Labor and Employment Bulletin - May 1, 1999

Labor and Employment Bulletin - May 1, 1999



The Contingent Workforce: Employer Expectations And Legal Realities

It has become common in the high technology industry or other industries for employers to rely upon the so-called "contingent workforce". The "contingent workforce" provides a convenient mechanism for employers to fill technical and/or essential personnel needs quickly, while not (they assume) increasing the ranks of the regular employee population or placing themselves at legal risk under employment laws. In using the "contingent workforce", however, employers may find themselves immersed in very complicated legal issues. Such issues arise most often, although not exclusively, when an employer utilizes "contingent workers" to provide services which are in substance identical to those services provided by the employer's regular, full-time employees, or when such workers are not properly excluded from employee benefit plans.

"Contingent workers" are usually thought to fall into four separate categories. The first is the "agency temporary" employee. These are employees hired by a temporary placement agency, and are then assigned to work on a temporary basis at client companies. The second category is the "payroll temporary" employee. Such temporary employees are actually hired by an employer, and perform services on payroll as an employee. The third category of contingent worker is the "leased" employee. While resembling agency temporary employees, leased employees hired through an employee leasing company often perform a specific departmental function for the client company. The final category of contingent worker is independent contractor, often referred to as a "consultant". These individuals are typically workers who are engaged to perform specialized tasks, requiring skill, discretion and independent judgment.

Two recent cases that have been litigated in the federal courts have focused many observers on the contingent workforce, and highlight some legal issues which may arise from the use of contingent workers. The first, Vizcaino v. Microsoft Corp., was a lawsuit initiated by contingent workers who worked for Microsoft from 1987 through 1990. While working for Microsoft, these individuals had been classified by Microsoft as "independent contractors" or "free-lancers". The contingent workers were paid through Microsoft's accounting department, and were not on Microsoft's payroll. They worked side-by-side with regular Microsoft employees, however, and were thoroughly integrated into the workforce. After years of litigation, a federal court of appeals found that the Microsoft contingent workers were, in essence, employees, and should have been permitted by Microsoft to participate in certain of Microsoft's employee benefit plans. The case continues to be litigated as the courts grapple with how to provide appropriate remedies for the former contingent workers. Most recently, for example, the same court of appeals ruled that the contingent workers, however they were technically "classified" by Microsoft, should have been permitted to participate in Microsoft's stock purchase plan. The second case is Herman v. Time-Warner . The Herman case, which has only been pending since late October, 1998, is significant because it represents the first time that the federal government has taken action in the contingent worker area. The issues presented in the Herman case are similar to those presented in Vizcaino . In Herman, the Department of Labor has sued Time-Warner, various subsidiaries and various employee benefits plans maintained by those corporations. The complaint alleges that Time-Warner and its subsidiaries misclassified workers as either "temporary employees" or "independent contractors" in order to prevent them from participating in certain employee benefit plans. The Department of Labor seeks injunctive relief against Time-Warner and its subsidiaries, and the appointment of an independent fiduciary to identify misclassified workers and the plans in which they should be able to participate.

In addition to misclassification problems creating employee benefit issues, employers who utilize contingent workers often do not recognize that they may face liability under "joint employer" liability. Under the joint employer theory, the employee leasing company or temporary agency is found to be an employer of the contingent worker, but the employer for whom services are performed is considered a second, "joint" employer, and is therefore also liable for any employment-related issues. For example, if a contingent worker's employment is terminated, both the temporary agency and the client company may be held liable under the discrimination laws. Joint employer liability is imposed on employers utilizing contingent workers because, in most cases, the client company is responsible for supervising, controlling, disciplining and delegating work to the contingent worker. As a result, the client company is found to be tantamount to the contingent worker's actual employer, even if the temporary agency or leasing company is paying the worker in question and providing the worker with employee benefits.

On a more technical note, the use of contingent workers may have implications for companies under both the Internal Revenue Code and under Massachusetts workers' compensation law. Under the Internal Revenue Code, for example, a specific definition is created for "leased" employees. To be a "leased employee," three requirements must be met: (1) the individual must provide services under an agreement between a leasing company and a contracting employer, (2) such services must be performed on a substantially full-time basis for more than a year, and (3) such services are of a type historically performed by the contracting employer's employees. The requirement that the contingent worker perform services for more than a year can obviously blur the distinction between a so-called "temporary" employee and a "leased" employee, as defined by the Code. The "leased employee" definition is significant for employee benefit purposes because the Code requires that "leased employees" be included by employers for formulaic coverage and non-discrimination testing.

In the workers' compensation area, Massachusetts workers' compensation law creates a statutory differentiation between leasing companies and temporary agencies on the one hand, and contracting employers on the other. The statute provides that, unless the parties contract otherwise, workers' compensation coverage (and, therefore, protection from lawsuits) remains with the temporary agency or leasing company. As a result, unless the client company specifically agrees with a leasing company or temporary agency, an employer will not be able to cover a temporary employee or leased employee under its workers' compensation policy, and gain the protection of the workers' compensation ban from lawsuits.

Fortunately, there are affirmative steps companies can take to avoid, or at least minimize, potential liability for the use of contingent workers. In the independent contractor area, employers should scrutinize their use of independent contractors and insist that any independent contractor relationship be documented by a standard independent or consulting agreement between the individual in question and the company. Because companies do not withhold taxes from sums paid to independent contractors or make statutory (e.g., FICA) payments on their behalf, substantial tax issues can arise if independent contractors have been misclassified. Once the relationship begins, the company should monitor the relationship to ensure that both company management and the independent contractor are acting appropriately. So, for example, the company should ensure that the independent contractor is working for a limited duration, is not being controlled by the company's managers in the performance of his or her duties, and that the contractor has continued to engage in an independent business from those services performed for the company.

In its relationships with temporary agencies or leasing companies, an employer should ensure that there is a written agreement in place between the agency or leasing company. Such agreements should provide, at a minimum, adequate protection (for example, a broad indemnification and insurance obligation on the part of the agency) for joint employer liability issues.

Finally, companies should conduct internal evaluation of their own practices and documents. To begin with, companies should review the classifications in which they place workers, review all employee benefit plan documents, and employee benefit plan procedures (e.g., the claims procedure under any ERISA-qualified plan) and, as stated above, all independent contractor agreements.

While the foregoing steps will not completely insulate any corporate employer from potential liability, taking the measures outlined above will certainly minimize potential risk in this quickly-developing area of the "contingent workforce".

New EEOC Policy Guidance on Reasonable Accommodation Under the ADA

On March 1, 1999, the EEOC issued a 70 page guidance on reasonable accommodation under the Americans with Disabilities Act (ADA), providing the most in-depth interpretation of the Act by the EEOC since the ADA was promulgated in 1990. Although the Commission's policy guidance lacks the force of law, it is accorded deference by the federal courts in interpreting the ADA.

The Americans with Disabilities Act requires that an employer provide qualified employees or applicants with disabilities with reasonable accommodations, provided that such accommodation will not cause the employer undue hardship. The new policy guidance interprets what "reasonable accommodation" and "undue hardship" actually mean, utilizing a question-and-answer format, as well as examples.

Reasonable Accommodation Under the ADA

Although the 70 page guidance document contains dozens of detailed explanations and examples, we have attempted to compile an overview consisting of those points most pertinent.

Requesting reasonable accommodation:

No "magic words" are necessary. An individual may make a request for reasonable accommodation either by mentioning the ADA and using the phrase "reasonable accommodation", or by simply letting an employer know that an adjustment or change at work is needed due to a disability or medical condition.

The identity of the person making the request is basically irrelevant, and does not necessarily have to be made by the employee in question. A request for reasonable accommodation may be made by a family member, friend, health professional, or other representative.

Timing of a request for reasonable accommodation. A request for reasonable accommodation may be made at any time during the application process or during the period of employment, i.e., an employee is never precluded from making a request for accommodation simply because he or she did not make it at an earlier time.

Employer's response to a request. The guidance states that an employer shall "engage in an informal process" with the individual, to determine what accommodation is reasonable. Where the disability is not apparent, this process can involve questions posed by the employer. Although the individual need not specify a precise accommodation, he or she must identify the problems in the work place. Likewise, if an employee does suggest a specific accommodation, an employer is not automatically obligated to provide that exact accommodation. Instead, as long as the reasonable accommodation is "effective" (i.e., removes workplace barriers to equal opportunity to apply for or perform essential functions of a position, or to enjoy benefits or privileges of employment), the employer may choose among reasonable accommodations.

Employers should note that, according to the guidance, unnecessary delay in the provision of reasonable accommodation can itself constitute a violation of the ADA.

Requests for documentation. If the disability is not obvious, an employer may ask for documentation and should specify what information is needed, and that it be furnished by an appropriate health care professional. Requests for documentation are limited to information necessary to determine the existence of, and reasonable accommodation for, a disability.

An employer is not barred by the ADA from requiring that an individual be examined by a health care professional of the employer's choosing. However, this is only appropriate where the disability is not obvious, and where the individual has provided insufficient information from his or her own health care provider. Before an employer makes the request, it should explain to the individual why the information supplied by the individual's health care provider was insufficient, and allow an opportunity to supplement. If an examination is made by a health care professional of the employer's choosing, it must be limited to determining the existence of a disability, and the functional limitations requiring reasonable accommodation.

Reasonable accommodation and job applicants:

Employer inquiry. An employer may ask an applicant if he or she needs a reasonable accommodation for the application process.

An employer may not ask an applicant during the hiring process, before a conditional offer is extended, whether accommodation is needed for specific job functions, unless the applicant has an obvious disability or has disclosed a disability.

An employer may inquire whether applicants will need reasonable accommodation related to anything connected with the job, after a conditional offer of employment is extended, as long as all entering employees in the same job category are asked the same question, or the applicant has an obvious disability or has disclosed a disability.

Provision of reasonable accommodation. An employer must provide a job applicant with reasonable accommodation in the hiring process, even if the employer believes that it would be unable to provide the individual with reasonable accommodation on the job.

The need for accommodation in the application process should be assessed separately from the need for accommodations necessary to perform the job.

Reasonable accommodation related to the benefits and privileges of employment:

Benefits and privileges. Reasonable accommodations must be provided so that employees with disabilities can enjoy the benefits and privileges of employment equal to those enjoyed by similarly situated employees without disabilities.

Benefits and privileges include: training, services (e.g., employee assistance programs, credit unions, cafeterias, lounges, gymnasiums, auditoriums, transportation), and parties or other social functions.

Employers must ensure that employees with disabilities have access to all information provided to similarly situated employees without disabilities, including information conveyed through computers, bulletin boards, mailboxes, posters, and public address systems, regardless of whether the information is needed to perform their job.

Types of reasonable accommodation:

Job restructuring. Note that, if an employer restructures an employee's job as a reasonable accommodation, eliminating some marginal functions, the employer may require the employee to assume other marginal functions that he/she can perform.

Leave. Leave is a form of reasonable accommodation, although paid leave need not be provided beyond that which is provided to similarly situated employees without disabilities.

Leave may be a reasonable accommodation where needed to obtain treatment, recuperate from treatment or illness, obtain repairs on equipment related to a disability (such as a wheelchair or prosthetic device), or other activities related to the disability.

A no-fault leave policy may not be applied to an employee with a disability who needs leave beyond the set period.

An employer must hold open an employee's job as a part of the reasonable accommodation, unless undue hardship is shown.1

Where leave is requested as an accommodation, an employer may, as with other requests for accommodation, provide an effective alternative accommodation, allowing the employee to remain on the job.

Interplay between the FMLA and the ADA. Leave granted to an employee can be both a reasonable accommodation and FMLA leave. If leave beyond the 12 weeks required by the FMLA leave is necessary, the leave continues as a reasonable accommodation, unless the employer can show undue hardship.

Return to work is treated differently under the ADA and the FMLA. Under the ADA, an employee must be returned to the identical position, unless undue hardship is shown, or the employee is no longer qualified (with or without accommodation). Under the FMLA, return to an equivalent position is permitted. Therefore, where an employee is both ADA and FMLA protected, generally an employee returning from leave must be restored to the same position held before the leave.

Requests for modified schedules may also cause an overlap between the FMLA and the ADA. Under the ADA, such a request must be granted absent undue hardship. Under the FMLA, intermittent leave must be granted until the 12 week leave entitlement is exhausted. Therefore, an employee who is both ADA and FMLA protected must be granted intermittent leave, even if the leave considered under the ADA alone could be denied due to undue hardship.

Modification of workplace policies. Although modification of a workplace policy may be a reasonable accommodation, the policy itself can continue in effect as to all other employees.

Reassignment. Although reassignment can be a reasonable accommodation, an employer need only reassign if the employee is qualified (satisfies the job related requirements of the position and can perform the essential functions of the new position, with or without reasonable accommodation). An employer is under no obligation to assist an employee in becoming qualified in any way when such assistance is not offered to similarly situated employees without disabilities.

Reassignment can be a reasonable accommodation for both non-probationary and probationary employees.

An employer is under no obligation to bum an employee from a job in order to create a vacant position, nor does it have to create a new position. If the requested reassignment is a promotion, an employee must still compete for it. (If the reassignment is not a promotion, the employee requesting a position as a reasonable accommodation should be given the vacant position without competing for it.)

Undue Hardship

Determination of undue hardship. An employer seeking to avoid providing a reasonable accommodation due to undue hardship must present more than a generalized conclusion.

A finding of undue hardship should be made based on several factors, including:

  • the nature and cost of the accommodation needed
  • the overall financial resources of the facility making the reasonable accommodation; the number of persons employed at this facility; the effect on expenses and resources of the facility;
  • the overall financial resources, size, number of employees, and type and location of facilities of the employer (if the facility involved in the reasonable accommodation is part of a larger entity);
  • the type of operation of the employer, including the structure and functions of the work force, the geographic separateness, and the administrative or fiscal relationship of the facility involved in making the accommodation to the employer;
  • the impact of the accommodation on the operation of the facility.

Undue hardship can be shown where a reasonable accommodation to one employee will result in disruption of other employees' ability to work.

If a modification of an employee's hours of work as a reasonable accommodation would prevent other employees from performing their jobs, an employer can show undue hardship.

Although an employer may be able to show undue hardship where an employee requesting leave as a reasonable accommodation cannot provide a date of return, such a showing cannot be made where an approximate date of return is given. The employer can, in this situation, request updates on the approximate date of return.

An employer cannot establish that a reasonable accommodation creates undue hardship solely on the grounds that it violates a collective bargaining agreement. The employer has the duty to negotiate in good faith for a variance and union also has the same obligation under the ADA.


1 All accommodations discussed are subject to the undue hardship limitation described elsewhere in this article