Term limits have little benefit when adopted to avoid co-employment

I like to blame the Vizcaino v. Microsoft case for the ongoing misconceptions around co-employment and tenure limits. I remember the headlines. The standouts used the term “permatemps” to refer to the long-term independent contractors who were suing Microsoft for benefits back in the ’90s.

It began when the IRS conducted an audit and found its independent contractors were misclassified. The workers then began eying the benefits to which they had previously waved rights; many had been working for the software giant for years while the company was enjoying phenomenal growth and stock performance — and wanted a piece of the pie. The end result: Microsoft settled for nearly $100 million in 2000. The permatemps won.

Thus, the seed was mistakenly planted that assignment length and co-employment were intertwined, and the misconception spread far and wide. Companies feverishly began implementing limits on how long temps could work for them before enforcing breaks in service, thinking such breaks protected them from co-employment liability.

But lost in the permatemp hype was the fact that the Microsoft case hinged on the company’s benefits package language. The company had not clearly excluded independent contractors from its benefits plans, so the court decided ICs were qualified.

The scenario today. Many companies still think tenure length is strongly correlated with co-employment risk, and some greatly resist the idea that it is merely one of several factors that have significant weight in courts’ rulings. And adhering so strongly to the misconception can be costly, especially if it gives the business a false sense of security. How long someone has been engaged is almost never very important in deciding whether co-employment exists in a particular case.

If a court finds your program or managers exercise too much control over your ICs, you may be deemed a co-employer. Is your IC solely dependent on your account financially? That could be a red flag. Is your company providing equipment to the worker? That might be an issue. And there are several other factors at play as well.

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That’s not to say imposing term limits is a bad idea. Quite the opposite, there are valid business reasons for which tenure limits make sense. One benefit of term limits is that they force a decision on whether the role should in fact be contingent. Or companies can use them to evaluate the skills and overall fit of a contingent worker at some specific point in time to decide whether they want to hire the worker as an employee or not.

The danger, however, lies in relying too much on tenure limits to reduce the risk of co-employment and letting other factors go unabated. But experts will tell you that term limits adopted to avoid co-employment have little benefit. And fun fact, co-employment is not always the nemesis of the contingent workforce program. If a temp worker is injured while on assignment to your company, you’ll appreciate the workers’ compensation exclusive remedy that comes as a result of co-employment status.

And while the Department of Labor recently issued its final rule on joint-employment, that pertains to the Fair Labor Standards Act. Co-employment risk comes into play in many other contexts, such as the Americans with Disabilities Act, Family and Medical Leave Act and the Occupational Safety and Health Act. The bottom line, if you’re reading some of your program in any of this, it’s time to brush up on co-employment and the factors courts look at.

In the Feb. 26 issue of CWS 3.0, employment attorney Eric H. Rumbaugh will discuss in further detail the misunderstood role of term limits in co-employment. Rumbaugh is a partner at law firm Michael Best & Friedrich LLP and a contributor to SIA’s CCWP certification program.

The CW Program Risk Management Module of SIA’s CCWP Certification Program content is being refreshed and addresses the key topics of tenure limits, co-employment and other worker classification issues. 


Sharon Thomas

Sharon Thomas
Sharon Thomas is a senior editor at Staffing Industry Analysts, responsible for the Contingent Workforce Strategies 3.0 e-newsletter. She can be reached at smthomas (at) staffingindustry (dot) com.

Sharon Thomas

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