Temp agencies are a common resource for companies with seasonal, project-based, or manual labor-intensive operations. In our global economy, everyone is familiar with the advantages of outsourcing, and human resources are no exception. However, hiring a temp agency can quickly become a risky proposition if the legal frameworks surrounding the practice aren’t well-understood.
What is Co-employment?
In short, co-employment is a condition of a shared employer-employee relationship by a company (the client) and a staffing agency. When a company retains a staffing or “temp” agency to lease employees, a condition of co-employment creates a shared burden of legal responsibilities (and rights) over employees for both parties.
Per the Fair Labor Standard Act of 1938, two companies who are working toward the same end can employ a person in one job simultaneously. In the case of a staffing agency, their sole purpose for employing an individual is to lease their time out to a client organization. Since the two companies are managing one “work situation,” a worker’s status is considered one singular employment under the FLSA.
What are the Risks and Dangers of Co-employment?
Increased Risk of Litigation
When the lines of employer responsibilities are blurred, a company using temp labor may find itself the target of lawsuits. There are many resources available to guide companies on mitigating the risks of co-employment. Common strategies include having employees sign contracts and waivers and having a clear division of management responsibilities between a company and its staffing agency. However, even a perfectly executed plan represents a minimization, and not an elimination of risk.
When an injury or perceived breach of contract involving temp labor occurs, the primary company is often the most suitable target for a lawsuit, and can find itself with a highly costly issue to manage as a result of co-employment.
Benefits Eligibility Issues
Microsoft Corporation learned a very costly lesson about co-employment when it settled an eight year class-action lawsuit surrounding employee benefits in 2000.
In this example, Microsoft was maintaining “temp” workers for years at a time, using their temporary status to avoid paying them health, stock, and pension benefits. The plaintiff’s case was predicated on the written rules governing Microsoft’s stock purchase program. The courts weighed whether the ostensibly temporary workers qualified for benefits which they didn’t receive, and the protracted eight-year battle led to a record-setting $97 million settlement.
In a co-employment scenario, even companies with massive legal and compliance teams can face difficulty in navigating the muddy waters of compensation and benefits awards.
Misplaced Accountability
It’s clear that the boundaries between co-employer responsibilities can be difficult to define. In another common situation, one employer can find itself on the hook for a mistake made by the other party.
A situation like this carries immediate impact in terms of a potential lawsuit, but the short-term effects are likely to be outweighed by the long-term damage to the client/vendor relationship. If an engagement ends after a fault-finding incident, the costs to the client of an operational pause and the act of finding and retaining a new temp agency can mount quickly.
Does Every Temp Agency Carry Co-employment Requirements?
In short, yes.
Some companies, like Costa Solutions, provide a service which is similar to that of a temp agency. However, since our client organizations do not exercise control over their leased labor, Costa Solutions maintains sole responsibility for its employees.
Our business model is not simply to staff warehouses with capable workers, although that is an element of the service we provide. Rather, we bring an end-to-end outsourced approach to inbound logistics into our client relationships. By managing the day-to-day work, oversight of all our employees, and confidential compensation and separate benefits for our employees, we remove the burden of co-employment from our client businesses while providing a greatly enhanced alternative to straight-up temp labor.
The Benefits of Operating Without Co-employment
Obviously, it’s in every company’s best interest to avoid a co-employment scenario. While the benefits of outsourcing are proven, they must be weighed carefully against the legal risks of co-employment, which can exceed even the baseline level of risk in keeping staffing in-house.
Businesses considering outsourcing should look for firms that don’t carry co-employment into a client relationship. Ergo, the ideal staffing vendor is one that assumes all responsibilities over their provided labor, including management, training, and compensation. In this way, a company can enjoy the benefits of outsourced labor (better cost structure, more accurate scheduling and capacity planning, elimination of sourcing/hiring burdens) without exposing themselves to liability.
In a future post, we’ll discuss the advantages warehouse managers find in switching from hourly rates to a cost-per-load structure.
