Temps and The Law

Dec. 21, 2004
Benefits, trade-secret issues trip up employers.

Any company that uses temps -- whether they are day laborers or an interim CEO -- needs to be aware of the legal issues surrounding this growing class of workers. If you think that you're off the hook for compliance with government regulations, or you're using temps as a way to avoid paying taxes and benefits, there's one word to remember -- Microsoft. The Redmond, Wash.-based company's landmark case sent shock waves through the business world. The software giant used thousands of freelancers who signed contracts saying they knew they wouldn't get benefits. But because Microsoft used them long-term, in the same capacity as employees, the IRS said that for tax purposes the workers were considered employees. Then the contractors wanted to participate in the company's stock purchase plan and 401(k) matching contribution plan. They were turned down, but they sued and eventually won. And while Microsoft continues to explore legal maneuvers and likely has the deep pockets to eat the back taxes and penalties, thousands of other companies may be in the same boat without such a nicely appointed paddle. A 1997 article in Employment Relations Today noted that the IRS estimates that one in seven employers in the U.S. misclassifies workers for tax purposes. "There is almost an endless list of issues," says Art Silbergeld, a labor attorney with the Los Angeles office of Proskauer Rose LLP. "There are common law applications, statutory applications, intellectual property issues -- especially important in managerial-level temporaries." Trade secrets have become an issue because a temp has "a dual loyalty coming in and doesn't have the depth of commitment to the job," Silbergeld says. You can address the issue by having temps who are working in such areas as product-development sign a trade-secrets agreement. While you're at it, include a line that says they won't use information they acquired at a competitor in doing work at your company. You also need to be aware that antidiscrimination and workers' comp laws cover your temps. "Employers think that merely because temp employees aren't their employees, some rules don't apply. That's not the case," says Bob Neiman, a partner in the Chicago law firm of Holleb & Coff. Workers' comp issues have created confusion, he says, because there are questions as to which employer is controlling the workplace. Make sure your contract with the temp agency addresses workers' comp situations, and that you provide the same safety instructions and necessary safety gear to the temps as to your regular employees. The other major issue is discrimination. You're allowed to say, "Send me five people who can lift 50 pounds all day." You're not allowed to ask for five young men. "If I were to offer advice to [companies] hiring temps, it would be, to a large degree, to treat the employees as if they were your own," Neiman says, "not in terms of benefits and payroll but in terms of safety and discrimination." Also, remember that with the nation's low unemployment rate, temp firms are having the same kinds of problems finding workers that you have. Make sure the agency has a screening process, and that it is sending you workers who are qualified for the jobs you need done. "It's important for employers to establish minimum standards for employees they'll accept," Neiman says. "Frequently these are relatively unskilled jobs, but you can't let desperation for employees get in the way of reasonable business judgment. Some employers are willing to take risks by violating laws they know are out there. They have to go into it with their eyes wide open, knowing what the penalties can be. A tight labor market isn't an excuse."

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