All too often, business executives assume that “leased employees” (i.e., workers hired through a professional employee organization; through a temp agency or labor broker; or provided by a contractor but performing on premises under the business’s supervision or control) cannot create liability. Those executives need to listen to more country music:

You’re known by the company you keep,

You say you’re doin’ nothing wrong,

I don’t believe you are,

I’m only tryin’ to help you, sis,

Before you go too far,

‘Cause I think you’re an angel,

But folks think that you’re cheap,

‘Cause you’re known by the company you keep.

As a number of business executives have learned the hard way, leasing employees — although convenient and cost effective — will rarely shield their company from liability for employment law violations. To the contrary, the courts have consistently ruled that the customer is a joint employer along with the subcontractor or labor supplier and, thus, jointly liable for all aspects of the employment relationship. See, e.g., Barfield v. New York City Health and Hospitals Corp., 537 F.3d 132, 146-147 (2d Cir. 2008) (hospital was liable as joint employer under FLSA despite fact that nurse was employed and paid by separate nursing referral agencies); Reyes v. Remington Hybrid Seed Co., 495 F.3d 403, 408 (7th Cir. 2007) (defendant was joint employer along with leasing agency that supplied employees because both companies maintained significant control over leased employees); Miller v. Nordam Group, Inc., 12-CV-563-TCK-PJC, 2013 WL 6080268, at *2-3 (N.D. Okla 2003) (defendant was joint employer for purposes of FMLA despite fact that she had employment contract with temporary staffing agency that placed her with defendant and issued her paychecks).

This not only includes liability for wage and hour violations, payroll taxes, and a host of other federal, state and local employment statutes but also reputational damage. For example, retailers are being publicly blamed recently over improprieties by their vendors of leased workers. See Saket Soni, Welcome to the New America – Low Wage Nation, National Guestworker Alliance (Jan. 2014) and Janitors Win a Legal Victory, Austin Chronicle (Feb. 29, 2008). That reputational risk, of course, is precisely what Dolly Parton tried to warn her sister about in those lyrics from her 1967 debut album.

Is there a right way to approach this?

First, there should be a contractual mandate that the leasing agency have Employment Practices Liability Insurance (EPLI) and that the purchasing business be included as an “additional named insured” at the leasing company’s expense. Your background music here should be Doyle Lawson’s fine bluegrass in “Heartbreak Insurance.”

Second, there must also be an indemnification clause because EPLI won’t cover wage-hour violations. But, unless the business uses a reputable, well-capitalized leasing firm, this provision may be worthless. There is a library full of country music lyrics for background – just spin the dial on your radio or pull up Willie Nelson’s “Broken Promises” on Spotify.

Finally, when leased employees are on your premises, it is imperative to audit your leasing agency: check on the most common problems that flow upstream – I-9 compliance; wage-hour compliance; and OSHA violations. Travis Tritt posed the question in his song: “Can I Trust You With My Heart?” The best answer remains “trust but verify.”

PS: Looking at leased employees (under any of their variant names and structures) in addition to actual employees is also critical in the due diligence before consummating any corporate acquisition. Keith Urban belts out the cautionary chorus in his hit “You Sure Look Good In My Shirt” in warning that “it’s a little too early to know if this is gonna work.”