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    • Point of View
    Quarterly Newsletter

    Legal Issues Regarding Temporary Employees
    Introduction

    Employees possess certain workplace rights, such as freedom from discrimination or the right to extended leave to care for an ailing family member. Employers, therefore, have obligations to their employees which, if unfulfilled, can lead to legal liability to those employees.

    Most employers are generally familiar with these rights, obligations, and potential liabilities as applied to their traditional, full-time employees. Employers may not be as aware of their duties when they utilize "contingent employees."

    Contingent Employees

    The term "contingent employees" refers to a variety of non-traditional types of workers, such as leased employees, temporary employees, loaned servants, part-time employees, and independent contractors.

    Since the mid-1970s, the growth rate of non-traditional employment has been faster than that of the conventional workforce. Economists estimate that more than 30% of today's workforce is made up of contingent employees, and some analysts predict that this figure will increase to 50% by the year 2000. It is important, therefore, that employers understand the benefits and risks of utilizing this growing segment of the employee population.

    Benefits of Contingent Workers

    From the employer's perspective, the contingent workforce presents several advantages, such as streamlined operating costs and increased management flexibility.

    Typically, contingent workers receive lower wages and fewer paid benefits than their full-time counterparts. While less than 25% of contingent employees receive job-provided health coverage, for example, such benefits are afforded to 75% of traditional workers. Similarly, less than 25% of the contingent workforce participates in a pension plan, whereas over 50% of full-time employees have this benefit.

    Promotional opportunities and career development are also less available to contingent workers than to traditional employees. This provides added management flexibility to many employers.

    Employer Obligations

    Along with these benefits, however, problems can arise when employers fail to recognize how contingent employees should be treated with regard to workplace rights such as worker's compensation, anti-discrimination laws, family leave, and benefits issues. In short, employers should be aware of the potential pitfalls accompanying the benefits of contingent labor.

    Worker's Compensation

    Under the MASSACHUSETTS WORKER's COMPENSATION ACT, employees may recover medical expenses and lost wages resulting from work-related injuries without having to prove the negligence of their employer. In exchange, employees cannot bring civil suits against their employers to recover damages, such as damages for pain and suffering.

    Employers are required by law to provide worker's compensation insurance to their "employees." Does this same requirement apply to contingent workers? More importantly, will employers remain free from civil liability if a contingent employee is injured on the job?

    "Economists estimate that more than 30% of today's workforce is made up of contingent employees, and some analysts predict that this figure will increase to 50% by the year 2000."

    The answer depends upon the type of contingent worker being utilized. Where the contingent employee is an independent contractor, the employer is not responsible for providing worker's compensation insurance. This presents a financial benefit to the employer.

    If the independent contractor is injured on the job, however, an employer will only enjoy immunity from suit where (1) the employer carries its own worker's compensation insurance; (2) the independent contractor does not have worker's compensation insurance; and (3) the work carried on by the independent contractor is a part of or a process in the employer's trade or business. Unless each of these criteria is met, an employer may be subject to a lawsuit by an independent contractor for a work-related injury.

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    		In the case of temporary employees or loaned servants, the general employer (i.e., a temporary agency) is liable for the worker's compensation payments instead of the special employer (i.e., the client company), unless there is an express agreement that the special employer will be responsible for worker's compensation or if the general employer does not carry worker's compensation insurance. Typically, therefore, an employer saves money on worker's compensation insurance premiums by utilizing temporary employees who are insured by the temporary agency.

    The importance of these financial savings is diminished, however, by the general rule that only the entity responsible for carrying the worker's compensation insurance will be immune from civil liability. Thus, where temporary workers are used and worker's compensation insurance is provided by the temporary agency, the employer is not immune from suit if that temporary employee is injured at work. An employer seeking to immunize itself from civil suit for work injuries should provide the worker's compensation benefits to temporary employees or loaned servants.

    Employee Rights Statutes

    Various state and federal laws grant rights in the workplace to employees. Employers only need to comply with these statutes, however, if they have a sufficient number of "employees" under the particular law. Also, an employer only owes these statutory obligations to its "employees." Therefore, whether contingent workers are categorized as "employees" is important.

    Employers who possess the minimum number of employees are subject to the following statutory requirements:

    • CIVIL RIGHTS ACT OF 1964 (TITLE VII) - 15 employees
    • AGE DISCRIMINATION IN EMPLOYMENT ACT - 20 employees
    • AMERICANS WITH DISABILITIES ACT - 15 employees
    • FAMILY AND MEDICAL LEAVE ACT - 50 employees
    • MASSACHUSETTS FAIR EMPLOYMENT PRACTICES ACT, G.L. Ch.151B - 6 employees

    Should employers count contingent workers in determining whether they have enough employees to fall under the requirements of these statutes?

    As a general rule, the more control a business exercises over a worker, the more likely that the business will be considered the worker's employer. Examples of control over a contingent worker that will establish an employee/employer relationship for purposes of the above statutes include: setting the hours of work; training the worker; providing tools or equipment to the worker; requiring the work to be performed on the employer's premises; and reporting requirements. Practically speaking, courts are likely to find an employee/employer relationship even where only moderate control over a contingent worker is exercised by the employer.

    In most work environments, employers do exercise sufficient control over temporary employees, loaned servants, and leased employees so that they will be counted as "employees" in determining whether a business has enough workers to be subject to the above statutes. In fact, in most cases, general employers (i.e., temporary agencies) and special employers (i.e., client companies) will both be deemed the "employer" of a temporary or leased employee and, therefore, both will be subject to the requirements of the employee rights statutes.

    Independent contractors, by contrast, are typically not deemed "employees" for purposes of the employee rights statutes. It is often difficult, however, to differentiate between an independent contractor - who is not entitled to employee rights or benefits - and an employee. In a controversial case, Microsoft is now engaged in litigation because it, allegedly, erroneously classified certain leased or temporary employees as independent contractor and, therefore, denied them retirement benefits. These workers have sued Microsoft in an attempt to retroactively recover these benefits, which amount to a substantial sum.

    This material may be considered advertising under the rules of the Supreme Judicial Court of Massachusetts.



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