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U.S. Department of Labor Futurework
  Trends and Challenges for Work in the 21st Century
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Flexible Staffing Arrangements

A Report on Temporary Help, On-Call, Direct-Hire Temporary, Leased, Contract Company, and Independent Contractor Employment in the United States

Susan N. Houseman
August 1999

9.2 Who Is the Employer? Determining Joint-Employer Status

Besides not defining the term "employee", most statutes fail to spell out who the employer is. There is potential ambiguity on this issue when businesses use temporary agency, leased, or contract workers. Although the primary employer is generally the temporary help, leasing, or contract company, the client may be regarded as a “joint employer” under some laws.

The Family and Medical Leave Act, perhaps by virtue of the fact that it is a recent statute, is one of the few laws to explicitly address possible joint employer relationships, such as may exist for leased employees or agency temporaries. While the leasing or temporary help agency is the primary employer, the client company may be required to place the individual in the same or comparable position upon his or her return from FMLA leave. Additionally, leased and temporary workers will count as employees of the client company for the purposes of determining employment levels for FMLA. Thus, even if the number of regular workers is fewer than 50, an employer may have to provide FMLA benefits to all workers if the number of regular plus temporary and leased employees is 50 or more (Pivec and Massen, 1996).

In recent years, Congress has tried to clear up the ambiguity—and stem abuses—regarding benefits provision to leased employees. Allegedly, businesses were “firing” their non-highly compensated staff and leasing them back through leasing agencies to avoid providing benefits to these employees. Under section 414(n) in the Tax Equity and Fiscal Responsibility Act of 1982, leased and temporary help workers must be counted by the client firm as employees for the purposes of qualifying retirement plans and certain other fringe benefits (such as life insurance and cafeteria plans) if the workers have provided these services “on a substantially full-time basis for at least a year” and the client primarily controls or directs the work of the leased or temporary employees. The rule does not apply to health insurance plans.

Several states have passed legislation clarifying joint employer liability in workers’ compensation cases. New York state has actually ruled that the client is the common law employer of leased employees and is primarily responsible for providing workers’ compensation benefits. However, most states have not clarified joint employer status in workers’ compensation cases, leaving the courts to resolve these issues where there is some dispute. Court rulings on the issue, in turn, have been inconsistent (Bowker 1997). Similarly, no guidelines have been drawn up clarifying joint employer status under OSHA or other health and safety regulations.

Another area of ambiguity is in the coverage of temporary, leased, and contract workers under the National Labor Relations Act. Several cases pending before the National Labor Relations Board (NLRB) concern whether workers in these arrangements must be included in collective agreements covering the client’s regular employees. If the NLRB determines that a joint employer relationship exists, both the client and the staffing company may be required to bargain with the employees’ collective bargaining representative (Giddens 1997).

Responding to the ambiguity surrounding joint employer status, the Commission on the Future of Worker-Management Relations recommended that a standardized definition of employer be adopted. As for the definition of an employee, the Commission recommended that the employer be determined based on the economic realities of the relationship, and not simply on the notion of control. So doing, it asserted, “would remove the incentives that now exist for firms to use variations in corporate form to avoid responsibility for the people who do their work” (Commission on the Future of Worker-Management Relations, 1996, p. 36).

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