The Contingent Workforce - independent contractors or temporary workers

Internal Auditor, April, 2001 by William G. Mister, Diana M. Rose, Beverly J. Rowe, Sally K. Widener

BENEFIT LIABILITIES. Employers are not required to provide health, disability, life insurance, savings plans, or stock option plans to all of its workers. Independent contractors are generally expected to provide their own benefits, whereas temporary workers are sometimes offered benefits such as health insurance through the temporary agencies.

However, workers reclassified as employees for tax purposes may sue for past due benefits, as in the Microsoft case. Retirement and employee stock purchase plans are particularly vulnerable to lawsuits. The Employee Retirement Income Security Act (ERISA), which governs pension plans, and Section 423 of the Internal Revenue Code, which governs many stock purchase plans, determine eligibility based on the individual's common law employee status--that is, the employee's status based on court decisions and on customs and practices rather than as defined by codified written laws.

In one pending benefit liability case, Casey v. ARCO, approximately 1,000 common law employees who were mislabeled as temporary agency employees are suing for benefits that include a 401K stock bonus plan and health and dental plans. AOL Time Warner Inc. was sued by the Department of Labor for benefits denied independent contractors and temporary workers who were misclassified. The suit was settled on Nov. 17, 2000, for $5.5 million. The settlement will provide proceeds to certain temporary workers and independent contractors who provided contingent worker services for Time, Inc., from 1992 to 1997 after they sign the appropriate documentation. Under the settlement, funds are set aside for misclassified temporary workers or independent contractors with uninsured or unreimbursed medical expenses exceeding $10,000 per year that would have been covered by the medical plan provided to regular employees. The importance of this settlement is that the employer can become responsible for the medical expenses of misc lassified employees, thus creating the potential for an unlimited liability.

LABOR LAW LIABILITIES. Federal statutes provide for the worker's right to a minimum wage, the right to equal opportunity in employment, and the right to safe working conditions. Labor laws are applicable to employees only. Although none of the labor laws clearly define an employee, most apply some version of the common law test to determine a worker's eligibility for protection.

The most serious potential for liability under labor law lies with temporary workers. Although workers are employed by a temporary agency, the client to which the worker is assigned may be deemed a "joint employer." Joint employer status makes the temporary agency's client jointly and severally liable for violations of a worker's rights. Thus a firm using temporary employees contracted through a temporary agency may find itself "jointly" liable for overtime and minimum wage violations under the Fair Labor Standards Act; discrimination in the work place, which may result in back pay, compensatory, punitive and/or liquidated damages under Title VII of the Civil Rights Act; and violations of safe working environment under the Occupational Safety and Health Act.