Yours, Mine, or Ours? Avoiding Joint Employer and Contractor Misclassification

Companies are increasingly using subcontractors, temporary staffing agencies, leased employees, and independent contractors to supplement or, sometimes, replace their regular workforces. While use of an alternative workforce can provide companies with “just-in-time” staffing and reduce benefits and payroll costs, use of a contingent workforce is fraught with potential traps and liability for the unwary. Companies which develop “best practices” for beginning such relationships will have a better chance of avoiding joint employer and misclassification issues down the road.

The most important practice for companies to follow when retaining contingent workers is to “get it in writing” in the form of a well-drafted agreement. The following is a list of the key contract provisions to consider including in agreements with temporary staffing agencies and contractors.

The agreements should include, among other things, the following:

  • representations and warranties regarding compliance with all employment laws;
  • representations and warranties regarding compliance with all state and federal wage and hour laws;
  • representation that the staffing agency or contractor has an anti-harassment policy and the appropriate complaint procedure;
  • an agreement that the staffing agency or contractor is responsible for all required training, including safety training;
  • an agreement that the staffing agency or contractor is solely responsible for on-site supervision of contingent workers;
  • an agreement that the staffing agency or contractor is solely responsible for all recruiting, hiring, pre-employment screening and testing, I-9 verification and recordkeeping, providing personnel policies, and maintaining personnel records and files;
  • an agreement that the staffing agency or contractor is solely responsible for all payroll, tax withholding and recordkeeping functions, employee benefits (i.e., health insurance), appropriate insurance coverage (i.e., workers’ compensation), and administrating its own I-9, pre-employment testing, and background check programs;.
  • an agreement that the staffing agency or contractor is solely responsible for performance management, discipline, and termination;
  • an agreement regarding the term of the agreement (which should be limited or fixed duration);
  • a statement regarding indemnification obligations; and
  • a termination provision.

Even with such an agreement, you are not out of the woods yet. It is imperative that the company maintain separation between the regular employees and the contingent workers. Here are some things to consider:

  • Train managers and supervisors regarding how they should interact with the staffing agency or contractor and with the contingent workers.
  • Do not include contingent employees in the same training sessions with regular employees (i.e., computer systems training, etc.) and exclude them from “all employee” meetings and social functions.
  • Require contingent workers to have different identification cards and security badges (i.e., indicating that they are temporary workers), and different uniforms.
  • Require contingent workers to sign a document prepared specifically for them, which includes certain special confidentiality and non-disclosure obligations.
  • Do not include contingent workers in memoranda/announcements addressed to “all employees.” Have separate notifications and announcements for contingent workers.  Similarly, these workers should not be included within the definition of “all employees” in the company’s e-mail distribution lists.
  • Require contingent workers to sign acknowledgments confirming that they are indeed contingent workers who are employed by the staffing agency or contractor, and not by the company. 

Finally, while there are myriad tests for determining joint employer and independent contractor status, courts will generally look at the  totality of circumstances to determine whether the company exercised such a significant level of control over the manner in which the contingent employees performed their work to warrant imposing liability on the company under a joint employer theory or contractor misclassification theory. 

At the end of the day, it’s not just the words you put in your agreements that matter—it’s how the terms of the agreements are implemented on a day-to-day basis by the individuals who interact with the contingent workers—that can make the difference between liability and no liability.