Posts Tagged ‘contractor’

Joint Pain in the Workplace

Tuesday, June 7th, 2016

The following post is by Bruce Clarke, CAI’s CEO and President. The article originally appeared in Bruce’s News & Observer column, The View from HR

Can an employee work for two employers at the same time?

The Federal Court of Appeals in Richmond just decided how easy it is for someone to be a “joint employee” of two employers (Butler v. Drive

Bruce Clarke, President and CEO

Bruce Clarke, President and CEO

Automotive). The case involved whether a temporary service employee (Ms. Butler) was also employed by the manufacturer where she was assigned.  Could she sue that manufacturer for sexual harassment and termination under laws protecting only employees?  The court said yes.

Most courts say if both entities have enough control or economic connection to the individual, (s)he is employed by both.  This Appeals court fashioned a broad, hybrid test for joint employer status including whether each had some power to hire, fire, or supervise in a meaningful way, and where/how the work takes place compared to regular employees.  In my view, nearly all extended work placements through temporary services (involving hiring by the service and some training/supervision by the customer or both) create joint employers.

A similar issue arises with direct hired contract workers.  Some employers use an in house group of contract workers to handle fluctuations in volume or to serve as a pool for future full-time hires.  Whether temp or direct, a special group of workers is created who do not enjoy the same working terms of regular employees.

There are many good reasons to use long-term temporary and contract workers, but these challenges are often ignored:

Unintended Consequences

Lawsuits, injury claims and expensive benefits make full-time employee status costly.  Some employers manage “headcount”, risks and costs by restricting full-time hires, preferring either part-time employees or other solutions such as direct contractors. It is just not that easy.

By substituting significant, extended work from these temporary and contract workers, employers may avoid one set of costs and create a new, unbudgeted set of costs.  If we could reliably reduce the extra costs of employing people just by calling them non-employees, then none of us would work directly for an employer!

Employee Relations

If we expect the contractor/temp group to be happy with their non-employee status long term, we might be dreaming.  Too often, managers treat the contract group as expendable.  “Just let them go” some say, rather than address problems.  The same physical separation, different uniforms and procedural techniques used to prove these workers are NOT employees may in fact cause serious dissatisfaction . . . without establishing the desired legal separation!

Poor (or zero) onboarding, second-class status, ignoring complaints, little communication about next steps and limited performance feedback are common problems.  Remember, despite efforts to mechanically avoid employee status, the pressures of work and output usually confuse the worker’s status.

The costs of hiring regular employees can be managed and the risks contained.  When an employer is surprised to learn after a claim is filed that the law views it as an employer of temporary and contract workers, it is too late to prepare or insure.   Employers using these relationships as long term solutions should carefully assess the total costs.

Ten Things N.C. Employers Need to Know About Independent Contractors and Joint Employment

Tuesday, December 14th, 2010

Gretchen Ewalt from the Ogletree Deakins law firm shared her expertise on Employee Classification (Employee or Independent Contractor) and Joint Employment at CAI’s October members-only Ask the Expert. Participants left the sessions with a number of recommendations that, if implemented, will limit their organization’s exposure to costly litigation and potential penalties.

Below are some of the points covered in these sessions.

1. Independent Contractor Tests. There are a number of factors considered by the IRS and the USDOL in determining if a worker is an independent contractor or an employee.  A brief description of a true independent contractor is as follows:

  • The employer does not control the means and manner of how a project is performed, only specifying the expectations of the end result.
  • The “contractor” has a viable business concern, having the opportunity to make a profit or suffer a loss, and provides the same services to other employers.
  • The “contractor” absorbs expenses incurred during the project.

2. Penalties for Misclassification. Penalties for misclassifying an employee as an independent contractor include state and federal tax liabilities, as well as back pay for wage and hour overtime violations.

3. Conduct Internal Audits. It is recommended that periodic internal risk analysis audits be conducted to ensure that independent contractors are properly classified.

4. Draft Independent Contractor Agreements. Contracts for independent contractors should be drafted by legal counsel establishing expectations by both parties to clearly show that the independent contractor relationship exists.  Language also needs to be included stating that the contractor waives and relinquishes any rights to the client’s benefit plans and that the contractor agrees to comply with all business/industry standards.

5. Educate Managers and Supervisors. Managers and supervisors should know the difference between an employee and an independent contractor and understand the liabilities incurred due to misclassification.

6. Definition of Joint Employment. A condition where an individual is providing services that jointly benefits two or more employers.

7. Joint Liability. Employers that utilize employees from an outsourcing agency can be held liable along with the agency for complaints filed by those employees with state and federal regulatory bodies.

8. Time Credited for FMLA. The time spent by an outsourcing agency’s employee providing services to a client employer is credited toward FMLA eligibility if that employee is employed as a regular employee by the client employer.

9. Outsourcing Agreements. Agreements with outsourcing agencies should be carefully drafted by legal counsel to ensure that the agency is responsible for taxes, insurance, business licenses and all employment matters, including employee training, disciplinary actions, compensation/benefit programs and maintenance of personnel files.

10. Contract with Reputable Agencies. Make sure that your outsourcing agency complies with all applicable laws and specify such compliance in the outsourcing agreement.  Ensure that their personnel policies/procedures are sound and that their managers are well equipped to effectively deal with agency employee complaints.

If you have questions about employee classification or joint employment, please contact a member of CAI’s Advice and Counsel team at 919-878-9222 or 336-668-7746.

Photo Source: University of Waterlo