Temporary employees
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Is there a time line for keeping temporary employees working before you run into legal problems like Microsoft? These are not contract employees, they work for a temporary agency.
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Tip of the Week
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Know the risks when using contingent workers
Excerpted from Delaware Employment Law Letter, written by attorneys at the law firm Young, Conaway, Stargatt & Taylor
July 9, 2004
by William W. Bowser
Businesses today must be able to respond to rapidly changing economic, technological, and social trends. You must be flexible and fast when staffing, managing, and terminating employees. As a result, many employers have turned to outsourcing work and using contingent workers to obtain that flexibility and speed.
Indeed, a recent survey indicates that about 85 percent of employers use some form of outsourcing. The popularity of contingent workers is confirmed by the fact that the temporary agency Manpower is among the largest employers in the United States.
Pluses, pitfalls of using contingent workers
There are a number of contingent worker relationships. Of course, the classic example is the temporary employee from an agency like Kelly or Manpower. But other types of workers are also included in that category.
For example, your seasonal, part-time, and flextime employees are contingent workers. So are true independent contractors who work on a particular project. And finally, there are "leased" employees, who are placed by a professional employee organization (PEO). A PEO is a company that essentially takes over many of your HR functions — like hiring, payroll, and taxes — in exchange for a fee.
Using contingent workers has numerous benefits, but you should carefully review your arrangement so the legal problems don't outweigh the business advantages. In fact, some of America's largest corporations have learned the hard way that the sloppy use of contingent workers can cause huge legal problems. For example, Time Warner agreed to pay $5.5 million to employees it continued to classify as "temporary" even though they had worked for more than six months — a time period when most Time Warner employees became "permanent" employees entitled to all benefits.
Similarly, Microsoft paid approximately $97 million (including $27 million in attorneys' fees) to about 12,000 employees it had misclassified as independent contractors. And finally, federal immigration authorities are currently investigating WalMart's janitorial subcontractors' hiring of illegal aliens.
Legal liability arising from the use of contingent workers falls into three categories.
First, state and federal discrimination laws protect many contingent workers, requiring you to treat temporary employees in a nondiscriminatory manner and protect them from unlawful harassment by your employees and customers. Under the Americans with Disabilities Act, you must make reasonable accommodations for qualified temporary employees with disabilities. And you must offer to take back a temp who takes leave under the Family and Medical Leave Act.
In addition to being protected by state and federal law, contingent employees can make claims under your health care, stock option, pension, and other benefit programs.
And finally, contingent workers can now be included in a union's bargaining unit and vote in a union election under a recent National Labor Relations Board decision.
So how can you avoid liability?
The law is complex and developing, but there are several steps you can follow to limit your risk.
Tip No. 1. Don't exercise excessive control over a worker just because you can. Companies often attempt to classify workers as independent contractors. There are good reasons for that. You can shift responsibility for payroll taxes, social security, unemployment taxes, and workers' compensation to another employer. Just as often, though, an employer will turn around and treat someone it designated an independent contractor just like an employee. With that conduct comes liability.
Although almost every law has a different standard for determining whether a worker is your employee, the degree of control you exercise is a very important factor. So, for example, if you're outsourcing your cafeteria services, you should focus on what's being done — providing quality food — not how it's being done. Let your subcontractor manage its staff, handling your communications with its workers in the process. Of course, if the control test indicates that someone might be more properly classified as your employee, you should have your legal counsel review the other applicable factors and make sure he's properly classified.
Tip No. 2. You should review your policies on the use of contingent workers. For example, Microsoft adopted a policy limiting temporary workers to a 12-month assignment with at least 100 days between each job. It also provided guidelines to managers to determine whether permanent or temporary workers should be used on particular projects. Developing clear policies will help you avoid expensive surprises in the future.
Tip No. 3. Modify your benefit plans to clarify who is (and isn't) entitled to participate. To avoid the Time Warner and Microsoft problems, consider inserting language in your plans that explains a worker isn't eligible for benefits if she's rendering her services as an independent contractor or if she's employed by a company that provides services to you.
Tip No. 4. Hire reputable temporary agencies and PEOs. If you're going to be a "joint employer" with any agency, pick a good partner. Ask for references, find out about their experience, and make sure they have proof of liability and workers' compensation insurance. In addition, make sure they have lawful policies covering discrimination and harassment.
Tip No. 5. Have good contracts with your independent contractor or temporary agency. Make sure your agreement spells out your contingent workers' status. If someone is an independent contractor, ensure that your agreement touches on the factors a court or governmental agency will use when determining his legal status. In addition, make sure your agreement has a good indemnification clause providing that the temporary agency, PEO, or independent contractor will pay the costs of defending a lawsuit filed against you if it violates any employment laws.
Tip No. 6. Don't ignore or participate in unlawful conduct. One of the main allegations against WalMart is that it knew its janitorial subcontractor was hiring illegal aliens and that the subcontractor was able to lower its bid as a result. You should never tolerate clearly illegal conduct that you or your management becomes aware of. Ignoring it can lead to substantial legal problems in the future.
Bottom line
The use of contingent workers is here to stay. Despite their advantages, contingent workers bring their own unique set of legal challenges. Those challenges, like most problems, can be overcome with careful planning and counsel.