Temporary Employee Liability: Is It Really YOUR Job To Provide Workers’ Compensation?

In most states, the issue of who is responsible for workers’ compensation coverage is addressed by common law. According to the “dual employer” doctrine, loaned, leased, or temporary workers are usually considered employees of both the labor service and the client company. If a worker is injured, workers’ compensation coverage can be provided by either party (the temporary service or the client company), depending on their contractual agreement in compliance with state law.1

Rising Use of Temporary Employees:
In today’s business environment of re-engineering, downsizing, and organizational change, the use of temporary employees is becoming quite common. Employers attempt to fill needs that result from staff shortages or peak seasons by hiring through temporary employment agencies. Employers also use temporary employees in an attempt to free themselves from the responsibility and costs of providing workers’ compensation and fringe benefits. However, depending on the jurisdiction, this is not always the case. Employers who fail to verify that the employment agencies have workers’ compensation coverage, or have it in adequate limits, can expose themselves to tort liability for the temporary employees under their supervision.

Who Provides Compensation for Temporary Employees?
Under exclusive remedy, both the client employer and the temporary agency are protected against tort action by the injured worker. In some states, an injured worker can sue beyond the benefits obtained from the workers’ compensation system. In these situations, specific indemnification clauses within the contract between the temporary agency and the client employer:
• Protect an employer from this risk; and
• Depend on the ability of the temporary agency to pay the indemnification.

In other states, client employers cannot escape the strict application of common law since they control the work environment and are held directly responsible for the safety of all workers under their control. One recourse in these states is for the client company to verify that the temporary agency has a temporary service contractor or alternate employer endorsement on its workers’ compensation policy. This allows the temporary agency to indemnify the client employer, through its workers’ compensation carrier, for any workplace injuries for which they are held liable.

Full Safety Training for Temporary Employees
The best possible way for every party to reduce the potential for worker’s compensation responsibility is to reduce the likelihood of workplace accidents. The temporary agency should inspect a potential client’s workplace to determine if their employees will be put at unusual risk. Similarly, the client employer should take “ownership” of temporary employees. Temporary employees should receive the same safety training as full-time workers. Supervisors should be made aware of the potential liabilities and the need to ensure the safety of temporary workers.
Organizations that use temporary employment agencies should realize they could share responsibility if a temporary employee is injured on the job. As part of sound risk management, they should also require their temporary agency to show proof of workers’ compensation coverage and general liability insurance.

David Stephenson, legislative analyst for the National Federation of Independent Business, said, “The onus should fall mostly on the temp agency to carry comp insurance for its workers, but the NFIB recommends all employers carry comp coverage, even those smaller ones exempted by state law.”2

Benefits vs. Cost
Retention, control and the right to hire and fire are considered significant indicators of employer status. When assessing if expense savings are being realized, it’s worth noting that temporary employment agencies adjust the hourly rate depending on job hazards — just as workers’ compensation rates are adjusted depending on the hazard code. Is the additional liability worth the perceived cost savings when using temporary employees? In the short term, the answer may be yes. Over the long term, it’s smart to analyze the true benefits and costs along with the potential for loss.

References:
1. Donald Elisburg, Attorney & Union Co-chairman, American
Bar Association’s Occupational Safety and Health Law Committee.
2. “Employers Need to Be More Cautious When Hiring Outside
Help, Experts Say.” BNA Workers’ Compensation Report, 5(22):
685-687, October 24, 1994.