Contingent Workers   ... 191

Appendix J: Occupational Safety and Health Administration Recordkeeping Rules   ... 219

B

Background checks under the Fair Credit Reporting Act   ... 76–78

Benefits. See Compensation and benefits Bonding laws, applicable to temporary help firms   ... 86

Business associates

Defined   ... 70

Staffing firms or temporary employees as   ... 70–73

C

Co-employment. See also Compensation and benefits; Employment practices Defined   ... 13

Common-law doctrine   ... 14

Compensation and benefits   ... 14–40

Employment taxes   ... 17–21

Application of Section 530 to technical services   ... 20

Independent contractor issues   ... 19–20

IRS classification guidelines   ... 21–21

Family and medical leave   ... 37–40

Application of 75-mile rule   ... 40

Duty to restore temporary employee returning from leave   ... 39–40

Eligible employees   ... 38

Primary and secondary employers   ... 38–39

Health and pension benefits   ... 23–37

Benefit plan exclusions   ... 33–34

Benefit plans affected by the leased employee rules   ... 27–28

Control test   ... 26–27

Coverage tests   ... 24–25, 29

Credit for benefits provided by leasing organizations   ... 29–30

Employee contracts and waivers   ... 34–36

Leased employee definition   ... 26

Leased employee rules and   ... 25–26

Limits on worker assignments   ... 36–37

Microsoft case   ... 31–32

Operational steps—avoiding control   ... 32

Prior service credit for employees hired by client   ... 30–31

Record-keeping exemption   ... 28

Safe harbor plans   ... 28–29

Unemployment insurance   ... 17–18

Wage and hour issues   ... 21–23

Workers’ compensation   ... 14–17

Client as employer—alternate employer endorsement   ... 15–16

Employee leasing firms   ... 7–9, 17–18

Fellow employee rule   ... 16–17

General employers and special employers   ... 14–15

Professional employer organizations (PEOs)   ... 7–9

Waivers of client liability   ... 17

Labor, U.S. Department of—Joint employer’s duty   ... 127–128

Consolidated Omnibus Budget Reconciliation Act   ... 27

Consumer reports

Defined   ... 76–77

Contract services. See also Temporary and contract staffing; Temporary services   ... p. 3-7

D

Day labor   ... 5, 6

States that regulate day labor staffing firms   ... 85–90

Discharge, wrongful   ... 65–66

E

EEOC Guidelines on Application of the Americans With Disabilities Act to Contingent Workers (Appendix I)   ... 191

EEO-1 report   ... 45

Employee(s)

IRS 20-factor test for determining status   ... 11–124

Employee leasing   ... 7–9

Employer status of PEOs for employment taxes   ... 9

Federal tax provisions regarding   ... 133–135

Health and pension benefits and   ... 24–25

Retirement plans excluding   ... 147–159

State laws that regulate employee leasing services (Appendix B)   ... 91–101

Licensing and registration requirements   ... 92–95

Unemployment insurance laws applicable   ... 99–101

Workers’ compensation laws applicable   ... 96–98

Tax status of PEO defined-contribution plans   ... 8–9

Workers’ compensation   ... 8–9, 13, 96–98

Wrongful discharge and   ... 65–66

Employee Retirement Income Security Act (ERISA)

“Hours of service” rules   ... 37

Limits on worker assignments   ... 36

Prior service credit   ... 30

“Year of service” test under   ... 26

Employer status, maintaining for staffing firm   ... 79–80

Employment practices   ... 41–78

Equal employment opportunity laws   ... 41–56

Affirmative action, EEO-1 reporting and other record-keeping issues   ... 45–48

Americans With Disabilities Act   ... 53–55

EEOC guidance on contingent workers   ... 43–45

Job listing requirements under the Vietnam Era Veterans’ Readjustment Assistance Act   ... 53–54

Liability of clients   ... 41–42

Liability of staffing firms   ... 43

Uniformed Services Employment and Re-Employment Rights Act   ... 50–52

Immigration and I-9 verification   ... 68

Labor-management relations   ... 55–61

Crediting of prior services when temporary workers are hired by clients   ... 59

Inclusion of staffing firm employees in client bargaining units   ... 58–59

Liability for unfair labor practices   ... 60–61

Plant and facility closings (WARN Act)   ... 64–67

Privacy protection   ... 69–70

Background and reference checks under Fair Credit Reporting Act   ... 76–77

Financial information   ... 73–75

Health information, HIPAA   ... 69–70

Work site safety   ... 62–65

Wrongful discharge   ... 65–66

Employment taxes   ... 17–20

Application of Section 530 to technical services   ... 20

Independent contractor issues   ... 19–20

IRS classification guidelines   ... 20

Technical services and   ... 19–20

Equal Employment Opportunity Commission (EEOC)

Exemption or “recruitment practices under   ... 48–49

Guidelines on application of EEO laws to contingent workers (Appendix H)   ... 161–190

Instructions for completing EEO-1 report   ... 45

Equal Employment Opportunity Laws   ... 41–55

Affirmative action, EEO-1 reporting, and other record-keeping issues   ... 45–50

Americans With Disabilities Act   ... 53, 173, 191–195, 210

Guidance on contingent workers   ... 43–45

Job listing requirements under the Vietnam Era Veterans’ Readjustment Assistance Act   ... 52–53

Liability of clients under   ... 41–42

Liability of staffing firms under   ... 43

Uniformed Services and Re-employment Rights Act   ... 50–52

ERISA. See Employee Retirement Income Security Act (ERISA)

Escalator principle   ... 50, 52

Ethnicity, client requests for data on   ... 49

Exclusive remedies for special employers, state laws regarding   ... 103–108

Executive Order 11246, affirmative action policy under   ... 45–48

F

Facilities management   ... 10

See also Managed services

Fair Credit Reporting Act   ... 76–77

Fair Labor Standards Act   ... 21

Family and medical leave   ... 37–40

Application of 75-mile rule   ... 40

Duty to restore temporary employee returning from leave   ... 39–40

Eligible employees   ... 37, 40

Primary and secondary employers   ... 38–39

Family and Medical Leave Act   ... 37–40

Federal Tax provisions regarding leased employees (Appendix F)   ... 129–146

Federal Trade Commission

Privacy rules   ... 73

Fellow employee rule

Workers’ compensation and   ... 16–17

50-employee rule   ... 30–37, 67

Financial information privacy rules   ... 73–76

Financial Services Modernization Act   ... 73–75

FMLA. See Family and Medical Leave Act (1993)

G

Genetic Information

Nondiscrimination Act   ... 69

Gramm-Leach Bliley Act   ... 73–76

H

Health and pension benefits   ... 23–40

Benefit plan exclusions   ... 33–34

Benefit plans affected by the leased employee rules   ... 27–28

Control test   ... 26–27

Coverage tests for   ... 24–26

Leased employees   ... 29

Credit for benefits provided by leasing organization   ... 29–30

Employee contracts and waivers   ... 34–36

Leased employee definition   ... 26

Leased employee rules   ... 25–26

Limits on worker assignments   ... 36–37

Microsoft case   ... 31–32

Operational steps in avoiding control   ... 32

Prior service credit for employees hired by client   ... 30–31

Record-keeping exemption   ... 28

Safe harbor plans   ... 28–29

Health care staffing services

State laws on   ... 90

Health Information Technology for Economic and Clinical Health Act   ... 69

Health Insurance Portability and Accountability Act (HIPPA)

health information privacy rules under   ... 69–70

I

Immigration and I-9 verification   ... 68

Immigration Reform and Control Act   ... 68

Internal Revenue Service (IRS)

Classification guidelines for employment taxes   ... 20

Revenue Procedure 2002-2021   ... 8

20-factor test for determining who is an employee (Appendix D)   ... 111–124

Internet applicant rules   ... 48

Investigative consumer reports   ... 76

J

Joint employers   ... 13

See also Co-employment

Labor, U.S. Department of, opinion letter obligations for minimum wage and overtime pay   ... 125–128

L

Labor, U.S. Department of

Opinion letter on joint employer obligations for minimum wage and overtime pay   ... 125–128

Labor contractor   ... 22

Labor-management relations   ... 55–61

Client bargaining unit inclusion   ... 58–59

Crediting prior service when   ... 59–60

Liability for unfair labor practices   ... 61–62

Salts   ... 60–61

Staffing firm liability for unfair labor practices of a client   ... 61–62

Leased employees. See Employee leasing Liability

Equal employment opportunity

Of clients   ... 41–43

For staffing firms   ... 43

For sexual harassment   ... 77–78

Of staffing firm for unfair labor practices of client   ... 61

For unfair labor practices   ... 60–61

Waivers of, in workers’ compensation   ... 17

Licensing

Laws applicable to temporary help firms   ... 86

States with requirements for employee leasing companies   ... 92–95

Long-term staffing   ... 7

M

Managed services   ... 3n, 10

Workers’ compensation   ... 15

Microsoft case   ... 31–32

Military caregiver leave   ... 37

Minimum wage, Labor, U.S. Department of, opinion letter on joint employer obligations for   ... 125–128

Motor Carrier Act   ... 23

Multiple-employer plan   ... 9

N

National Defense Authorization Act   ... 37

National Labor Relations Board   ... 60

Nonaffiliated third party   ... 74

O

Occupational Safety and Health Act

Hazard Communication Standard   ... 63

Temporary Worker Initiative of   ... 64

Work site safety and   ... 62–64

Occupational Safety and Health Administration

Record-keeping rules (Appendix J)   ... 219–235

OFCCP Internet applicant rules   ... 48

Overtime

Labor, U.S. Department of, opinion letter on joint employer obligations for pay   ... 127–128

Temporary staffing and   ... 21–22

P

Part-time workers

Distinguishing from temporary workers   ... 6

Inclusion in 50-employee layoff threshold   ... 66

Patient Protection and Affordable Care Act   ... 25, 27

Pay. See Compensation and benefits

PEOs. See Professional employer organizations (PEOs)

Personal protective equipment (PPE), work site safety and   ... 63

Primary employers   ... 38

**********************

See also Co-employment   ... 13

Family and medical leave   ... 39–40

Privacy protection, financial

Consumer reports, third party   ... 73

Fair Credit Reporting Act   ... 76

Federal Trade Commission privacy rules   ... 73–74

Federal Trade Commission safeguard rules   ... 74–75

Gramm-Leach-Bliley Act   ... 73–76

Reference checking   ... 76–78

Service provider, safeguard rules   ... 75–76

Privacy protection, health

HIPAA   ... 69–70

Business associate definition   ... 70

Business associate determination   ... 71

Business associate determination responsibility   ... 72

Professional employer organizations (PEOs)   ... 4, 7–10

Q

Qualifying exigency leave   ... 37

R

Race, client requests for data on   ... 49

Recruitment practices, exemption for, under EEOC and Department of Labor rules   ... 48–49

Reference checks

Communication to clients   ... 77–78

Fair Credit Reporting Act   ... 76–77

Registration

Laws applicable to temporary help firms   ... 85

States with requirements, for employee leasing companies   ... 92–95

Revenue Act, Section 530 of   ... 20

Right to know laws, states with   ... 89–90

S

Safeguard rules

Under the Federal Trade Commission   ... 74–75

Identifying the service provider   ... 75–76

Safe harbor protection   ... 20

Safety. See Work site safety

Salts   ... 60–61

Secondary employers   ... 38–39

Family and medical leave   ... 38–39

Self-employed. See also Independent contractors

WARN Act   ... 66

75-mile rule, application to staffing firms   ... 40

Small Business Efficiency Act   ... 9

Small Business Job Protection Act   ... 20

Special employers   ... 14–15

State laws regarding exclusive remedy for   ... 103–108

Workers’ compensation and   ... 14–15

Staffing services   ... 3–12

Application of 75-mile rule   ... 40

Communication of reference checks to clients   ... 77–78

Defined   ... 3

Employee leasing   ... 7–9

Independent contractors   ... 11–12

Liability of

Equal employment opportunity laws   ... 43

Unfair labor practices of clients   ... 60–61

Long-term staffing   ... 7

Maintaining employer status   ... 79–80

Managed services   ... 10–11

Payrolling   ... 10

Role in the economy   ... 81

Search and placement services   ... 10–11

Temporary and contract staffing   ... 3–7

Assignment and pay procedures   ... 5–6

Distinguishing from part-time   ... 6–7

Nature of   ... 5–6

Operation   ... 4–5

State regulations   ... 6, 85 (Appendix A)

Temporary-to-hire   ... 11

Treatment of, as business associates   ... 70–71

State laws and regulations

On employee leasing services (Appendix B)   ... 91–102

On exclusive remedy for special employers (Appendix C)   ... 103–110

On professional employer organizations   ... 7–8

On temporary staffing firms (Appendix A)   ... 6, 85–90

Day labor   ... 87–88

Health care staffing firms   ... 90

Licensing, registration, and bonding laws   ... 86

Right to know and wage payment laws   ... 89

T

Tax Reform Act   ... 20, 24

Temporary and contract staffing   ... 3–7

See also Contract services; Temporary services

Assignment and pay for   ... 5–6

Distinguishing from part-time   ... 6–7

Nature   ... 5

Operations   ... 4–5

State regulations   ... 6, 85 (Appendix A)

Temporary services. See also Contract services; Temporary and contract staffing

OSHA on employers’ responsibility toward   ... 224–227

Reinstatement under USERRA   ... 51

State laws that regulate firms that hire   ... 85–90

Day labor   ... 87–88

Health care staffing firms   ... 90

Licensing, registration, and bonding laws   ... 86

Right to know and wage payment laws   ... 89

Treatment of, as business associates   ... 70–71

Wrongful discharge and   ... 65–66

Temporary Worker Initiative   ... 64–65

Third parties

Consumer reports obtained from   ... 76–77

Role in the American economy   ... 1–2

U

Unemployment insurance   ... 17–18

Employee leasing and   ... 7, 99–101

Professional employer organizations (PEOs) and   ... 8, 18

Uniformed Services Employment and Re-Employment Rights Act   ... 50–52

Escalator principle   ... 50, 52

Hardship exception   ... 50–51

Internal employees   ... 50–51

Priority consideration for future assignments   ... 52

Temporary employees   ... 51–52

V

Vietnam Era Veterans’ Readjustment Assistance Act   ... 52–53

Job listing requirements under   ... 52–53

W

Wage and hour issues   ... 21–23

Worker Adjustment and Retraining Notification (WARN) Act   ... 66–68

Specific circumstances   ... 67–68

Staffing industry exemptions   ... 67

Temporary projects   ... 67

Workers’ compensation   ... 14–17

Client as employer—alternate employer endorsement   ... 15–16

Employee leasing   ... 7–8, 17

Fellow employee rule   ... 16

General employers and special employers   ... 14–15

Professional employer organizations (PEOs)   ... 7–8

Waivers of client liability   ... 17

Workforce, defined   ... 70

Work site safety   ... 62–65

Negligence   ... 14–15, 17

Occupational Safety and Health Administration record-keeping rules   ... 219–235

Wrongful discharge   ... 65–66

Edward A. Lenz is senior counsel of the American Staffing Association and one of the nation’s leading authorities on the legal and policy aspects of staffing. He joined ASA in 1989 as the association’s first general counsel and, as senior vice president for legal and public affairs, was the industry’s chief legal and legislative strategist. Since passage of the Affordable Care Act, he has led the industry’s advocacy efforts before Congress and the administration regarding the ACA’s unique impact on staffing firms. Before joining ASA, he was vice president and assistant general counsel of Kelly Services and served as chairman of the ASA legislative committee. He received his BA from Bucknell University, JD from Boston College, and LLM from New York University. He is a member of the New York, District of Columbia, and Virginia bars. In 2001, he was inducted as a Fellow of the College of Labor and Employment Lawyers. In addition to his role with ASA, Lenz serves as Senior Advisor for Employment, Labor & Benefits to the law firm of Mintz Levin Cohn Ferris Glovsky and Popeo PC.

The American Staffing Association is the voice of the U.S. staffing, recruiting, and workforce solutions industry. ASA and its affiliated chapters advance the interests of staffing and recruiting firms of all sizes and across all sectors through legal and legislative advocacy, public relations, education, and the promotion of high standards of legal, ethical, and professional practices. ASA members provide the full range of employment and workforce services and solutions, including temporary and contract staffing, recruiting and permanent placement, outplacement and outsourcing, training, and human resource consulting.

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