How to Limit Your Company’s Co-Employment Liability

In the legal sense, contract employees assigned to staffing clients will always be characterized as employees of the staffing firm. However, staffing clients will still be considered co-employers when there is any degree of joint responsibility for the worker on issues such as training, workplace safety, supervision and direction of work or work performance.


Some staffing clients believe co-employer status opens the door to increased liability — it does not. An effective partnership with a trusted staffing firm, from candidate sourcing through assignment completion, can greatly minimize the impact of co-employment exposure in litigation for staffing clients.

Many staffing clients also believe that imposing contingent worker term limits will insulate them from legal liability for employment law claims or mitigate access to claims for retroactive employee benefits and stock of the staffing client, but that also is not the case.

Liability for employment-law-related claims are based on facts, not tenure. And retroactive employee benefits and stock concerns are best mitigated by staffing clients adequately defining employee benefit and stock eligibility. Specifically excluding all classifications of workers, except direct staffing client employees best mitigates exposure from claims of eligibility for staffing client’s employee benefits and stock plans. Consequently, term limits primarily raise recruiting and training costs, impact the business continuity of staffing clients, and unnecessarily remove high performers from delivering on the business objectives of the staffing client.

Mitigating risks

Employer risks are greatly reduced when a staffing client has a clearly defined service agreement that outlines the staffing firm’s primary employer obligations and indemnifies its staffing clients if the staffing firm fails to properly perform them. These obligations include:

  • Worker authorization and verification of W-2 employees;
  • Payment of wages and payroll taxes;
  • Drug and background screening;
  • Offering compliant benefits; and
  • Workers’ compensation and unemployment insurance

Such contract provisions alleviate initial and ongoing risks for staffing clients, providing a “ready-to-work employee” on day one and mitigating a primary issue of concern for many staffing clients.

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Protection against claims

When temporary workers are assigned to clients, there are two types of potential claims or litigation:

  • Employment claims related to nonpayment of wages or workplace discrimination and retaliation
  • Personal injury claims related to workplace injuries resulting from alleged negligent acts or omissions

Employment claims

Some clients mistakenly believe they can avoid co-employer status in litigation by denying employer status over temporary workers in their service agreements. However, this practice will not avoid employer liability for equal employment opportunity (EEO) claims, which are the most prevalent employment claims.

Co-employer status is determined by the control that has been exercised — or should have been exercised — by the staffing client over a specific set of facts or circumstances. Staffing clients control working conditions, length of assignment, and provide the direction and supervision of temporary workers in furtherance of their business. Co-employer status in the EEO context can be established by meeting only one of the following factors:

  • Hire and fire authority;
  • Establishing work rules/conditions of employment;
  • Day-to-day direction and supervision in furtherance of employer’s business; or
  • Control of employment records

Under EEO laws, the staffing firm and its client are both responsible for maintaining a workplace environment free of discrimination, harassment and retaliation, as well as providing workplace accommodations for disability, religion and protected leave.

The staffing firm is liable for:

  • Its own discrimination against the worker; or
  • Discrimination by the staffing client or other entity if the staffing firm participates in the discrimination; or
  • Knew or should have known of the discrimination and failed to take corrective action within its control

The staffing client is liable for:

  • Its own discrimination against the worker;
  • Discrimination by the staffing firm if the staffing client participates in the discrimination;
  • If the staffing client knew or should have known of the discrimination and failed to take corrective action within its control;
  • If the staffing client interferes with the federally protected civil rights of workers; or
  • The staffing client knew or should have known of the discrimination and failed to take corrective action within the control of the staffing client


It can be daunting for staffing clients to navigate the complex world of co-employment and legal risk. But with a comprehensive and proactive service contract as well as support from a highly qualified and reputable staffing agency, they can be confident that appropriate care is being taken to ensure minimized risks for both partners.

Dana Baughns

Dana Baughns
Dana Baughns is general counsel for Aerotek, an Allegis Group company.

Dana Baughns

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