Man in suit with text: "Co-Employment Part 1"

What You Need to Know About the Risk of Co-Employment

Pinnacle Group Blog

Co-employment is a hot topic these days. The recent publicity around the NLRB holding in the Browning-Ferris case and the guidance on joint employment published by the Department of Labor in late January have caused many clients to ask us how they can decrease their co-employment risks and still interact with their contingent workforce in a productive, business-forward way. In our next three blog posts, we are going to share our basic approach to managing co-employment. If you like what you hear, we hope you’ll reach out to us for further conversation.

This week we are going to establish some definitions around what co-employment is and how it has the potential to impact staffing clients. Next week, we’ll discuss what has changed with the recent Browning-Ferris decision and DOL guidance. And for the third installment in this series, we’ll go into some of our best tips for how to manage the risks co-employment creates without making it impractical from a business standpoint.

Co-employment simply means that two or more employers both have legal responsibilities to the same employee for performing the same work. Co-employment always exists when a company uses a contingent worker, although the duties between the staffing company and the client will differ in certain ways.

The staffing company will be primarily responsible for traditional human resources activities. These include the pre-employment process (recruiting, hiring, and onboarding the worker), payroll, benefits, personnel records, providing workers’ compensation insurance, and handling termination and post-employment needs, like unemployment and COBRA. The client will be responsible primarily for providing a safe workplace and overseeing the daily work the resource performs.

When each party is behaving as it should and fulfilling its obligations, co-employment doesn’t create much risk at all. Problems generally arise only when one of the co-employers doesn’t fulfill its legal obligations to the worker (or the worker feels that this is the case). For example, the staffing company failed to pay the worker in accordance with wage and hour laws, or the client subjected the worker to an unsafe work environment. In these situations, the worker may elect to file a complaint against the party it has the most contact with or the party he or she perceives to be most to blame – and this may not be the party primarily responsible. This is where co-employment presents some risk to both the staffing company and to the client. Sometimes, it will be sufficient for a client to disclaim liability by explaining that the individual is not an employee of the client, and redirect a complaint or regulator to the staffing company. Other times this doesn’t work as well.

Under some laws, it is clear that both parties in a co-employment relationship will be held responsible if a failure happens. The Fair Labor Standards Act is the most prominent of these. If a worker has not been paid properly, the Department of Labor can hold both co-employers responsible. The real pain of co-employment risk comes from this type of regulation, and many clients will do all kinds of things to distance themselves from being a co- employer. And this is understandable, because clients have to rely on a staffing company to fully comply with the applicable laws to avoid putting the client at risk – even if the client has done the right things 100% of the time.

That said, co-employment is not always a bad thing. When it comes to on-the-job injuries, the clients benefit from the co-employment relationship, as it requires workers to file a worker’s compensation claim as their exclusive form of recourse. However, OSHA still places the burden on the co-employer that operates the facility where the injury occurred to maintain a safe workplace.

Next week we’ll talk about how the recent NLRB decisions and DOL guidance have impacted our understanding of co-employment and what to expect going forward.