7 Legal Considerations When Using Temporary Staffing Apps
By Kevin D. Zwetsch January 10, 2019
Apps with names like Tilr and Shiftgig use algorithms to match people to positions, supporting an on-demand staffing model akin to that used by ride-sharing apps to connect passengers with drivers. But regardless of the staffing model used, employers need to ensure compliance with myriad employment laws.
Traditionally, employers with temporary staffing needs have used outside staffing companies or professional employer organizations (PEOs) to provide temporary employees under negotiated staffing agreements. Typically, these staffing businesses must operate under state statutory and regulatory schemes. Because PEOs or staffing companies may be a co-employer or joint employer with the employer it serves, they must comply with applicable local, state and federal employment laws and maintain any necessary documentation required by those laws. The same compliance considerations apply if a temporary worker is retained through an app-based matching process.
As new gig economy options to engage employees emerge, here are seven areas of concern that employers may want to consider.
1. Employee Versus Independent Contractor?
This question often looms when an employer classifies workers as independent contractors. If the individual is an employee rather than a contractor, the employer has certain obligations (including withholding taxes, which are covered below). Even if both parties agree to the characterization, it may not be legally valid under federal wage and hour laws. Misclassifying employees as contractors or vice versa can have serious consequences for employers and individual managers.
If a temporary worker is an employee, the employer must withhold federal, state and local taxes; Federal Insurance Contributions Act (FICA) taxes; Federal Unemployment Tax Act (FUTA)/state unemployment tax acts (SUTA) taxes; and more. If the individual is misclassified as an independent contractor, potential corporate and individual liability exists. Which company is required to withhold taxes if a matching algorithm assigns the worker to a project? What happens if neither company withholds taxes and the Internal Revenue Service shows up?
3. Workers' Compensation
State laws vary, but most states have strict rules requiring employers to provide workers' compensation coverage. While some app-based temporary staffing models may suggest that workers' compensation coverage is provided, it might be helpful to verify coverage. The fact that a hiring employer provides workers' compensation benefits may appear to be an admission that the temporary worker is an employee of the business. Independent contractors are typically not covered by workers' compensation.
Some states and localities have special requirements and notice obligations with respect to temporary employees. Employers are required under the Fair Labor Standards Act and some state laws to record the time that nonexempt temporary employees have worked. In addition, if temporary employees sustain injuries, employers may need to record these injuries on their required Occupational Safety and Health Administration recordkeeping forms.
The traditional staffing model may offer some indemnification protection within the agreement between an employer and temporary staffing provider. In the absence of a contract with an app-based service, however, indemnification protection may not be available. Employers may want to seek clarification with regard to which entity will perform the background checks on temporary employees. Is the process compliant with the Fair Credit Reporting Act? Are all temporary employees subject to the employer's drug-free workplace policy? Does the employer maintain government contracts requiring employee drug testing?
Many jurisdictions require employers to provide anti-harassment training to employees and make proof of training available. Employers may want to ensure that temporary employees have access to the operative anti-harassment policy that applies to them. In the traditional model, the staffing company/PEO or hiring employer may provide the policy and employee handbook.
7. Trade Secrets and Confidential Information
Temporary employees can take trade secrets and confidential information, even if they work just one day. Employers may thus want to require temporary employees to sign written agreements prohibiting the use and disclosure of trade secrets and other proprietary information. If an employer complies with the federal Defend Trade Secrets Act, it may be able to enforce its agreement in federal court.