With the launch of the employer mandates of the Affordable Care Act in January 2015, staffing agencies and their clients have one more reason to worry about co-employment. While the ACA clearly states that only the “common law” employer is responsible for “offering insurance,” and case law strongly supports the notion that the staffing agency is the “common law” employer, what happens if your staffing agency doesn’t offer ACA mandated benefits as required by law. Is there any way you might be liable for fines or penalties? Questions about co-employment get triggered any time two parties share rights and responsibilities inside the traditional employer relationship which is the case with all staffing arrangements involving a third party staffing company and their clients.

• Most staffing companies recruit and screen candidates, conduct background and reference checks, pay wages, calculate and pay wage related taxes and benefits, complete required reports, and retain at least some right to hire and fire an employee.
• Most of their employer clients take on the responsibility of supervising, directing, and controlling the employee’s daily activities.

What creates confusion is when the client starts to specify pay rates, directs the hire or fire of employees, or involves themselves in administrative processes that should only be performed by the staffing agency. Since I’ve been in the staffing business, I’ve heard it countless times, “Don’t do ______________, or you will create an issue with co-employment.” And the “what we can’t do” has ranged from “allow our temporary employees to attend a client’s company meeting” to “allow an employee to work on an assignment for no longer than a (year, six months, or other time period “du jour”). Some of these “rules” have blurred the fact that co-employment covers many different types of overlapping liabilities—some that need to be avoided; some requiring co-management and partnership. Here are some of the co-employment scenarios we see on a regular basis and our somewhat common sense approach to how we look at each: Employee Placement/Hiring Decisions “I’m Perfect” (IP) Staffing Agency recruits and screens candidates for “I’m Even More Perfect” (IEMP) client for a 3-month technical help desk role. IEMP refuses to interview Julie, an African American female who appears to meet most, if not all, screening requirements. IEMP chooses instead to interview and hire Andrew, a Caucasian man. Julie believes she has been discriminated against because her application was not considered. Without IP’s awareness, Julie files a complaint with the EEOC. What will the investigator want to know about the roles of IP and IEMP?

• What reasons were given to IP about why IEMP didn’t interview Julie? Were those reasons valid? Staffing companies who do not ask their client to disclose reasons for considering or not considering each candidate submitted for a job and employers who do not provide those reasons, often leave themselves open to charges of (unfounded) discrimination.
• What screening requirements did IEMP give to IP? Were all of IEMP’s screening requirements job relevant? Screening requirements that aren’t clear or are so broad that everyone is lead to believe they are qualified, are asking for trouble. Establishing job relevant screening criteria is a joint responsibility of the staffing agency and their client.   

If IEMP’s hiring manager requested only male Caucasians and IM complied with that request, both parties are liable for that violation. If IM rejected IEMP’s illegal screening request and refused to work their request, only IEMP is liable. If IM rejected IEMP’s illegal screening request, but continued to work the request even when the client was discriminating, IM would be considered complicit. In today’s world, claims of discrimination rarely stem from overt acts of discrimination. Usually, they stem from perceptions of impropriety created by poorly designed or improperly executed screening processes. Both the staffing agency and their clients should be reviewing all recruiting and selection processes regularly to ensure that what they are doing is free of unintended consequences. Claims of Workplace Harassment… …often happen because employees don’t know who to talk with about things bothering them at work. George is 60-year-old Caucasian male working for IM, but being supervised on a daily basis by Andrea, a “20-something” supervisor who works for IEMP. Andrea is constantly harassing George about how he doesn’t fit in, and accuses him of “being slow” even though he is meeting all production requirements. George is frustrated but doesn’t know who to talk with about his concerns. He can’t go to Andrea; he goes to the Washington State Human Rights Commission. Who’s at fault? Clearly any staffing agency who doesn’t set up a formal process to receive and manage employee “concerns” is asking for a problem that can impact both themselves and their client. Most investigators consider the question “did they know” less important than “should they have known” and if IM doesn’t have clear communication policies for their employees, they are subject to liabilities stemming from workplace harassment. If, on the other hand, IM went to IEMP with George’s issue and IEMP chose not to do anything about it, it is only IM who would have a valid defense, not IEMP. Access to the Client’s Benefits As we learned from the early 90’s Microsoft settlement (90 million+ paid to its temporary and contract workers), if employers don’t adequately spell out the employees who will and will not be covered under their benefit plans, they can face serious and unexpected benefit liabilities. But avoiding unwarranted claims of benefit entitlement is not about shortening assignment lengths or requiring “breaks in service”—it’s about making sure benefit plans clearly spell out who is and is not eligible for benefits, specifically excluding employees from all third party employers. Unfortunately the core reasons behind the Microsoft settlement were never fully understood by the business community and ended up putting a whole lot of Microsoft staffing policies into mainstream HR policy without a clear understanding of what might have been an easier, less costly, solution.    Co-Employment and the Affordable Care Act… …should be as simple as making sure all contracts with staffing providers clearly state (affirm) the agencies role as the common law employer and their responsibility to administrate all ACA related requirements. This means that while it may be of interest to an employer whether or not their staffing agency is “playing or paying,” and who they would be offering benefits to (or not) they would not want to involve themselves in those decisions.    I-9. Immigration. Privacy Issues. Your staffing agency is responsible to administer the I-9 process. If they purposefully or thru negligence place an illegal employee into your workforce, they are liable for that violation. If an employer becomes aware of this practice, and fails to take action, they would be complicit in the violation and fined accordingly. If an employer stipulates that only US citizens work for them, they would be subjecting themselves to claims of discrimination based on national origin. Additionally, if they require copies of I-9 documents or any materials that include social security numbers, they incur risks of violating certain “privacy” requirements which could result in significant and costly damages (ex. identity theft, etc.). In general, employers should stay at arms length from any administrative process used by their staffing agency including how they administrate qualifications to work, pay and benefits. FMLA. ADA. Accommodation Issues. The co-managed version of co-employment is definitely alive and well when it comes to most FMLA and ADA requirements. If an issue or need comes up, particularly on a long term assignment, both staffing agency and their client are responsible for providing employees with time off to address a medical issue (FMLA) or to provide an accommodation (ADA).  Safety. All employers, both the staffing agency and their client, are responsible to provide a safe and hazard-free work environment for their employees. While the lion’s share of that accountability lies with the client, a staffing agency cannot knowingly assign its employees to work in environments where there are known violations of OSHA standards. As a matter of routine, staffing agencies should be inspecting their client’s worksites, ensuring that OSHA standards are being followed; that the work is being properly described and that employees are being issued the appropriate clothing, equipment, and instruction to ensure their safety. An employer’s safety record is a matter of public record and should be reviewed by the staffing agency before assigning an employee to begin work. Staffing agencies and their clients will typically work together to address any and all safety issues as they are revealed. Staffing agencies, who are concerned about an employer’s safety practices and repeated failures to act to remedy known issues are duty bound to remove employees from those assignments. Property Damages Frank is working in an IEMP warehouse, placed by IM. Frank drives a forklift and accidentally drives it into a wall, destroying $25,000 in product and doing another $10K in damages to the wall and the forklift. Who pays for the damages—IM or IEMP? Here are the factors that will likely make a difference to the final outcome:

• What does the contract between IM and IEMP say should happen? Typically these contracts indemnify the other from acts of negligence—so who’s at fault? Which party was negligent?
• Did IEMP require that IM screen Frank be a qualified forklift driver? Did they disclose that he would even be driving a forklift?
• What training or instruction did IEMP provide Frank before asking him to drive a forklift?
• How closely did IEMP supervise Frank’s work on the forklift?

If Frank was in an administrative or professional role, his damages might be different (ex. a violation of confidential information), but the considerations are the same:

• Did IM screen Frank for a job that required him to handle confidential information?
• Did IEMP properly protect the information they needed to be kept confidential?
• Did IEMP properly instruct and supervise Frank on how to handle confidential information?

For more information on co-employment or how to implement flexible workforce strategies that minimize the impact of unforeseen co-employment liabilities, contact PSN at infodesk@pacestaffing.com or by calling 425-637-3312 to arrange a complimentary consultation with a member of our Partnership Development Team. This article is intended for general informational purposes only and in no way is intended to provide legal advice or to circumvent the need each employer has to seek competent legal counsel. This article was written by Jeanne Knutzen, founder and CEO of the PACE Staffing Network.