As U.S. employers know, workers’ compensation insurance is a requirement that can be a large expense for any business. When exploring ways to manage this and other rising employer costs, companies must ensure that the solutions they choose do not leave them exposed to unwanted liability.

Increasingly, staffing companies and their clients are finding themselves involved in lawsuits due to the use of cost-effective, yet tenuous arrangements with third party employers of their temporary and project-based contingent workers.

There have been several legal cases filed over the past couple of weeks that raise questions as to who is ultimately liable when a third party employs temporary workers recruited by staffing companies.

Last month, the Texas Supreme Court held that, under Texas law, an employer's workers' compensation policy cannot cover some employees but not others – meaning that temporary workers must be covered by the worker’s compensation insurance of the client if a co-employment status exists between the client, the staffing company and the employee.

In another case, the State of California ordered the California Self-Insurers’ Security Fund to assume workers’ compensation liabilities for hundreds of injured California temporary workers.

The workers were employed by a third party that became insolvent and thus defaulted on its legal obligations to pay the injured workers. Part of the third party employer’s business model included selling its self-insurance coverage directly to staffing companies who in turn contracted with, and delivered temporary staffing services to their clients.

Unsurprisingly, the Fund began a lawsuit to recoup its losses from the insolvent third party employer. However, they ALSO brought a lawsuit against the third party’s clients (including the staffing companies and THEIR clients) – alleging that the companies that acquired insurance from the third party did so in an attempt to avoid their statutory obligation to purchase workers’ compensation insurance for their employees.

The Fund also claims that the third party was a co-employer of the injured workers, due to the fact that their clients (the staffing companies and their clients) actually directed the workers on a day to day basis. Because of this, the California Labor Code and common law considers the companies involved as joint employers of the injured workers - despite the agreement those companies had with the third party.

Although the companies involved probably entered into the arrangement with the third party in good faith, the case is a reminder of the obvious – staffing companies must ensure that they or a third party employer of the workers they recruit is financially stable and that they are employing the workers in compliance with the Labor Code and common law.

Additionally, client companies need to be proactive and become familiar with their staffing vendor’s employment status and compliance practices - they should know if their staffing vendors are utilizing third party employers. Regardless of negotiated agreements between these companies, including third party employers, all may be responsible.

Emergent’s family of companies have been in business for more than thirty years servicing the Fortune 500 and small businesses alike. Emergent is committed to compliantly and cost-effectively employing temporary and project-based workers recruited by staffing and client companies.

To find out how we can help your business lower its costs, call us today at 855.250.5000.



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