Temps, in Name Alone
Saturday, November 01, 2008 3:53 AM
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(Source: HRMagazine)By Danaher, Maria Greco
Just because you call them temps doesn't mean courts will. Managers who rely on temporary employees should factor in the growing legal risks of using temps and independent contractors.

Increasingly, courts are looking at the employer's degree of control to decide whether workers are temps or independent contractors, or, in reality, employees. If employers misclassify employees, liability may arise under a host of federal and state employment laws.

Misclassification can be costly. In December 2007, the Internal Revenue Service (IRS) ordered a transportation company to pay $319 million in unpaid employment taxes and penalties after the agency determined that drivers were misclassified as independent contractors. IRS officials are now scrutinizing the misclassification of workers as independent contractors more closely. According to a May 15 New York Law Journal article, the IRS has entered into datasharing agreements with at least 29 state workforce agencies to share the results of employment tax examinations.

Lawmakers rumble about the misclassification of employees in state capitals and on Capitol Hill. Massachusetts Gov. Deval Patrick, a Democrat, issued an executive order on March 12 to intensify the state's enforcement initiatives against employers who misclassify workers as independent contractors. Employers who violate Massachusetts' independent contractor law now face treble damages for all wage and hour violations.

And on May 21, Rep. Rob Andrews, D-N.J., chair of the U.S. House Education and Labor Committee's Subcommittee on Health, Employment, Labor and Pensions, introduced the Employee Misclassification Prevention Act (H.R. 6111) to clarify that the Fair Labor Standards Act (FLSA) prohibits misclassifying employees as independent contractors.

The misclassification of workers is surfacing in litigation as well, including a troubling federal appeals court decision this year that shows the risk to employers from courts' application of the joint employer test.

Legislators' and judges' increased attention to the misclassification of workers should concern even employers with few workers. Some are discovering in court that employment laws they assumed did not apply to them, including the Family and Medical Leave Act, in fact do.

Wake-Up Call

The term "temporary employment"-also known as "contingent employment"- typically refers to a situation in which an employee is hired with the expectation that he or she will leave employment within a certain period of time, which is often not spelled out in detail. The employee may be either full time or part time, and may be hired through an agency or a company's hiring process. The employee can be under contract or without any written performance parameters. Some companies provide health care benefits to certain contingent workers; others do not.

The wake-up call for employers about the legal risks of temporary employment began in earnest when the 9th U.S. Circuit Court of Appeals decided that "temporary" employees at Microsoft were entitled to the same benefits as full-time employees (Vizcaino v. Microsoft, 173 F.3d 713 (9th Cir. 1999)). The decision resulted in unanticipated and substantial financial liability: The case, initiated in 1992, concluded in 2005 with a distribution of $97 million to 10,000 temporary employees.

Control Tests

In numerous other cases, temporary employees initially hired and designated as independent contractors ultimately have been deemed employees because of the level of control exercised over the workers.

The courts have applied a "totality of the circumstances" analysis to determine whether an employer-employee relationship exists, and have relied on the nonexhaustive list of factors set forth by the U.S. Supreme Court in Nationwide Mut. Ins. Co. v. Darden (503 U.S. 318 (1992)).

These factors include:

* Skill level of the job provided.

* Source of the equipment and tools used by the individual.

* Location where the work was done.

* Duration of the employment relationship.

* Whether the employer is free to assign additional projects to the employee.

* Employee's control of his or her own work schedule.

* Method of payment.

* Employee's role in hiring and paying assistants.

* Whether the work is part of the regular business of the employer.