Important Update for Companies Who Lease Employees

Are you in compliance with the latest rulings from the National Labor Relations Board (NLRB)? If you’re among the thousands of employers who currently lease employees from staffing agencies, it may behoove you to take a look at what has changed.

A 2015 ruling from the NLRB altered the legal landscape for many employers. The ruling stipulates that by leasing workers from a staffing agency, an employer might be deemed a “joint employer,” and that label comes with additional responsibilities.

The Case that Started It All

A union for employees at a California recycling company sought to represent not just the current statutory employees, but also a group of workers the employer was leasing from a staffing and payroll services company.

The details matter: The terms of the employee leasing contract entitled the recycling company, not the staffing agency, to establish a variety of key policies and restrictions. Among other things, the recycling company set the work hours, the minimum qualifications, the caps on worker wages, and were free to reject individual workers and to control shifts. In other words, the employer wasn’t treating the leased employees like independent contractors.

When the union moved to represent the leased employees, they argued that these workers were de facto employees of the recycling company. The company disagreed, and so the dispute went to the NLRB, which ruled in favor of the union.

This ruling has a number of important ramifications:

  • Depending on the state, both the lessor and lessee may have to provide workers’ compensation insurance,
  • Both employers are potentially liable for violations of state and federal employment laws, and
  • Both may be sued in the event of wrongful termination or discrimination.

This creates a requirement for employment practices liability insurance (EPLI) coverage. EPLI protects employers from liability that arises out of lawsuits or enforcement actions that occur as a result of failure or perceived failure to abide by labor laws.

Questions to Consider

Before you engage in an employee leasing contract, give the arrangement careful thought. Does the contract provide you with substantial discretion over and the authority to direct the actions of leased workers? Are you authorized greater control over these leased workers than you would normally be entitled to if you simply engaged independent contractors?

Examples of the kinds of control that would cause the NLRB to classify your company as a “joint employer” rather than a contractor include:

  • The right to fire workers
  • The right to set wages
  • The right to determine working hours
  • The right to approve overtime pay
  • The right to set the size of the workforce
  • The right to select methods rather than results

Another factor the NLRB may look at is who supplies the equipment to do the job. If your company provides the necessary equipment, you could be regarded as a statutory employer, and directly responsible for complying with both federal and state laws.

Among the federal laws that might apply are:

  • The Fair Labor Standards Act
  • The Affordable Care Act
  • The Consolidated Omnibus Budget Reconciliation Act
  • The Family Leave Act
  • The Civil Rights Act (especially Title VII)
  • The Americans With Disabilities Act
  • The Uniformed Services Employment and Reemployment Rights Act
  • OSHA Regulations

The new standard means employers can’t assume that just because workers aren’t on their direct payroll they won’t be found to be statutory employers for the purposes of labor law enforcement. The new rules establish a much broader set of criteria.