South Carolina Lawyer
Vol. 10, No. 4, Pg. 38.
Structuring and Managing Contingent Worker Arrangements
38Structuring and Managing Contingent Worker ArrangementsBy David E. DubberlyBusinesses representing virtually every sector of the South Carolina economy-from textiles to technology-are turning with increasing frequency to "contingent" workers to supplement their regular work forces. Although many employers assume that contingent workers are not their employees for liability purposes, this is far from true. The reality is that hiring contingent workers can be risky. This article highlights a few of the risks involved with the use of contingent workers.
Using contingent workers can help employers reduce personnel costs, retain flexibility and remain competitive. However, employers often assume, incorrectly, that they have no legal obligations to temporary, leased or outsourced workers because they "belong" to the firms that provide them. Also, many employers seem to believe that simply classifying a worker as an independent contractor relieves the employer of any employment or labor law related obligations to the worker.
In fact, as courts and regulatory agencies catch up with the contingent work force trend, client companies are discovering that they may face sole liability or share joint liability with providers of contingent workers or with independent contractors, depending on two factors: how much supervisory control the client company and/or the provider exercise over the day-to-day activities of the workers and the specific law under which the issue arises.
South Carolina lawyers can help clients anticipate and reduce such liability by becoming familiar with this area of the law and bytaking a more proactive role in structuring and managing contingent worker arrangements.
As explained below, application of the joint employer doctrine varies somewhat under the different employment and labor laws. The most important factor under almost every statute, however, is supervisory control. Generally, if both the client company and the provider of contingent workers exercise control, both may be considered joint employers.
In the typical temporary and leased employee situation, joint employment is likely to be found because the temporary agency or leasing company recruits, screens, hires and pays the employee, while the client directs and controls the work, provides the work setting and equipment and determines the standards of
39production and performance. Simply classifying workers as "employees" of a temporary agency, does not dispose of the issue of supervisory control.
For example, the U.S. District Court for the Western District of Washington recently ruled that certain Microsoft Corporation workers, who had been classified as employees of temporary agencies that supplied personnel to Microsoft on an as-needed basis, were actually employees of Microsoft and not of the temporary agencies. Microsoft had denied the workers health and retirement benefits and discount stock purchase options reserved for Microsoft employees. The court ruled that the employees were entitled to participate in the benefit plans during the time they were classified as temporary employees. Vizcaino v. Microsoft Corp., No. C93-178D, 1998 U.S. Dist. Lexis 11282 (W.D. Wash. July 15, 1998). Apparently, the only contact the plaintiffs had with their temporary agencies was to receive paychecks and W-2 forms. Id. at 11.
In contrast, in an outsourcing arrangement the contracting firm normally fulfills all of the roles of an employer, while the client simply receives the services of the contracting firm and its workers. The employer should exercise caution in entering agreements with contracting firms to make sure that the elements of control remain with the contracting firm, so that the employer can avoid liability for employer obligations.
Finally, as long as they are properly classified, independent contractors are their own sole employers. But classifying workers as "independent contractors" is not dispositive either. For example, in Vizcaino v. Microsoft Corp., 120 F.3d 1006 (9th Cir. 1997), cert. denied, 118 S. Ct. 899 (1998), the Ninth Circuit, sitting en banc, affirmed in part a decision allowing some Microsoft employees, whom Microsoft classified as independent contractors, to participate in Microsoft employee benefit plans during the time they were classified as independent contractors. The plaintiffs had worked on the same teams as regular Microsoft employees, shared the same supervisors, performed identical functions and worked the same core hours. 120 F.3d at 1008.
In conjunction with determining which party exercises supervisory control over the workers, the courts and regulatory agencies look to the statutes at issue in deciding how to apportion liability for breaches of employer obligations. Following is a...