Companies are using temporary employees more than ever before, as they provide a valuable, timely and cost-effective solution for businesses both large and small.

As this trend continues to grow, which has forced employers to take a closer look at employment law in this area, and in particular the treatment of “co-employment” that accompanies the use of a flexible workforce.

In a traditional temporary staffing arrangement, the customer is responsible for the day-to-day direction and control of the contract employee, while the staffing company is responsible for some or all other economic and employment aspects of the contract employee’s assignment.

 In its basic definition, co-employment means that an individual is employed simultaneously by more than one employer. It refers to situations where two companies maintain control over an employee’s work. This typically occurs when companies utilise temporary or contingent employees as part of their workforce.
Whether an individual is referred to as a contingent worker, non-employee, temporary employee or contract employee, the employment arrangement presents both the customer and the staffing provider with issues related to the employment of that individual.

Co-employment by itself creates no more obligations than those that exist toward individuals employed by only one company.

The concept of co-employment does not increase the risk of lawsuits any more than hiring additional employees increases that risk.

Co-employment typically does not exist unless a company exercises control and supervision over the flexible worker, which means control over the worker’s hours, tasks, etc. Where
the client company delegates the supervision and control over that worker to the
staffing company, it is unlikely that co-employment will be found to exist with respect
to that worker.

The number of hours worked within a certain time period, is a factor that might, under the right circumstances, support a conclusion that co-employment exists. If, however, the right to control and supervise the worker remains with the staffing company, rather than the client company, then co-employment does not exist and the number of hours worked by flexible workers in a given time period is irrelevant.

It can become problematic when a contract worker believes that is owed certain benefits or compensation directly from the company at whose site is providing services.  It is good practice for contract staffing providers to establish all of the paperwork associated with proper employer-employee relationships, but this may not be enough.  If that staffing provider’s customer inadvertently undermines the preexisting employer-employee relationship, courts could rule in favor of the contract employee.

What happened to Microsoft can happen to me: The key to avoiding the problems encountered by Microsoft is recognizing the need to be proactive with respect to co-employment risks. There are several things that Microsoft could have done that would have allowed that company to avoid its well-publicized liability. A very important thing that Microsoft should have done is review its employee benefit plans to ensure that flexible workers assigned to Microsoft would not be eligible for benefits under the circumstances then in place.

Had Microsoft (1) recognised how it was using flexible workers (or how it would use such workers) and (2) reviewed its benefit plans and made necessary changes to those plans, the result would have been different.


Managed Service Provider (MSPs) facilitate cooperation among temporary talent and staffing suppliers, contingent workers and clients by ensuring that the relationship is well defined and that each party complies with its obligations as in the terms of the agreement.

Managed Service Provider (MSPs) take a decidedly active stance to avert any potential co-employment issues. They segregate all temporary employee data and records from the client’s systems and records, thereby ensuring the client is protected against co-employment claims.

During training programs, they also incorporate educational seminars, allowing client managers to address co-employment, sexual harassment or other legal issues related to the use of contingent labor.

When dealing with a provider’s contract employee:

  • Train the new resource to perform job-related tasks;
  • Take immediate corrective action if the resource is violating safety rules;
  • Report any absences, tardiness or unacceptable behavior to the contract staff provider;
  • Refer all questions relative to pay, benefits, duration of assignment, or opportunity for employment to the provider;
  • Inform the provider about any changes in the resource’s work schedule; and
  • Assist the provider in evaluating its contract employees.

However, doing the following could increase the possibility of the contract employee believing that s/he is really your employee:

  • Informing a provider’s contract employee that s/he is terminated or suspended;
  • Discussing pay rates, increases, incentives or bonuses;
  • Improperly discussing opportunities for regular full-time employment;
  • Improperly extending an offer for employment;
  • Requesting that a contract employee complete timecards or forms with your company’s name on them;
  • Counseling contract employees concerning tardiness, punctuality, attendance, dress code, child- or elder-care arrangements or other personal matters;
  • Inviting contract employees to company-sponsored events, such as picnics, holiday parties, etc.; or
  • Otherwise treating providers’ contract employees as if they were direct employees of your company.

Here are a few of the standard risk mitigation practices MSPs promote:

  • Creating layers between contingent workers and client managers through staffing suppliers and a Managed Service Provider (MSP).
  • Involving the contingent worker’s staffing supplier in the employee’s management.
  • Creating and enforcing term limits to prevent temporary talent from working beyond a fixed number of months consecutively without tenure breaks.
  • Ensuring that all job-related feedback, performance issues, harassment or discrimination concerns are handled by the MSP and staffing suppliers directly.
  • Coordinating end-of-assignment processes or extensions.
  • Facilitating time-off and vacation requests with staffing suppliers.

When co-employment relationships are poorly coordinated, clients may find themselves faced with employment related liabilities.

Employees expect to address workplace issues or complaints with their employer. The confusion occurs when temporary workers mistake the client for their employer instead of the staffing agency.

By assuming too many managerial responsibilities, clients unwittingly obligate themselves to respond as the employers in charge of the relationship. In a well-managed MSP arrangement, clients take on only specifically outlined and imperative responsibilities while avoiding those that the staffing vendor should accommodate.

This maximises the staffing supplier’s accountability for the majority of the employer duties, responsibilities and obligations while minimising the client’s direct involvement and subsequent exposure to risk.

The way to avoid the pitfalls of co-employment is to partner with an experienced staffing solutions provider that has established policies and procedures in place to ensure compliance with employment laws.

An experienced MSP can help ensure co-employment issues don’t arise in any contingent worker-client company relationships by:

  • Controlling and managing the entire economic relationship with contingent workers including sourcing and recruiting, compensation and benefits.
  • Controlling all communications regarding duration of employment and termination.
  • Using account representatives to foster communication and promptly handle all employment-related issues between the client and the contingent workforce.

In addition:

• establishes and maintains the employer relationship with its staffing employees and acts to the fullest extent possible in the supervisory role with respect to those staffing employees;
• solidifies the control and supervision of staffing employees, thereby insulating clients from those functions;
• Advises clients on co-employment risks and pitfalls, including training of client personnel;
• Assumes workers’ compensation liability for all employees injured during the course of their assignment;
• Offers a benefits program that is far above the industry average to help reinforce the view that staffing employees should look to the MSP for employment opportunities and associated benefits;
• Maintains that it is the true employer in any governmental investigation.

Other mitigating measures:

  • Review all staffing agreements to avoid liabilities.
  • Require contract workers to sign contracts and waivers identifying themselves as employees of the staffing firm and waiving claims to benefits and other compensation.
  • Write benefit plans that specifically exclude contract and contingent workers.
  • Allow the staffing firm to control certain tasks of the temporary employees such as the hiring process, the setting of pay rates, any disciplinary actions and performance evaluations.
  • Minimise contact with staffing firm employees and consider having the staffing firm provide onsite supervision of the contingent workforce.

The bottom line is that the use of flexible workers through a staffing company that steps in as the supervisor of its flexible employees and acts as a buffer for its client is an effective way to control the risks of co-employment.

Finally, because these are important legal matters, seek expert advice to ensure that you are not exposing yourself to potentially costly liability.