In recent years there has been dramatic growth in the use of temporary and leased employees. Such workers, sometimes referred to as “contingent employees,” are often employed by an employment services company or temporary employment firm and are supplied to another company or employer for whom the workers provide their services. The increasing numbers of such employees raise many important legal issues. Often, the essential question is whether employers must, under federal and state laws, treat these employees in their workplaces as though they were regular employees.
The term “contingent employment” is a catch-all term generally used to refer to all types of employment in which the employee is not a traditional or regular employee. The group that makes up contingent employees includes what often are called:
These differences are often difficult to describe conceptually. Further complicating matters, the terms are sometimes used interchangeably. Moreover, insurance companies also provide their own definitions of leased and temporary employees. In most cases, the question becomes: “who employs this individual?” The answer usually is that both the company that supplies the employee (the general employer) and the company that uses the employee’s services (the special employer) will be considered the employer, unless the general employer provides all the direction and control over the manner and means of the performance of the services.
Generally, an “employer” is any individual, firm, association or corporation using the services of a person for pay who has the right to control the actions of the individual. When one company possesses “sufficient control” over the work and the terms and conditions of employment of the employees of another company, the courts will find that the companies are “joint employers” of the second company’s employees. Factors considered in determining whether the alleged joint employer exercises “sufficient control” to qualify as a joint employer include who supervises the workers’ day-to-day activities, who is responsible for hiring and firing the workers, who promulgates work rules and conditions of employment, who issues operating instructions and who controls work assignments. Both joint employers may be held liable to the worker under various statutes that govern the employment relationship, including Title VII of the Civil Rights Act and Mass. G.L. c. 151B.
As discussed in Chapter 07: Independent contractors, an independent contractor is an individual or firm hired to perform a specific task or serve a distinct function, the worker is free from control and direction in connection with the performance of the task or function, the task or function that the worker performs is outside the usual course of business of the employer; and the worker is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed. Under Massachusetts law, courts presume that a worker is an employee unless he or she meets all three prongs of the A, B, C test:
A. The individual must be “free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact.”
B. The service the individual performs must be “outside the usual course of business of the employer.”
C. The individual “is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.”
The Internal Revenue Code (IRC) contains the following definition of “leased employee.” The term “leased employee” means any person who is not an employee of the recipient who provides services to the recipient if:
General terminology is as follows:
National organizations that provide detailed information include National Association of Professional Employer Organization (NAPEO) and National Association of Temporary Services (NATS).
Employee leasing does not include “temporary help services.”
Employee leasing shall not include other independent contractor services, such as security services, job-shop companies, strike-breaker replacements or any other service that does not perform the functions defined above.
The Massachusetts Temporary Workers Right to Know Law requires staffing agencies to provide most temporary workers with a written job order that provides basic information about the job, including a job description, the pay day, the hourly rate of pay, the start date, daily starting time and anticipated ending time, the expected duration of employment (if known) and other details. The law also regulates the fees that a staffing agency or work-site employer may charge to a temporary worker and prohibits fees that would reduce a temporary worker’s pay to below minimum wage. In addition, the law requires staffing agencies to reimburse workers who are sent to worksites at which no work is in fact available for their reasonable transportation costs and precludes them from forcing temporary workers to go to an assignment that they do not want to go to and from retaliating against workers for exercising their rights under the law.
For purposes of this chapter and unless other terms are required by the particular law under discussion, the following terms will be used to identify the various parties in the temporary employee relationship:
The Occupational Safety and Health Act (OSH Act) applies to employers engaged in interstate commerce that employ even a single employee. See also Safety and health.
The law requires employers to:
Generally, all employees are afforded the same protections and must comply with the same safety precautions under OSHA. In determining whether a customer employer is responsible under OSHA for the temporary employees who are assigned to it, the following questions apply:
While no one question is determinative, affirmative answers point to customer employer responsibility under OSHA. In a case where the customer employer is considered liable and is cited, the supplier employer may also be cited.
At a multi-employer worksite where a number of employers created or controlled the hazard(s), OSHA regulators also may issue citations to other employers, including the general contractor. An employer that creates a hazard is liable for the danger presented to either that employer’s employees or the employees of another employer.
There are cases where OSHA may regard a supplier employer as not responsible for OSHA citations.
Customer employers must maintain certain records regarding temporary employees. Employers are required to maintain records of injuries and illnesses of employees. OSHA’s policy is to extend this requirement to customer employers to the extent that they direct and control temporary employees’ work activities. While it is possible that a customer employer may, as a matter of contract or agreement, require the supplier employer to maintain these records on its behalf, even under such circumstances, the customer employer should also keep its own separate records regarding temporary employees.
The Fair Labor Standards Act (FLSA) establishes standards for minimum wages, overtime pay, child labor and recordkeeping applicable to employees engaged in interstate commerce and in certain enterprises engaged in interstate commerce. FLSA standards are explained in Wages and hours.
An employment relationship must exist before the FLSA will apply. Courts have adopted a broad interpretation of the definitions of “employer” and “employee” to apply the FLSA, and close cases generally result in a finding that the FLSA applies. In determining whether a worker is an independent contractor or employee, courts apply what is known as the Economic Realities Test and apply the FLSA to those individuals “who as a matter of economic reality are dependent upon the business to which they render service.”
On January 7, 2021, during the last days of the Trump Administration, DOL published final regulations establishing standards for determining whether a worker is an employee or independent contractor. The regulations were withdrawn by the Biden Administration.
Because the Trump-Era regulations were withdrawn, the DOL has reverted to the multi-factor test in place before the regulations were proposed. The multi-factor test for determining employment status under the FLSA is based on case law and reviewed several factors to determine whether a worker was an employee or independent contractor. The factors that are usually reviewed when considering the economic realities of the relationship between the worker and the company include:
Application of the independent contractor tests is not simple. The facts of each case will control. No one factor is determinative, and there is no certain number of the six factors that weigh in favor of independent contractor or employee status to establish a worker’s classification. Factors will be weighted differently based on the specific circumstances. A security guard may be found to be an independent contractor in one case and an employee in another case. Exotic dancers have been found to be independent contractors in certain situations and employees in others. The facts and circumstances of each case must be carefully analyzed to determine if an independent contractor or employment relationship exists.
The Massachusetts Supreme Judicial Court ruled in December of 2021 that Massachusetts's independent contractor statute is not applicable in determining joint employer status, but rather the FLSA's testing as outlined above should prevail.
Courts have broadly interpreted the coverage of anti-discrimination laws, focusing primarily on control over the opportunity for and conditions of employment as indicative of employer status. Based on these broad interpretations, some courts have been willing to hold customer employers liable to temporary employees for their discriminatory acts toward them. See Discrimination.
In determining whether a customer employer is subject to liability for acts that discriminate against temporary employees, courts will consider the degree of the customer employer’s supervision of the temporary employee’s daily activities and whether the customer employer has the authority to impose work rules, to determine the opportunity for and conditions of employment and work assignments and to issue operating instructions.
In a variety of cases, courts and agencies have found that customer employers are subject to liability. Courts have indicated that a customer employer can, under circumstances where it shares supervision and control with the supplier employer, be jointly liable in connection with the unlawful actions of the supplier, even if the customer employer disagreed with or had no knowledge of those actions.
While many of these considerations apply equally with respect to the Americans with Disabilities Act (ADA), there are additional considerations under the ADA. See Disabilities and reasonable accommodations. Specifically, the duty to reasonably accommodate qualified individuals with a disability affects both supplier and customer employers.
Supplier employers must, where appropriate, make reasonable accommodations to qualified temporary employees with disabilities, so as to enable such persons to perform the essential functions of their assignments with customer employers.
The ADA does not specifically discuss a customer employer’s obligations to reasonably accommodate a temporary employee. EEOC guidelines do, however, apply the joint employer doctrine in the temporary employee context. The conservative approach is for a customer employer to offer a reasonable accommodation to a qualified temporary employee with a disability who needs an accommodation and who, with accommodation, could perform the essential functions of the job.
Under the federal Family and Medical Leave Act (FMLA), separate companies or businesses may be treated, under some circumstances, as joint employers. See Family and medical leave. Where the customer employer has sufficient control over the work or working conditions of the temporary employee (taking into account, among other things, the nature and degree of control, degree of supervision, power to determine pay rates and involvement in payroll functions and the direct or indirect right to modify the employment conditions of the workers), a joint employment relationship exists; and both the supplier and the customer must count the temporary employee to determine whether each respective employer is covered under the FMLA and whether an employee is eligible for benefits.
The primary employer (normally the supplier employer) is the only one responsible for giving required notices to its employees, providing leave, maintenance of health benefits and job restoration. As secondary employers, customer employers must not interfere with a temporary employee’s attempt to exercise an FMLA right or otherwise engage in conduct within the prohibited acts provision of the regulations.
In addition, the final FMLA regulations make it clear that the customer employer has a responsibility to rehire a temporary employee returning from FMLA leave provided by the supplier employer, assuming there is still temporary work available with the customer employer; and the customer employer is still doing business with the supplier employer.
Under the National Labor Relations Act (NLRA), employers must respect employees’ statutory rights to engage in protected activities and to collectively bargain. In a variety of ways, customer employers also must treat temporary employees as though they were their own employees under the NLRA.
On rare occasions, the National Labor Relations Board (NLRB) has found that a customer employer is in fact the “sole employer” of temporary employees assigned to it and solely liable for its violations under the NLRA.
On February 26, 2020, the National Labor Relations Board issued its final rule regarding the standard for determining joint employer status. The final rule overturns the standard articulated in the Board’s 2015 Browning-Ferris decision and returns to the pre-Browning-Ferris “direct control” standard. The final rule also provides greater clarity regarding the application of the standard. The purpose of the rule is to increase predictability and consistency with respect to the Board’s determination of joint employer status under the National Labor Relations Act. The final rule will go into effect on April 27, 2020.
Under the current Browning-Ferris standard, two or more entities are considered joint employers if they were both employers within the meaning of the common law, and if they shared or co-determined those matters governing the essential terms and conditions of employment. Notably, the Board considered whether an entity exercises control over terms and conditions of employment indirectly or whether it has reserved the authority to exercise such control, even if it never actually did. The controversial Browning-Ferris decision overruled 30 years of precedent with respect to the joint employer standard.
Under the final rule, an entity will be considered a joint employer under the Act only if it possesses and exercises “substantial direct and immediate control” over one or more essential terms and conditions of employment of another employer’s employees “as would warrant finding that the entity meaningfully affects matters relating to the employment relationship with those employees.” Evidence of indirect control over essential terms and conditions of employment, contractually reserved control that is never actually exercised, or control over mandatory subjects of bargaining other than essential terms and conditions of employment is probative of joint employer status only to the extent that it supplements and reinforces evidence of direct and immediate control over an essential term and condition of employment.
The regulation defines “essential terms and conditions of employment” to mean wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction. It also defines “substantial direct and immediate control” as “direct and immediate control that has a regular or continuous consequential effect on an essential term or condition of employment of another employer’s employees.” Control is not “substantial” if it is only exercised on a “sporadic, isolated, or de minimis basis.”
The regulation also provides further clarity regarding what constitutes “direct and immediate control” with respect to each essential term and condition of employment, and conversely, examples of what does not. For example, if the entity “actually determines work schedules or the work hours, including overtime, of another employer’s employees,” the entity exercises direct and immediate control over hours of work. By contrast, establishing operating hours or when the entity needs the services to be provided by another employer does not constitute exercising direct and immediate control over another employer’s employees.
A determination that an entity is a joint employer could result in the entity being subject to joint bargaining obligations and potential joint liability for unfair labor practices or breaches of collective bargaining agreements. The promulgation of this final rule is significant because it will be less likely that entities such as franchisors, staffing agencies and contractors will be considered joint employers under the Act.
Employers, of course, are responsible for paying their employees’ wages and employment taxes, as well as the employer’s portion of Social Security (FICA) taxes and federal and state unemployment (FUTA and SUTA) taxes. In fact, Internal Revenue Codes define “employer” as “the person who pays [the] wages.”
Because supplier employers usually control the payment of wages to temporary employees, the IRS regards them, and not customer employers, as the principal employer for tax purposes. However, the IRS and the courts have held that if a supplier employer defaults on its tax obligations to the government, the customer employer may be liable for taxes corresponding to temporary employees in its workforce.
Although no employer is legally required to provide benefit plans to its employees, the Employee Retirement Income Security Act (ERISA) governs employee benefit plans if they exist. The Microsoft cases from the Ninth Circuit U.S. Court of Appeals demonstrate why plan administrators should be careful about denying ERISA benefits to temporary employees. If a qualified benefit plan provides benefits to all employees, as did the Microsoft plan, temporary employees could be eligible to participate in the plan if their relationship with the customer employer satisfies the common-law test for an employer-employee relationship and under ERISA if the temporary employee works qualifying hours. This is true even if the agreement between the employee and employer provides that no employer-employee relationship is intended or created.
Under the Immigration Reform and Control Act (IRCA), an employer must complete an I-9 form for each employee attesting that it has verified the employee’s right to work. IRCA regulations make it clear that customer employers using contract services generally do not have an obligation to verify the employment status of the temporary employees assigned to it. See Immigration.
Employers often view a volunteer or intern as a win-win for the company and the individual. The volunteer or intern gains skills and substantive work experience, and the employer obtains free services. Federal and state labor agencies, however, do not hold the same view. Both the U.S. Department of Labor (DOL) and the Massachusetts Department of Labor (MA DOL) require employers to compensate all individuals who perform services at a rate no less than minimum wage except under limited circumstances. Like the employee-independent contractor determination, the employee-intern determination requires analysis.
The Fair Labor Standards Act (FLSA) defines the term “employ” broadly as to “suffer or permit to work.” Exempt and nonexempt individuals who are “suffered or permitted” to work must be compensated under the law for the services they perform for an employer. Massachusetts law applies a similarly broad definition of employment. Specifically, state law prohibits an employer from employing any person in an “occupation” at below minimum wage. “Occupation” means any industry, trade, business, branch or class of work, whether operated for profit or not, subject to limited exceptions.
Despite the breadth of these definitions, both laws recognize exceptions. The federal FLSA makes a special exception under certain circumstances for individuals who volunteer to perform services for a state or local government agency and for individuals who volunteer for humanitarian purposes for private nonprofit food banks. The DOL’s Wage and Hour Division also recognizes an exception for individuals who volunteer their time, freely and without anticipation of compensation, for religious, charitable, civic or humanitarian purposes to nonprofit organizations. Similarly, Massachusetts law includes carve-outs for individuals in “training programs” in charitable, educational or religious institutions.
Both federal and Massachusetts laws recognize some circumstances under which individuals who participate in internships or training programs may do so without compensation. The Supreme Court has held that the term “suffer or permit to work” cannot be interpreted so as to make a person whose work serves only his or her own interest an employee of another who provides aid or instruction. Thus, interns who receive training for their own educational benefit are not subject to compensation requirements.
Federal and Massachusetts laws rely on six criteria to determine whether an individual is an employee who must be compensated or a trainee who may be unpaid:
The determination of whether a program meets the exclusion depends on the facts and circumstances of the program. This exclusion from the definition of employment remains narrow. If all of the factors listed above are met, an employment relationship does not exist under the FLSA or Massachusetts law; and therefore, minimum wage and overtime provisions do not apply to the position. The most commonly discussed factors are discussed herein.
Generally speaking, the closer an internship program is to a classroom or learning experience, the more likely that the court would classify the program as an internship program eligible for “unpaid” status. To meet this criteria, an employer may want to partner with a college or university for assistance with oversight over the program and to provide interns with college credit.
If the internship simply provides an intern with a specialized skill set to perform a specific job for the employer, the mere fact that the individual is learning new skills from the experience would not eliminate this requirement that the employer pay minimum wage and overtime pay. Accordingly, to the extent that the internship provides the individual with skills that can be used in multiple employment settings, the intern would more likely be viewed as receiving training. In situations such as this, the intern is not performing the routine work of the employer on a regular and recurring basis; and the company is not dependent upon the work of the intern.
If an employer uses interns as substitutes for regular workers or to supplement its existing workforce during specific time periods, these interns should be paid at least the minimum wage and overtime compensation for hours worked more than 40 in a workweek. If the employer would have hired additional employees or required existing staff to work additional hours had the interns not performed the work, then the interns will be viewed as employees and entitled to compensation under the law.
Conversely, if the employer provides the intern with job-shadowing opportunities to learn certain functions under the supervision of regular employees, the activity is more likely to be viewed as an education experience. Keep in mind that if the intern receives the same level of supervision as the employer’s regular workforce, this fact suggests the existence of an employment relationship.
The internship should be for a set amount of time, established prior to the start of the internship. Further, unpaid internships should not be used by the employer as a trial period for individuals seeking employment at the conclusion of the internship. If an intern is placed with the employer for a trial period with the expectation that he or she will then be hired on a permanent basis, the court will consider that individual to be an employee under the FLSA
About the Editor
About the Firm
An HR audit snapshot - Massachusetts
An introduction - features of the HR Library
Background checks — Massachusetts
Benefits — Massachusetts
Celebrating in the workplace — Massachusetts
Child labor — Massachusetts
Compliance thresholds — Massachusetts
Disabilities and reasonable accommodation — Massachusetts
Disaster planning — Massachusetts
Discipline — Massachusetts
Discrimination — Massachusetts
Diversity in the workplace — Massachusetts
Drugs alcohol and tobacco — Massachusetts
Family and medical leave — Massachusetts
Federal contractors and affirmative action — Massachusetts
Health insurance continuation coverage — Massachusetts
Health insurance portability and privacy — Massachusetts
Health insurance reform — Massachusetts
Immigration — Massachusetts
Independent contractors — Massachusetts
Military leave — Massachusetts
Other types of leave — Massachusetts
Pandemic outbreaks — Massachusetts
Performance evaluations — Massachusetts
Personnel Files — Massachusetts
Plant closings and mass layoffs — Massachusetts
Policies and procedures manuals — Massachusetts
Politics in the workplace — Massachusetts
Privacy rights — Massachusetts
Protecting electronic information — Massachusetts
Public employers — Massachusetts
Recruiting and hiring — Massachusetts
Restrictive covenants and trade secrets — Massachusetts
Safety and Health — Massachusetts
Social media — Massachusetts
Telecommuting — Massachusetts
Temporary and leased employees, interns and volunteers — Massachusetts
Termination — Massachusetts
Unemployment insurance — Massachusetts
Unions — Massachusetts
Wages and hours — Massachusetts
Whistleblower protections — Massachusetts
Workers' compensation — Massachusetts
Workplace harassment — Massachusetts
Workplace investigations — Massachusetts
Workplace violence — Massachusetts