For decades, staffing agencies have served as strategic partners for businesses of all shapes and sizes, offering myriad advantages beyond sourcing qualified talent — chief among them being liability. When working with a staffing agency, an organization doesn’t actually hire the worker. The agency does, and that employment status decreases potential liabilities for those organizations utilizing contract staffing services.
However, a 2023 National Labor Relations Board (NLRB) joint-employer rule has put some of this into question, as it expands the definition of the joint-employer relationship and creates new employer obligations where only indirect control exists. This increases the liability risk for businesses relying on third-party workers while conversely providing staffing agencies and employers of record with another party to share the burden of liability across seven key areas. These areas include:
- Control of wages, benefits, and other compensation.
- Hours of work and scheduling.
- The assignment of duties to be performed.
- The supervision of the performance of duties.
- Work rules and directions governing the manner, means, and methods of the fulfillment of duties and the grounds for discipline.
- The tenure of employment, including hiring and discharge.
- The working conditions related to employee health and safety.
Exerting indirect control over just one area may create a joint-employment arrangement, which can lead to new risks.
Risk Mitigation With the New NLRB Joint-Employer Standard
With changes to the NLRB joint-employer standard, mitigating the joint-employer risk will inevitably become a critical component of the business relationship. But the onus will be on the parties involved not only to refamiliarize themselves with the National Labor Relations Board rules and regulations, but also to go through the necessary due diligence to ensure they’re protected.
For staffing agencies and EORs, this means reviewing and revising contracts in relation to the specification of workers’ duties. Clients will be more likely to push back on what had once been standard terms, all in an attempt to avoid a joint-employment arrangement. Make sure contracts are written even more clearly than before to establish the responsibility of duties, particularly those within the key areas noted above.
For companies utilizing contract staffing services, this also means greater scrutiny of contractual agreements. Pay close attention to any implications of a joint-employment arrangement, such as clauses, terms, or even language that preserves or reserves direct or indirect control over any of the key areas. Eliminating such clauses or terms where unnecessary limits liability exposure. More importantly, including indemnity provisions in the contract can provide some level of protection between parties for potential liabilities caused by the other.
Managing Contract Workers Under the NLRB Joint-Employer Rule
Time will tell whether the changes to the NLRB joint-employer standards will have a positive effect on the employer-contractor relationship. Many companies took a hands-off approach with third-party workers out of concern of triggering a joint-employment arrangement. If the chances are good that it’s already defined as one, then the active participation could lead to higher employee engagement and fewer potential problems throughout the term of the contract.
For those companies still looking to maintain a separation, more will need to be done, apart from contract revisions, to avoid the appearance of a joint-employment arrangement established by the broadened NLRB joint-employer rule. Much of it will involve the management of third-party workers. Here are a few approaches to consider:
Reevaluate operational controls.
Everything from setting specific staffing levels and work schedules to establishing guidelines for contract employee behavior, dress code, or training requirements can be seen as exerting indirect control. The same can be said for the use of technology to assign tasks, monitor performance, or rate workers. You’re basically setting standards around employment conditions, and that may be seen as a joint-employment arrangement. Take a step back from these specifics to avoid any confusion around employer status.
Set parameters for the leadership team.
How managers, executives, and other members of the leadership team interact with third-party workers will determine whether a company is seen as a co-employer — or even an employer. Additional training for the leadership team may be necessary to ensure all of its members grasp how to communicate with third-party workers and implement policies within the bounds of the relationship. Certain actions can be seen as exerting control.
Choose partners wisely.
The risk of liability for labor law violations has grown with the broader NLRB joint-employer standard, and that risk includes unfair labor practices of your staffing agency partner should your business be seen as a co-employer of contractors. Closely review and monitor the actions, labor practices, and compliance of any partner used to source third-party workers. In fact, your business could be seen as a co-employer during labor disputes and may end up negotiating directly with workers should union organizing or collective bargaining efforts occur.
Implement new workforce planning strategies.
Contract workers have become a vital component of business success, as they offer a great deal of flexibility, expertise, and cost savings. However, the new NLRB joint-employer standard may require a change in how businesses engage with staffing agencies and third-party workers to limit the risk of appearing as a co-employer.
The long-term implications of the new NLRB joint-employer rule may result in a move away from the use of contingent labor because some of the benefits of not being considered the “official” employer are now eliminated. That’s unfortunate, as contractors provide so much for organizations. It’s up to the industry to reform how relationships, both interpersonal and contractual, are approached in this new risk-sharing scenario to ensure such a vital resource doesn’t go underutilized.
To learn more about engaging the right workforce partner relationship for the success of your business, Contact IES today for a complimentary consultation.
Written by: David Israel, Corporate Counsel for IES
David Israel is Corporate Counsel for Innovative Employee Solutions (IES), a leading provider of remote and contingent workforce solutions specializing in U.S. and global Employer of Record, Agent of Record, and Independent Contractor compliance services in 150+ countries. Founded in 1974, IES is a woman-owned business, certified by the WBENC, and partners with companies to provide compliant employment solutions that empower people’s lives.
