Employment Law in Staffing Arrangements

by Edward A. Lenz, Sr. VP, Public Affairs, and General Counsel, American Staffing Association

Employers have myriad legal obligations to their employees. Paying wages and benefits, paying and withholding employment taxes, providing workers’ compensation insurance, complying with civil rights and labor laws, and maintaining a safe work environment are just a few of them.


In most staffing arrangements, a staffing firm and its client share employer obligations in what is often referred to as a “coemployment” relationship.

Staffing firms:

  1. Verify employee work status under immigration laws
  2. Are the employer of record for wages and benefits
  3. Withhold and remit all payroll taxes (e.g., Social Security and Medicare)
  4. Provide workers’ compensation insurance coverage
  5. Have the right to hire and fire
  6. Hear and act on complaints from employees on working conditions and other work-related matters


  1. Generally supervise and direct employees’ day-to-day work
  2. Control working conditions at the work siteIn most staffing arrangements, a staffing firm and its client share employer obligations in what is often referred to as a “coemployment” relationship.Staffing firms:
    1. Verify employee work status under immigration laws
    2. Are the employer of record for wages and benefits
    3. Withhold and remit all payroll taxes (e.g., Social Security and Medicare)
    4. Provide workers’ compensation insurance coverage
    5. Have the right to hire and fire
  3. Determine the length of employees’ assignments

How it works

Following is a brief review of staffing firm and client co-employment obligations—and how clients can minimize their potential liability.

Employee Benefits

To receive favorable tax treatment under IRS rules, employer retirement plans must satisfy “nondiscrimination” tests. In applying the tests, employers generally must include in their head count workers who are not their employees—including workers supplied by staffing firms—who perform more than 1,500 hours of service in a year for the client. Such workers only have to be counted—they are not entitled to participate in the client’s plan. However, if a client’s contacts with the workers are extensive and long term, they may be viewed as the client’s common-law employees and may have a right to participate in the client’s benefit plans unless they are expressly excluded from the plan.

Clients can mitigate their exposure by structuring their staffing relationships to avoid contacts with assigned employees that could result in a common-law employment relationship. Although day-to-day supervision may be unavoidable in most cases, functions such as recruitment, training, determination of wages and benefits, and the right to assign workers to other projects should, to the extent possible, be left exclusively to the staffing firm.

Even if a client has sufficient contacts with workers to be considered their common-law employer, the client can still protect itself by excluding from its benefit plans temporary, contract, leased, and other employees. This can be done without jeopardizing its plans’ tax status, provided the plans continue to satisfy applicable discrimination tests when such employees are excluded.

Clients should review their plans with experienced benefits advisors to ensure that their plans contain appropriate exclusionary language and meet the discrimination tests.

Equal Employment Opportunity

Staffing arrangements do not shield clients from liability under the civil rights laws. If a staffing firm and its client both have the right to control the worker under a multifactor test spelled out in Equal Employment Opportunity Commission guidelines, and each has the statutory minimum number of employees, both can be held liable for unlawfully discriminating against a staffing firm’s employees under Title VII of the Civil Rights Act of 1964.

The EEOC also has issued guidelines confirming that staffing firm clients generally have joint employer obligations under the Americans With Disabilities Act. This may include sharing the cost of providing reasonable accommodations to temporary workers with disabilities. The guidance encourages staffing firms and their clients to engage in an “informal, interactive process” with workers to determine their needs. Experience shows that such accommodations do not involve significant expense in most cases.

Collective Bargaining

In 2004, the National Labor Relations Board ruled that temporary workers cannot be forced into a collective bargaining unit with a client’s regular employees without the consent of the staffing firm and the client. The National Labor Relations Act and prior board precedent allow multiemployer bargaining units only if all the employers consent. Allowing such units to be formed without consent, the majority said, results in a bifurcation of bargaining that hampers negotiations between a union and an employer, and forces the employers to negotiate with one another as well as with the union.

Although temporary employees cannot be forced into client bargaining on a nonconsensual basis, they still have a right to engage in lawful union activity at a client’s work site, may seek to form their own bargaining unit, and may even be compelled under union security clauses to pay union dues even though they are not covered by the collective bargaining agreement.

Workplace Safety

The federal Occupational Safety and Health Act and state workplace safety laws require all employers to maintain a safe and healthy workplace. OSHA rules provide that clients are primarily responsible for ensuring the safety of staffing firm employees because the client controls the work site and generally also controls the work performed by the employees.

Clients also are required to maintain records of illnesses and injuries of the temporary employees they supervise and notify them of any hazardous substances in the workplace. Staffing firms have a duty to take reasonable steps to determine conditions at the work site, provide employees with generic safety information, and advise them how to obtain more specific information at the work site to protect themselves from hazards they are likely to face on the job.

Workers’ Compensation

State workers’ compensation laws provide benefits, on a no-fault basis, to employees accidentally injured on the job. In such cases, workers’ compensation is the exclusive remedy and employees generally are barred from suing their employers for damages.

Courts in every state except Massachusetts and Wyoming have expressly extended this immunity to staffing firm clients who qualify as “special employers.” (Massachusetts courts have granted similar protection in cases where employees have specifically agreed to release the client of liability beyond workers’ compensation.) Hence, clients that insulate themselves completely from an employer relationship with the workers assigned to them may relinquish whatever protection such status may confer under state law.

More detailed information on these and other co-employment issues can be found in Co-Employment: Employer Liability Issues in

Third-Party Staffing Arrangements, by Edward A. Lenz (sixth ed., 2007, 279 pages, ISBN 978-0-9714306-1-7), Copyright 2007,


Staying Union Free

“Staying Union Free” by Bill Trumpeter, Labor and Employment Attorney, Miller & Martin PLLC, Chattanooga, TN. For more informative information on Staying Union Free become a subscriber to BizKeys.

Staying Union Free must begin with a critical self analysis of your company, its people, and its policies.  Why do employees choose to organize?  Reason number 1 is because management fails to listen to what employees are telling it and respond appropriately.  Employee complaints that fall on deaf ears or are not addressed in a prompt fashion show employees that management does not care about them.  So what do they do?  They become receptive to the pitch of the union organizer that the union will make the boss listen and will fight their cause.  Employers frequently cite wages and benefits as the motivating reasons for union organizing by employees, but, generally speaking, most employees do not start out seeking union representation because of wages.  To be sure, once the campaign starts, wages and benefits move to the top of the list and a union’s wild-eyed promises that all the employees have to do is vote them in and they will get a raise may gather steam.

To stay union free, management needs to think like a union organizer in analyzing its business and its people.  Take a good hard look at your working environment.  Is it a place that people like to work?  Do you have little or a lot of turnover?  What types of complaints are you getting?  How do people feel about their immediate supervision?  How does management communicate with employees?  Do employees have a vehicle to bring their concerns to management?  Does the company respond to employee questions and concerns?  Is the response prompt, or does the employee have to push to get an answer?  Is your work force splintered along racial, ethnic, or gender lines?  How do employees get along among themselves?  Is there opportunity for advancement?  Does management express appreciation for a job well done?  Is discipline fair and fairly administered?  Do employees have a meaningful ability to protest a supervisor’s discipline when they feel it is unwarranted or simply wrong?  How do such complaints get resolved?  Are your wages and benefits competitive for your area and industry?  Do you conduct periodic reviews of wages and benefits?  Is your facility safe?  Is your facility clean?  These and many other types of issues are what a union organizer will focus on to find issues he or she can talk about with your employees.  If any particular employee has a problem about their work environment, that will become the union organizer’s primary focus with that employee, and if that organizer can get the employee to talk to him or her, the biggest barrier is broken down.  Good union organizers are salesmen, and a good salesman has to get an audience before he or she can sell the “goods.”

Once this critical self-analysis is completed, take steps to correct the problem areas before the union organizer shows up.  If you have identified these weaknesses and do nothing about them, then shame on you.  Once the organizer shows up, you will be talking about them in a much more hostile environment.

Staying union free is made easier when your company is proactive rather than reactive.  Start thinking about remaining union free from the very beginning of the employment relationship.  Carefully screen applicants to make sure they are a good fit for your organization.  Thoroughly check out their background, and don’t hire someone else’s problem.  Use your probationary or introductory period to evaluate performance; if you discover concerns, cut the employee loose then.  You are running a business, not a social services agency.  A bad hire will inevitably come back to haunt you somewhere down the road.  Make sure your new hires and your current employees know that you are union-free and proud of it.  You don’t have to be afraid to talk about it.  Include a statement in your new hire materials such as:

“This Company is union free and is proud of the fact that its employees do not have to pay an outside organization to receive fair treatment.  While we respect the rights of our employees to organize, we want you to know that we will do everything, within the bounds of the law, to fight any attempt to unionize this company.  If you ever want to discuss this, please feel free to contact your supervisor or human resources.”

In addition, you should adopt policies that will make it more difficult for a union to gain access to your employees.  Every company desiring to remain non-union should have in place the following, lawfully drafted, policies or work rules:

  1. No solicitation/No distribution
  2. No posting on company bulletin boards or property
  3. Rules prohibiting the use of company communications equipment for non-business use
  4. Rules restricting access to property by non-employees
  5. Rules restricting off-duty employees from being inside company buildings prior to or after their shift
  6. Lawful policy protecting employees from illegal harassment, threats, or violence

Having these rules and policies (and a practice of enforcing them) in place before the union organizer shows up makes it much easier to defend when the union shows up and begins campaigning (see design shop for sample rules). They also make it harder for the union to gain access to your property.  Realize, however, that you have to be diligent in the enforcement of the rules, and they cannot be applied only to union or other concerted activity.

Another key to remaining union free is to continually train your supervisors.  Don’t assume your supervisors are good supervisors simply because they were, at one time, good employees.  Provide your supervisors with human resources training to effectively deal with and manage people.  A good-intentioned, but abrasive supervisor can absolutely kill you in an attempt to remain non-union.  He or she might be absolutely fantastic in getting the work out, but if that supervisor’s demeanor is abusive or degrading to the subordinates, a mutiny is but a phone call from a union organizer away.  Make sure your supervisors receive training in how to deal with people, including such issues as managing a diverse work force, motivating subordinates, following the various employment laws, recognizing how to spot and address personal problems that might be interfering with a person’s job performance, detecting potentially violent behavior, avoiding unfairly playing favorites, and any other training that makes for a good supervisor.  Sometimes your best employees fail when promoted to supervisor because they do not have the training to succeed.

Your front line supervisors are your eyes and ears on the work floor.  They are your representative to the employees.  In maintaining union free status, supervisors need to be trained to spot the early warning signs of union activity.  What are the early warning signs?  Basically anything that differs from employees’ normal activity.  Examples include employees who do not usually associate with one another suddenly talking together or eating together.  What has caused that change in behavior?  When an employee who is normally quiet becomes assertive or asks a lot of questions trying to find out about policies or work rules, why is he doing so?  Is it because he is gathering information for the union?  Look out for groups of employees who suddenly go silent or abruptly scatter when a supervisor approaches.  What were they discussing that they did not want the supervisor to know?  Another sign is when an employee who is normally gregarious and outgoing suddenly clams up and won’t talk to you or avoids you.  Ask why.  Is it because she is being coerced by others who are trying to get a union?  Is it because she is the one who is talking to an organizer and is ashamed or worried about what she is doing?  In the later stages, supervisors might spot authorization cards or union literature.  They need to know that such signals of activity need to be reported.  Basically, supervisors need to be schooled on human behavior.  When an employee or employees suddenly change their normal patterns or behavior, what is the reason?  A usually mild-mannered employee suddenly becoming demanding might mean that the union petition is about to be filed and the union has filled his head with propaganda that once the union comes in, he can do whatever he pleases and then union will protect his job.

Spotting the early warning signals is imperative.  If there are problems that need to be addressed and can be addressed rapidly, an employer can act before the union’s presence becomes known.  Unfair labor practices alleging that the unilateral changes were to dissuade employees from supporting a union become more difficult to prove.  If a company has no knowledge that union activity is going on, changes made to improve the work place are more likely to be viewed as good business judgment rather than as a means of killing a union drive.

A dedicated union-free employer that intends to remain that way would be well advised to establish regular employee meetings so that employees can be not only made aware of important business information, but also have a forum to ask questions.  Typically, when an employer gets hit with a union petition, the reaction is to call an employee meeting and find out what the reasons are for the union activity.  Done improperly, that is an unfair labor practice because it is a form of interrogation.  However, if you have a regular practice of conducting union meetings and asking about issues your employees have, it is busines as usual.  In addition, conducting periodic employee meetings makes it seem less dramatic than calling a meeting only when a union shows up at your door.  Employees are not stupid.  They will quickly see that if all they have to do is get a union organizer to come to your gate and hand out leaflets in order to get your attention, maybe the union can deliver on its promises.

Maintaining union free status is something that an employer has to continually work at and incorporate in its business plans.  Staying non-union should be a priority of every manager and supervisor and should be discussed and reviewed regularly.  An ounce of prevention is worth its weight in gold.

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