Employee or Independent Contractor?

Debunking the Myth – Term Limits do Almost Nothing to Mitigate the Risks of Co-Employment 

From Staffing Industry Analysts (SIA), Eric Rumbaugh discusses the little impact that term limits on assignments have on the determination that a company is a co-employer. Eric writes;

in the overwhelming majority of cases, instituting a term limit policy — or eliminating one — would do almost nothing to change the employment (or co-employment) status of the workers involved, and would not create, reduce or change risk in any way.

A Factor Among Many

There are a number of tests that apply to the relationship between a business and a contingent workforce. The applicable test varies based on the government agency involved, the relevant statute and the jurisdiction.

Duration of an engagement is a factor in many of those tests. But, in many staff augmentation situations, the worker is in the client’s building, doing the client’s work, under the client’s direction and control, in a client-set schedule and using the client’s equipment.

Based on these facts, government agencies often presume co-employment, and co-employment often exists immediately upon the beginning of the engagement. Adding a term limit will almost never change this outcome.

Darden and the courts. The most commonly cited co-employment test comes from the US Supreme Court case of Nationwide Insurance v. Darden, which set forth 13 factors for determining employee status (see sidebar).

One of the notable features of the Darden test is that it is not a “box-checking” test. Courts can do as they please — they are not required to consider all 13 factors, or attach certain weight (or any weight at all) to any particular factor — and courts are permitted to consider other factors not on the list. While some courts will state that there is no most-important factor, where courts do identify a key factor is always the first one: the right to control.

In the staffing firm/buyer context, there are almost always some factors that militate in favor of finding the staffing supplier to be an employer, some that militate in favor of the client as employer, some that militate for or against both, and some factors that are neutral.

  • Client as employer. In most staffing contexts, the key factors that usually weigh in favor of the client as employer are control, location, supplying tools, right to assign projects, and control over when/how long to work.
  • Staffing supplier as employer. Some factors that usually militate in favor of the staffing supplier as employer are tax treatment and payment of benefits.

There are almost always some factors that weigh for and against employee status for almost every worker.

The reason why term limits are usually irrelevant is that, from the outset, the staffing company and the client usually both have sufficient indicia of employer status to qualify as “employers.” When that is the case, term length is irrelevant to co-employment.

Legally relevant. This is not meant to dismiss duration as a factor. It is, in fact, legally relevant. However, if a business already has a co-employment relationship, a term limit will not change that.

After a diligent search, we could not find a single court decision in which a term limit was a dispositive factor in finding that co-employment did or did not exist. And while courts will often recite duration as a factor, there are few cases in which duration is even referred to as a significant factor, let alone a deciding factor.

EEOC. On co-employment of staffing firms’ assigned workers, the Equal Employment Opportunity Commission’s position is the workers “typically qualify as ‘employees’ of the staffing firm, the client to whom they are assigned, or both.” Further, “[t]he staffing firm and/or its client will qualify as the worker’s employer(s) if … one or both businesses have the right to exercise control over the worker’s employment.”

The most important consideration in the co-employment analysis is “the right to control the means and manner of his/her work performance rests with the firm and/or its client rather than with the worker herself.” The EEOC goes on to state the entire working relationship must be assessed.

DOL. The Department of Labor’ Wage and Hour Division issued a new Final Rule in January for evaluating whether joint employment exists under the Fair Labor Standards Act. The Final Rule clarifies that when an employee has an employer who suffers, permits, or otherwise employs an employee to work, and another person simultaneously benefits from that work, the person simultaneously benefiting from the work is a joint employer “only if that person is acting directly or indirectly in the interest of the employer in relation to the employee.”

The Final Rule adopts a four-factor balancing test to determine whether an individual or entity qualifies as a joint employer in this situation. Specifically:

  1. Does the potential joint employer hire or fire the employee? 2. Does the potential joint employer supervise or control the employee’s work schedule or conditions of employment to a substantial degree?
  2. Does the potential joint employer determine the employee’s rate and method of payment?
  3. Does the potential joint employer maintain the employee’s employment records?

No single factor is dispositive in determining joint-employer status. However, a person must exercise actual control, not reserve optional control, to establish joint employment to meet the FLSA joint-employer standard.

Read the full story at Debunking the Myth – Staffing Industry Review

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