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LEADING PRACTICES PROFILES SERIES

Contingent Workforces: Company and

Legal Department Leading Practices for

Managing Risk and Ensuring

Compliance

Contingent Workforces: Company and Legal Department Leading Practices for Managing Risk and Ensuring Compliance

Copyright © 2015 Association of Corporate Counsel

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Contingent Workforces: Company and Legal

Department Leading Practices for Managing

Risk and Ensuring Compliance

September 2015

Provided by the Association of Corporate Counsel 1025 Connecticut Avenue, NW, Suite 200 Washington, DC 20036 USA tel +1 202.293.4103 fax +1 202.293.4107 www.acc.com

This Leading Practices Profile presents themes, trends and leading contingent worker practices of

six legal departments, a professional association and one law firm in managing contingent

workforces and mitigating risks associated with these types of workforces.

The information in this Leading Practices Profile (“LPP”) should not be construed as legal advice or

legal opinion on specific facts, and should not be considered representative of the views of ACC,

unless so stated. Further, this LPP is not intended as a definitive statement on the subject; rather, it

is intended to serve as a tool for readers, providing practical, benchmarking information to the in-

house practitioner.

Tricia Batson, J.D., Legal Consultant for ACC, interviewed the featured participants and authored

this Leading Practices Profile.

For more information about ACC please visit our website at www.acc.com.

http://www.acc.com/



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OVERVIEW

September 2015

The Association of Corporate Counsel is pleased to present this Leading Practices Profile, Contingent

Workforces: Company and Legal Department Leading Practices for Managing Risk and Ensuring Compliance.

Over the past several years, ACC has provided webcasts, Docket articles, program materials and resources

highlighting legal issues surrounding the use of certain types of contingent workers.

As technology and the changing structure of work fuel the growth of the contingent labor sector, this topic

is one that regulators, industry and human resources find themselves grappling with across the globe.

Countless articles and blogs have been written about the risks, trends, and impact this type of workforce

has on society, the labor force and the global economy. In addition, governments and regulators have been

assessing the impact of this growing workforce on the economy and devising ways to maintain the benefits

and trends of more flexible working arrangements while still maintaining equality among the workers.

In the last few months, the topic of contingent workers has been at the forefront of legal news in the United

States. In June 2015, the California Labor Commission ruled that a driver for Uber Technologies, Inc. is an

employee and not an independent contractor.1 Within the past year, also in California, Uber drivers filed a

class action suit against the company demanding recognition as employees.2 Additionally, the US

Department of Labor recently issued an interpretation closing the gap between independent contractors

and employees. In response to these headlines, some legislators, including Virginia’s Senator Mark Warner,

are pushing for new policies that better reflect the 21st century workforce, an alternative they find

preferable to leaving classification entirely up to the courts.

In this Leading Practices Profile, ACC explores practices helpful in evaluating and managing a contingent

workforce. To present complete and diverse viewpoints, we profile the thoughts and experiences of five

corporate legal departments, two private attorneys contracted as in-house counsel for a US subsidiary, one

law firm, and one counsel for a trade organization for staffing firms. Collectively, these individuals

represent the following featured organizations:

Littler Mendelson P.C.

American Staffing Association

Monsanto Company

A mid-size financial institution

Allnex

Allnex USA

Intel Corporation

Tata Consultancy Services of Canada, Inc.


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The legal departments featured here span the globe from the United States to Canada and Europe and

provide a broad perspective from various industries such as manufacturing, finance, information

technology, and agriculture.

Through interviews with these featured participants, we outline the use of contingent workers and the

importance of properly defining, identifying, and monitoring contingent worker relationships. We examine

the key legal restraints and risks of using contingent workers, particularly misclassification and joint

employment. To address those issues we provide leading practices and methods for minimizing risks as

shared by the participants. We further discuss the compliance and enforcement of the developing laws

affecting this workforce, with a specific focus on the impact of the Affordable Care Act. Finally and as

illustrated through their profiles, the participants share their views on the importance of the legal

department and emerging trends for contingent workers.



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Contents

OVERVIEW .................................................................................................................................................. 4

I. Introduction: Categorizing and Using Contingent Workers in Global Markets ..................... 9

A. Contingent Workforce Utilization .......................................................................................................................................... 9

B. Know Who is Under Your Roof: Defining, Identifying, and Monitoring Contingent Workers .......................... 11

1. Defining and Identifying Contingent Workers ................................................................................................ 11

2. Monitoring and Tracking Contingent Workers .............................................................................................. 12

II. Leading Practices: Risks, Enforcement, Compliance and Emerging Trends for Contingent

Workforce Use .............................................................................................................................. 13

A. The Biggest Risk: Misclassification of Independent Contractors ................................................................................. 13

B. Temporary Staffing Workers: The Risks of Joint Employment and Best Practices to Avoid those Risks ........ 16

C. Compliance and Enforcement: Impacts of Regulation on Contingent Workers in the United States, Canada,

and Europe ................................................................................................................................................................................... 18

D. Implications of the Affordable Care Act on the Contingent Workforce ................................................................... 19

E. The Importance of the Legal Department and Emerging Trends of Contingent Workers .................................. 20

III. Expert Insights on Success Factors, Risks and Trends: Littler Mendelson P.C. and the

American Staffing Association ..................................................................................................... 22

A. Littler Mendelson P.C. .............................................................................................................................................................. 22

1. Trends in the Contingent Workforce ............................................................................................................... 22

2. Classification of Contingent Workers Issues and How to Avoid the Risks .......................................... 23

3. Implications of the Affordable Care Act ........................................................................................................... 25

4. Best Practices and Leading Success Factors to Avoid Risks ........................................................................ 25

B. American Staffing Association ................................................................................................................................................. 25

1. Growing Utilization Trends of the Contingent Workforce ........................................................................ 26

2. Classification Issues of Contingent Workers .................................................................................................. 26

3. Joint Employment Classification: Are There Real Risks? .............................................................................. 26

4. Best Practices for Joint Employers...................................................................................................................... 27

5. Impact of the Affordable Care Act ..................................................................................................................... 28

6. Resources and Leading Practices ........................................................................................................................ 28

IV. Company Profiles .......................................................................................................................... 29

A. Monsanto Company .................................................................................................................................................................. 29

1. Contingent Worker Initiatives at Monsanto .................................................................................................... 29

2. Classification Policies and Risks of Misclassification....................................................................................... 29


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3. Common Law Employer and Co-Employer Risks, Pitfalls, and Avoidance ............................................. 30

4. Centralized Compliance System .......................................................................................................................... 31

5. Training and Audit Issues ...................................................................................................................................... 31

6. Implications of the Affordable Care Act on the Contingent Workforce ................................................ 31

7. Key Success Factors, Best Practices and Recommendations for Utilizing a Contingent Workforce32

8. Trends for the Contingent Workforce ............................................................................................................. 33

B. A Mid-Sized Financial Institution ............................................................................................................................................ 33

1. Misclassification and Best Practices to Avoid the Risks ................................................................................ 33

2. New Initiatives in Light of the Affordable Care Act ...................................................................................... 34

3. Recommended Risk Management Initiatives in Using a Contingent Workforce ................................... 34

C. Allnex ............................................................................................................................................................................................. 35

1. Contingent Workforce Program ........................................................................................................................ 35

2. The Risks and Challenges of a Contingent Workforce in a Global Company ....................................... 36

3. Leading Practices and Trends ............................................................................................................................... 37

D. Allnex USA Inc. ........................................................................................................................................................................... 38

1. Contingent Workforce Program in the United States. ................................................................................ 38

2. The Risks of Contingent Workers. .................................................................................................................... 39

3. Leading Practices and Key Factors to Minimize Risks Associated with Contingent Workers. ......... 40

E. Intel................................................................................................................................................................................................. 41

1. Program and Policies ........................................................................................................................................... 41

2. European Challenges of Contingent Workers and Co-Employment .............................................. 41

3. The Challenge of the Temporary Agency Workers Directive and Changing Laws Across Europe42

4. Other Best Practices and Trends for a Global Contingent Workforce ............................................ 43

F. Tata Consultancy Services, Canada ....................................................................................................................................... 43

1. Identifying the Contingent Workforce .............................................................................................................. 43

2. Risks, Challenges, and Key Success Factors of Contingent Workforce Utilization .............................. 44

3. Best Practices and Recommendations When Using a Contingent Workforce ..................................... 45

VII. ADDITIONAL RESOURCES ....................................................................................................... 46

A. ACC Resources .......................................................................................................................................................................... 46

1. ACC Docket ............................................................................................................................................................. 46

2. Annual Meeting Programs ................................................................................................................................ 46

3. Webcasts .................................................................................................................................................................. 46



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B. Additional Resources ................................................................................................................................................................ 46

VIII. ENDNOTES .................................................................................................................................. 47


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I. Introduction: Categorizing and Using

Contingent Workers in Global Markets

In the United States, Europe and Canada, companies interviewed for this leading practices profile agree that contingent workers are a critical resource for meeting their business goals in today’s workforce.

In May 2015, the U.S. Government Accountability Office released a report stating that based on a 2010 General Social Survey, contingent workers comprise 40.4 % of the U.S. workforce. The study defines contingent workers as workers who do not have a traditional secure job with a specific employer. Using this broad definition, contingent workers in this report include agency temporaries, on-call workers, contract company workers, independent contractors, self-employed workers, and standard part-time workers. The report grabbed the attention of many because of the significant increase of this type of workforce since 2005, when only 30.6% of workers were identified as contingent.

This Profile highlights two categories of contingent workers identified as the most common, most regulated or riskiest types of contingent workers. All of the six companies featured in this Profile utilize these contingent workers to some extent. They are:

Independent Contractors: Individuals or small companies contracted directly to complete a project or specific function.

Agency Temporary Workers or Staff Augmentation: Temporary workers hired, paid, placed at a company, and removed by a Staffing Firm.

The companies featured also use other categories of contingent workers depending on their

location and industry. These types of contingent workers include:

Paid Interns

Temporary Foreign Workers

Apprentices

Managed Service Companies or Outsource Services

The following is a summary highlighting the perspectives of the featured organizations. Further

information on contingent worker policies and best practices for these organizations can be found

in the individual profile summaries in Sections III and IV.

A. Contingent Workforce Utilization

Historically, contingent workers have been used for seasonal or cyclical demands to supplement a shortage in the workforce. Over the past decade, along with an increase in technology, focus on core competencies, and a changing workforce dynamic, there has been a “broader phenomenon of shifting work to nonemployees.3” According to an article published by the New York Times, “Apple is a vivid example of the trend toward relying on outsiders, directly employing fewer than



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10 percent of the more than one million workers around the world who are involved in the designing, making and selling of the iMacs and iPhones.”4

The shift to contingent workers includes more professional or skilled jobs or projects. A large growth segment of these workers are independent contractors, particularly in the Healthcare and Intellectual Technology industries. The growth of these categories of workers can also be attributed to the staffing industry. In fact, “the staffing industry has created more jobs proportionally since the great recession than any other industry,” reports the American Staffing Association.

In a time of changing workforce demographics and an increasingly global and mobile labor market, no one disputes that contingent workers can provide benefits to both the employer and employee. The companies featured agree that contingent workers are quite common; they are also advantageous in that they allow for staff augmentation and flexible, skill specific relationships. This benefit comes without the liabilities or costs associated with wage and hour statutes. In fact, contingent workers “are important for delivering business results,” indicates Alice Conway, Assistant General Counsel, Commercial and Employment Law for Monsanto Company.

Workers, on the other end, benefit by this arrangement with more flexible work hours, a variety of projects that stimulate them, and potentially higher wages for their expertise. Contingent workers also benefit from opportunities for full time employment. According to the American Staffing Association, one third of staffing employees have been offered full time positions as a result of temporary or contract work.

In the United States, corporate counsel for Allnex report an increased trend for retirement eligible employees with valuable knowledge and expertise to take on a more flexible work style as independent contractors or agency temporary workers instead of retiring. This not only benefits the employee, but also allows Allnex the opportunity to benefit from their expertise while an adequate replacement is found or trained.

A common thread among the participants interviewed in this Profile is the understanding that companies need clear policies and procedures for managing contingent workforces effectively. The scope of contingent workforce procedures and programs varies among the companies.

Some companies interviewed have clear procedures and assess their needs on a continual or case-by-case basis. Others have specific global policies that provide the framework and best practices for managers and legal representatives throughout their company. Below are excerpts describing some of the contingent workforce programs and policies:

From a global perspective, Intel Corporation has a Contingent Worker Global Engagement Policy that sets forth minimum requirements for utilizing contingent workers around the globe. However, Richard Devereux, European Labour Law Counsel at Intel emphasizes that additional requirements and guidelines regionally are added for specific local country laws and regulations.

At Monsanto, the Contingent Worker Office is developing a more proactive and systematic approach through a Global Contingent Workforce Strategy. While still in


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the early stages of this strategy, Monsanto is analyzing all aspects of its contingent workforce including, but not limited to:

How vendor management systems can best be used to standardize and track the process and costs of engaging contingent workers;

How to guide management through the process of deciding, from both a business and legal standpoint, when it makes sense to hire what type of talent, for what type of work;

Supplier relationships; and

Best practices and policies to maximize the effectiveness of its talent acquisition while minimizing risks.

Capturing the sentiment of many of the featured legal departments and law firms, Nagendra Krishnamurthy, Associate General Counsel and Head of Legal at Tata Consultancy Services of Canada, Inc. offers a general caution when using contingent workers: “Use contingent workers with a more traditional approach, for seasonal or specialized requirements that are not generally available – and not as a means to being cost effective or some other approach which may actually turn out to be more costly.”

B. Know Who is Under Your Roof: Defining, Identifying, and Monitoring

Contingent Workers

All of the participants featured in this Profile agree that defining, identifying, tracking, and monitoring contingent workers at a company is a leading practice to mitigate the risks and ensure legal compliance with the employment laws governing this workforce. As emphasized by Shannon Patton, a shareholder with Littler Mendelson P.C., “knowing who is under your roof” through internal audits and monitoring is a preeminent and essential leading practice to mitigate risks of this workforce.

1. Defining and Identifying Contingent Workers

In creating a productive workforce, employers must achieve a balance between the need for flexible, short-term workers, and the risks associated with utilizing contingent workers. The first step in achieving this balance is properly identifying and classifying contingent workers. Companies must first ensure that all the parties, including managers and human resource leaders, understand the different types of contingent workers and the criteria for determining when a worker should be considered an employee.

The issue of defining an employee is challenging given the variations in laws in different countries, states and provinces and their interpretation and application by federal agencies and courts. With no one test or law being dispositive, most of the participants we spoke with place the largest



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emphasis on control – the leading factor in most tests. This factor evaluates the extent of control exercised over contingent workers – both behavioral and financial – by the company to determine if the worker is actually an employee. Given the complexities of the laws, legal departments use many different tools to guide managers and human resource departments. These tools also help to steer managers to the appropriate type of contingent worker and include the use of checklists, clear procedures, decision trees and the use of outside counsel.

The legal representatives at Tata Consultancy Services of Canada and Monsanto accentuated that fully understanding the difference and distinction between the types of workers is important to minimize risks for the company since the type of worker, or classification, impacts how they are treated and for which benefits, if any, they are entitled.

Some companies use a centralized compliance system to manage contingent talent acquisition. At Monsanto, their current system, Fieldglass, has processes and support tools to help them requisition, onboard, and work with agency temporaries. The system further directs department heads and requisition owners toward preferred providers for staffing.

2. Monitoring and Tracking Contingent Workers

A risk management initiative recommended by a mid-sized financial institution and other participants interviewed is to adopt an efficient process for tracking and correctly categorizing contingent workers. Of the legal departments profiled, various methods were used to accomplish this goal. Intel in Europe, for example, has an efficient system to accomplish this goal.

The purchasing organization at Intel in Europe, which maintains control over this workforce, relies on a systemized tracking procedure for contingent workers. Contingent workers are procured, managed, and tracked through this system. The system also provides guidance to Intel in terms of when the workers arrive, where they are placed, the type of contingent worker, and when they should leave Intel. This system is important to remain compliant with the applicable laws and regulations.

Several other companies also describe methods for monitoring contingent workers such as single entry point systems, checklists and internal audits. Another common practice described is a primary point of contact or specialist to manage each type of contingent worker. A contingent worker specialist provides internal governance to ensure contracts are entered into in a timely manner, responsibilities meet the expectations of both parties, contingent workers are tracked for compliance with time constraints, and issues are addressed proactively.

Allnex in Belgium follows many of these practices, but also takes a slightly different approach to managing contingent workers.

A single, perfect monitoring tool has not been found for tracking contingent worker relationships, reported Marie Van In, Vice-President Human Resources and Legal Services, Juriste d’Entreprise/Bedrijfsjrist. Instead, she finds the best and most helpful practice to stay ahead of classification issues is being curious and well connected within the business. She tends to ask questions about contingent worker relationships before they begin and then periodically thereafter, particularly if a relationship is extended.


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This continual curiosity and strong connection with the business helps identify and minimize the risks associated with these workers.

In the end, the participants agree that some type of monitoring is important to ensure that the nature of the relationship and the reality of the relationships continue to fit the models.

II. Leading Practices: Risks, Enforcement,

Compliance and Emerging Trends for

Contingent Workforce Use

International, federal and state laws, agency enforcement initiatives and class action lawsuits are increasing the constraints on contingent worker arrangements. As such, Shannon Patton, with Littler, urges that it is important to be aware of and “remain in front of these issues.”

In the following sections, the eight featured participants identify the risks, such as misclassification and joint employment, associated with contingent workers and provide leading practices and suggestions for managing those risks. A few of the most common leading practices articulated by the participants include close evaluation and monitoring of independent contractors, partnering with high quality staffing firms, and integration of the legal department within the business unit. These leading practices and others are further described.

In this section, compliance and enforcement actions are addressed. This is especially important given the extensive variety of laws governing contingent workers and implications of specific laws such as the Affordable Care Act on this growing workforce. Finally, the featured participants provide their insight on the role of the legal department and emerging trends of contingent workers, particularly given the increasing scrutiny.

A. The Biggest Risk: Misclassification of Independent Contractors

Of the eight featured participants, all agreed that the biggest risk associated with contingent workers is the risk of misclassification. Misclassification occurs when employers improperly classify workers as independent contractors instead of employees. Independent contractors and agency temporary workers are both subject to misclassification when found to be a common law employee. However, this determination is not as common with agency temporary workers given the role generally exercised by the staffing firm, as the employer.

Independent contractors, on the other hand, pose the greater risk and garner significant attention from the legal departments featured in this profile. The risk occurs when independent contractors become integrated into the organization and slide into a quasi-employment relationship. At that time, the now employee has not been offered employment law protections which include a



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minimum wage, social security payments, overtime compensation, unemployment insurance, worker compensation or severance packages.

As previously explained in this Profile, a legally challenging aspect of misclassification is the variety of laws defining who is an employee. In fact, at Allnex USA, the legal representatives indicated that the greatest mistake made by managers when utilizing an independent contractor is exercising too much control or micromanaging the work.

The misclassification of independent contractors can place significant financial and regulatory strains on companies. In the United States, misclassification can result in (1) tax liability from the IRS and any state agency, (2) overtime liability, and (3) penalties for unpaid taxes and failing to pay workers compensation or unemployment. As explained further below, the Affordable Care Act will impose very significant liabilities on companies for noncompliance caused by misclassification.

Significant and strict liabilities exist in Europe as well when an independent contractor is determined to be an employee. When misclassification occurs, the company bears all the risk (in most western European countries) for Social Security and taxes not previously withheld. In addition, they may be responsible for payments or withholdings not previously made for paid vacation, taxes, overtime, bonuses, and other mandatory employee benefits. They may even be responsible for severance packages. All the Profile participants agreed that the monetary risks resulting from misclassification could be significant.

For some companies these legal risks associated with misclassification reduce the benefit of using independent contractors. Monsanto, Intel in Europe, and a couple other participants avoid the use of independent contractors, if possible. For them, when an independent contractor is needed, the preferred course of action is to bring the individual in through a staffing agency rather than contracting with them directly.

On the other end of the spectrum, in Belgium, Allnex is experiencing an unprecedented growth in independent contractors, most of whom are assisting with a new enterprise resources planning system. As a result, Allnex has increased control and diligence and developed methods to successfully monitor this segment of workers. Allnex is using these independent contractors for a specific and set term project that is not part of the core business and requires a unique skill set that the company does not have in house. This focused use of independent contractors is a leading practice at the inception of the relationship.

On a more limited basis, Allnex also finds independent contractors useful for long-term needs when full time employees are not necessary - as long as the independent contractors are not financially dependent on Allnex. A prime example is the legal counsel for Allnex in the U.S. Not needing full time legal counsel in the United States, they were able to contract with two lawyers to find the expertise and extensive experience they needed for legal counsel in the U.S.

As such, in some circumstances companies find that independent contractors provide a business solution that offers a level of expertise, a unique skill, or valued experience worth the risks associated with that solution. In order to mitigate the risks of independent contractors, the featured participants offered valuable advice and many leading practices. The following snapshots offer a


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brief synopsis of those solutions and practices:

Closely scrutinized contracts. Contracts with independent contractors should be thoroughly scrutinized to provide a high level of contractual protection. Specifically, they should expressly delegate to the independent contractor the right to control the manner and means by which the work is completed and only dictate the nature of the project. Other significant provisions include express statements disclaiming other benefits, proof of insurance, and project term limits. Many of the legal departments found standard or model contracts were a useful tool to offer a continuity and assurance of consistency across business units.

Do not treat independent contractors the same as employees. A company is put at risk when independent contractors are treated in the same manner as full time employees. Some methods to differentiate between employees and independent contractors include: not collaborating on work schedules, work time, or vacation; payment through invoices and not payroll; engaging for short term projects or bursts of work for highly skilled jobs; and functioning as autonomous talent to produce deliverables, designs, or evaluations. Further, independent contractors should not be included in company training (except safety training) and meetings providing business updates or benefits. However, the companies featured varied on their opinion of whether independent contractors should be invited to social events. While some believed that they should not, others found it valuable for morale and team building. Finally, many agreed that independent contractors, and other contingent workers, should be distinguished from employees in organizational charts and by business cards, email addresses, and ID badges reflecting their contingent worker status.

Train managers and human resource directors. Managers should clearly understand the model for an independent contractor and warning signs that the independent contractor is becoming more like an employee. Training offered by the legal representatives included mandatory legal training for managers and human resource personnel, webinars, regular conversations with managers, small group discussions, and checklists.

Clear Guidelines for Use of Independent Contractors. Many of the organizations featured find that clear guidelines regarding how and when to use independent contractors is a useful tool to ensure independent contractors are used in lower risk scenarios and to steer managers away from over extending the control exercised over independent contractors.

Remain Vigilant. A leading practice offered by several of the legal departments is a periodic review or self-audit of contingent workers. Such reviews should evaluate the criteria for independent contractor status and, where they have not been met, correct the issues or retain the contractor through a temporary services provider or other employer. For example, at Monsanto, periodic self-audits take place and focus on understanding the relationships with independent contractors, the differences between the roles filled by them and those of employees, and a review of the associated documents. Shannon Patton of Littler stressed the importance of proactive measures such as self-audits in



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order to “know who is under your roof” and stay in front of issues with independent contractors.

These steps help to identify and correct misclassification issues. With the current regulatory climate “predisposed and leaning toward finding an employment relationship”, clear and cautious steps must be taken when using independent contractors and other contingent workers, shares Patton. For one of our participants, the key is to determine whether it is more effective to use an independent contractor or full time employee for the job or project. Likewise at Monsanto, the company abides by a general practice of “using contingent workers for their traditional purposes and employees for core business and in fields where loyalty, confidentiality, institutional knowledge and creativity are most needed.”

B. Temporary Staffing Workers: The Risks of Joint Employment and Best

Practices to Avoid those Risks

According to at least one of the featured participants, the next biggest risk of contingent workers occurs when temporary staffing workers are joint employees of the staffing firm and the company at which they are placed. When employees and temporary workers from a staffing agency work side by side and under the direction of the company’s supervisors, a company is frequently found to be a joint employer along with the staffing firm. Like with independent contractors, a determination often centers on the amount of control the company exercises over the temporary worker. By being a joint employer, a door is opened to create risks for the company some for which they may not be prepared. Since the staffing firm is generally responsible for the hiring, paying, and removing of temporary workers, the company is insulated from some of the risks. So, what are the risks of joint employment and how are the risks different from a regular employee?

Several of the legal representatives featured agreed that the risks associated with joint employment can be managed and may not present any greater risk than that associated with internal employees of the company. In fact, Stephen Dwyer, one of our featured participants and General Counsel for the American Staffing Association, concluded in an article published by the ACC Docket that the risk for joint employment “should not be of concern since any potential liability should be no greater than that associated with internal employees and can be controlled and mitigated” by the company.5

First, however, the risk of benefits must be addressed. In the Ninth Circuit decision in Vizcaino vs. Microsoft6, temporary workers made claims for employee benefits. The court ruled that the workers were common law employees of Microsoft and entitled to the company’s benefits retroactively. Since that decision, many courts have upheld language in benefit plans that explicitly exclude workers, such as temporary workers, who are not on the companies’ payroll.

Thus, with a structured benefit plan and payroll issues handled by the staffing firm, many of the remaining risks often involve employment laws, such as workplace safety and equal opportunity, that many participants argue should be applied towards all workers in the company’s domain whether internal employees or temporary workers provided by a staffing firm.

This is not the case everywhere, however. In Ontario, Canada, the Stronger Economy Act of 2014

http://www.acc.com/legalresources/resource.cfm?show=1355243


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holds the staffing firm and company utilizing the temporary workers joint and severally liable for any wages not paid by the staffing firm. As such, in Ontario, this law elevates the liabilities and risks arising from a staffing firm’s failure to comply with wage laws. In fact, a significant risk of agency temporary workers depends on competence and compliance with the law by the staffing firm employing the workers. This risk is addressed with strict contract provisions guaranteeing compliance and remedies for non-compliance.

The American Staffing Association proposes that in certain circumstances, companies can benefit from being a joint employer. Not only are companies insulated from wage claims, in most states, a company that is a joint employer may be protected by the exclusive remedy doctrine for any workers’ compensation claims made by an employee.

Monsanto agrees that the risks may not be greater than they would be for their own employees. However, traditionally, the justifications for actions regarding temporary workers may not be as well documented as regular employees. In other words, risks are elevated risk when a company is unprepared for and is unable to defend a discrimination or retaliation claim made by temporary workers. To address this risk, Monsanto recommends to managers at Monsanto that if they are managing some aspects of the work and making decisions about temporary workers, they should be keeping some record of the decisions or issues.

We have found parallels between what the trade organization, the American Staffing Association, recommends in a relationship with a client and what the companies featured find as leading practices for managing the risks of agency temporary workers. These leading practices include:

A careful consideration when choosing staffing firms. Participants agreed that partnering with high quality staffing firms with a good track record and strong financials mitigate risks. In fact, they recommend selecting a firm that could be a “human resource partner.” Asked to name the top traits to look for when vetting a staffing firm, American Staffing Association’s Stephen Dwyer recommends legal departments consider (1) a staffing firm’s methods for screening and placing the most qualified candidates and (2) how the staffing firm ensures that its personnel keep up with the ever changing legal landscape, specifically with respect to employment law.

Comprehensive Service Agreements. The participants all agreed that clear and cohesive contracts are important, but also highlighted different key aspects of the language contained in the contracts.

It is important that contracts are completed in a timely manner and allow opportunities for periodic review. This opportunity for review is critical to account for the changing laws affecting contingent workers.

The contract should carefully define the relationship and responsibilities of both the company and the staffing firm. The importance of the specificity of the contract is demonstrated when OSHA conducts an audit. One of the first things OSHA will look at is the terms of the contracts regarding who is responsible for safety training.



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Contracts with strong indemnity and warranty clauses.

Contracts with assurances through reports, compliance certificates or optional audits that the staffing firm remains legally compliant with all laws.

Regular Communication. Both sides of the contract will benefit from regular communication or governance meetings. This practice helps to assure that both parties are living by the terms of the contract and addressing issues to be corrected before they become problematic. This practice reduces risks without the expense of an audit; but also can identify non-compliance that may signal the need for an audit of the staffing firm.

Minimizing Control and Distinguishing Temporary Workers. Several of the featured companies stress the importance of minimizing control of temporary workers on a day-to-day basis and not treating them as regular employees. At Monsanto, managed service providers are used when possible. They also request, like other participants such as Allnex in the United States, that staffing firms provide a supervisor when using a group of temporary workers from the firm. This helps to reduce the amount of control exercised by the company managers and reduces the likelihood of a joint employment classification. However, the American Staffing Association discourages this practice in most cases, citing to staffing firms’ lack of knowledge of work force policies or the client’s business to effectively manage day-to-day activities.

Duration Limits. With specific laws in effect in Europe, the European offices of Intel require duration limits of 12 months to be in place for temporary workers or staff augmentation. As another condition, temporary workers may be hired to do core work as long as there is an identifiable reason why they are coming in to do core work.

C. Compliance and Enforcement: Impacts of Regulation on Contingent

Workers in the United States, Canada, and Europe

As previously alluded to in this Profile, a significant challenge for national and international companies is the variety of laws and regulations governing contingent workers. While contingent workers offer benefits to both the company and the worker, managing these relationships successfully requires strict compliance with legal regulations and requirements. The fluid nature of the laws and vast differences in the regulations do not ease that burden.

Shannon Patton with Littler advised that one effective tool to stay knowledgeable about changing laws is tracking software. For example, Littler GPS is a subscription service provided by Littler that provides in-house counsel access to updated legal employment requirements and sends alerts as laws change. Several other featured participants rely on checklists and local attorneys to remain legally compliant when using contingent workers.

In the United States, according to ASA’s Stephen Dwyer, the staffing industry has been largely unregulated on a federal level. However, that is not the case with independent contractors. First, as previously discussed, many different tests exist between state and federal laws to determine if


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an independent contractor is an employee. Many states, viewing misclassification as a problematic trend, have enacted legislation to regulate companies using independent contractors.

Enforcement of regulations regarding misclassified employees is sought through administrative actions or through litigation filed by employees or by federal or state agencies. Claims for unemployment benefits or submission of a Form 1099 may trigger audits by federal and state agencies trying to crack down on misclassification. These audits or complaints directly from workers may lead to administrative actions. The United States Department of Labor, for example, has the authority to seek wages, back pay, overtime, and liquidated damages for a worker and assesses penalties to companies for violations. The Department reported that in 2014, as a result of misclassification, it collected $79 million in back wages for approximately 109,000 workers and has continued to report increasing claims filed by workers.

On the litigation front, Patton reported that there is an increasing trend in class or collective action lawsuits – actions that significantly increase the liability to companies – by independent contractors claiming to be employees.

In contrast to the United States’ lack of federal regulations over temporary staffing workers, in 2008, the European Union enacted the Temporary Agency Workers Directive to set common minimum standards in EU countries to ensure that temporary employees are treated equal to regular employees. A few of the main areas covered by this act include requirements for equal pay, vacation time, and training opportunities. Many European countries have adopted this directive and some have enacted further constraints, such as licenses for staffing firms. Remaining compliant with this directive is imperative to avoid stiff regulatory penalties.

Also in Europe, local country laws govern agency workers and other types of contingent workers. Richard Devereux with Intel in Europe explained that their HR Legal Group is responsible for legal compliance of contingent workers in 40 countries in Europe and Africa. To remain compliant they work closely with the Contingent Workforce Management Review Committee at Intel to stay abreast of and compliant with the various and evolving laws. Several countries, such as Russia and Italy, have very particular and restrictive contingent worker laws. At Allnex, which operates in twenty-seven countries in Europe, checklists are produced to incorporate compliance in more than one country and are regularly being updated. Local counsel in individual countries is also used by both of these companies.

D. Implications of the Affordable Care Act on the Contingent Workforce

In the United States, beginning on January 1, 2016, the Affordable Care Act requires companies to offer affordable minimum essential healthcare coverage to 95% of their employees. These new requirements raise the standard questions with many contingent worker issues of who is an employee. The ACA does not introduce a new test but uses the IRS’s 3-factor, many sub-factor test, which focuses on behavioral and financial control of the worker.

While the test is not new, “the penalties for violating the ACA provisions could be really astronomical,” states Patton. Potentially larger than other employment law penalties in the United States, a penalty of approximately $2,000 per employee – not per misclassified employee, but per

http://ec.europa.eu/social/main.jsp?catId=706&langId=en&intPageId=207

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Self-Employed-or-Employee

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Self-Employed-or-Employee



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employee within the company - is assessed for violating the terms of the ACA. As such, like with many risks associated with contingent workers, proper classification is imperative.

In light of the growing attention on contingent workers and these severe penalties, the participants agree that companies should be proactive regarding this new requirement. The featured participants in the Untied States discussed a variety of effects and implications of this new law. They include:

Proper classification is critical, according to the primary employment counsel with a mid-sized financial institution who explains that if an employer has a large number of independent contractors or temporary agency employees who become employees under the law, the employer’s headcount for ACA purposes would increase and could unintentionally result in the number of workers who are offered affordable care dropping below the 95% threshold.

Littler’s Shannon Patton warns that additional audits could be triggered in the coming years as disputes arise between the IRS and independent contractors when an independent contractor submits a claim indicating lack of health insurance. As such, she recommends that companies closely examine and reevaluate their independent contractor relationships.

The biggest impact the ACA has had on Monsanto has been the renegotiating of contracts with staffing suppliers. These new contracts have provisions reinforcing an agency’s responsibility to offer affordable, minimum value health care to all its employees and to provide notice about insurance marketplaces. Strict contractual provisions protect Monsanto in the event of noncompliance of this Act by the staffing firm.

Some companies, according to Stephen Dwyer with the American Staffing Association, are taking additional contractual precautions. These precautions include requesting language that says both parties view the staffing firm as the common law employer but in the event the company is ruled to be a common law employer, any health coverage offered or ACA penalties paid by the staffing firm will be deemed to have been made on behalf of the company.

The participants generally agreed that the impact of the ACA will require greater vigilance but the severe penalties alone will likely not impact the use of contingent workers. However, Alice Conway with Monsanto does expect it to possibly shift the mix and focus of contingent workers.

E. The Importance of the Legal Department and Emerging Trends of

Contingent Workers

Beyond the themes discussed above, a number of common lessons emerged from the legal representatives as they discussed mitigating the risks associated with contingent workers. Specifically, the active role of the legal department is essential to mitigating the risks of contingent workers. Excerpts of advice from the representatives best exemplify this:


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First and foremost, the legal advice must precede the use of a contingent worker. Given the variations and inherent changes in the laws, the role of the legal department is to work closely with each of the human resource specialists to develop standard forms and best practices. By maintaining a strong working relationship between the legal department, managers, human resources departments, and the contingent worker specialists, risks associated with contingent workers are minimized.

The best and most helpful practice for the legal department is to be curious and well connected within the business.

The legal department needs to be connected with the business unit and visible within the company.

By being involved as a team, risks will be caught before they become significant liabilities to the company.

In our technology driven environment, traditional practices regarding how, where and when people work are changing rapidly. As this Profile points out, contingent worker relationships are providing opportunities, flexibility and expertise for workers and companies. However, regulatory constraints are being implemented around the globe in an attempt to control the effects of this employment trend.

The featured participants offered a variety of input on the emerging trends of contingent workers. On one hand, companies are embracing the use of freelance and independent contract work especially regarding highly skilled professionals. On the other hand, companies are avoiding independent contractors due to the risks of misclassification. One featured participant expressed concern that workers may regret contract or freelance work as they realize the importance of benefits plans such as pensions or retirements. In addition, particularly in Europe, a participant has noticed a move away from the agency workers and toward a fixed term employee due to the constraints of the Temporary Agency Workers Directive. As such, the legal regime appears to be reducing the benefit for some types of contingent workers. One featured legal department highlights the impact of technology on the workforce and projects continued growth of more virtual workforces.

In the United States, the legal regime continues to regulate the use of independent contractors. New laws have been enacted offering greater protection to contingent workers, courts have continued a trend of finding independent contractors to be employees, and federal agencies have issued interpretations further constricting the definition of independent contractors.

In July 2015, after the completion of the interviews for this Profile, the Department of Labor issued a new guidance on independent contractors, Administrator’s Interpretation No. 2015-1, suggesting the agency’s view that many contingent workers may in fact be employees under the FLSA if the relationship reveals a certain threshold level of economic dependence by the worker. This may call into question the viability of the independent contractor model. ACC reached out to a few of the featured participants regarding this Administrator’s Interpretation.

According to Shannon Patton with Littler, this interpretation signals that the Department of Labor

http://www.dol.gov/whd/workers/Misclassification/AI-2015_1.htm



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will continue (and very likely increase) its aggressive enforcement efforts. In Patton’s opinion, the Department of Labor appears disinclined to find that an independent contractor relationship exists; for employers, this trend highlights the importance of proactive measures of auditing and careful management of contingent worker relationships.

Alice Conway with Monsanto concurred with Patton but also finds it interesting that the Department of Labor, in essence, created a new test for determining who is an independent contractor. While still called the “economic realities” test, some of the factors in the test have different nuances from the usual factors. Most important, in contrast to previous interpretations, the Department stated that it was focusing on managerial skills and business acumen, not the technical skills, in analyzing whether the purported independent contractor actually was an independent contractor. Further, the “control” factor, the leading factor in most tests, is de-emphasized. Arguably, a worker can work from home, set one’s own hours, and require little supervision, yet still be an employee according to the Department of Labor if the worker does not meet the economic independent test.

These trends and regulations will most certainly impact the use of contingent workers. What is yet to be seen is how technology, innovation, and creativity will continue to expand the traditional workforce models.

III. Expert Insights on Success Factors, Risks and

Trends: Littler Mendelson P.C. and the

American Staffing Association

A. Littler Mendelson P.C.

Contingent workers and misclassification is a hot topic garnering significant attention from courts and state and federal agencies. As such, it is important to be aware of and “remain in front of these issues,” says Shannon Patton, a Shareholder at Littler Mendelson P.C. Littler is the largest U.S. based law firm devoted exclusively to representing management in employment, employee benefits and labor law. Shannon Patton is a shareholder in their Staffing and Contingent Worker practice area and spoke with ACC to provide a broad viewpoint about the trends, pitfalls, and best practices surrounding contingent workers in many industries.

1. Trends in the Contingent Workforce

Historically, contingent workers have been used for seasonal or cyclical demands to supplement a shortage in the workforce. The use of contingent workers in a variety of different workplaces has markedly increased over the years, according to Patton. The largest growth segment of these


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workers is independent contractors, as companies turn to this type of employment relationship for special term projects requiring a specific skill or expertise. Contingent workers are becoming more common particularly in the Healthcare and Intellectual Technology settings.

A contingent workforce can benefit both the employer and the worker. Companies gain staff augmentation and flexible, skill specific relationships from contingent workers. A company may require a specific skill set for a project not core to its business and a contingent worker may be able to provide that level of expertise without many of the liabilities or costs associated with wage and hour or discrimination statutes. Workers also benefit by this arrangement with more flexible work hours, a variety of projects that stimulate them, and potentially higher wages for their expertise.

Another trend, however, is an increase in class or collective action lawsuits. In these cases, contingent workers file a class or collective action for wage and hour claims, often alleging they were legally full time employees. This trend increases the risks for companies. Moreover, in July 2015, the Department of Labor issued new guidance on independent contractors, suggesting the agency’s view that most – if not all – independent contractors could be classified as employees and calling into question the viability of the independent contractor model.

2. Classification of Contingent Workers Issues and How to Avoid the Risks

a. Risks and Liabilities Associated with Misclassification

“The single greatest risk with Independent Contractors is the risk of misclassification,” warns Patton. This often occurs when a company brings in additional workers as temporaries or independent contractors and they perform the same work right along side of full time employees, but are not afforded the same pay structure, benefits, or protection of certain employment laws. This potential disparity has been the driving force behind state and federal regulatory pushes to include contingent workers and independent contractors as employees for certain purposes.

The biggest areas of risk from misclassifying workers as non-employees are (1) tax liability from the IRS and any state agency involved; and (2) overtime liability under the federal Fair Labor Standards Act and parallel state wage and hour laws. The liability under the Fair Labor Standards Act can be financially significant since the employee can recover twice the amount of unpaid overtime plus attorney fees. Likewise, employers can face significant penalties in addition to the various taxes they failed to withhold for workers who were paid as 1099 independent contractors. In addition, companies can also be held accountable and even penalized for failing to properly pay into workers’ compensation or unemployment compensation. The liabilities to companies for misclassification will be even greater with the implementation of the Affordable Care Act because of the penalties and costs associated with failing to provide health insurance to certain workers covered by the ACA.

The risks can arise through a contingent worker filing a lawsuit claiming to be an employee and seeking unpaid employee benefits, or through federal and state agency audits triggered by unemployment compensation claims or the submission of a Form 1099 by an independent contractor.



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b. Avoiding the Consequences of Misclassification

In order to mitigate these risks, Patton recommends being proactive on the front end. “An ounce of prevention is worth a pound of cure,” she says. This prevention includes contract negotiation and review, examining the existing relationships within your company and with your vendors, and adequately training personnel working with the contingent workforce.

When examining current contingent worker relationships, a company should take a closer look when an independent contractor works along side full time employees that are performing the same duties or has been at the company for a long period of time and does not appear to be doing work for other customers or clients and is thus economically dependent upon the company. Patton recommends that independent contractors be used for finite projects or a specific or unique skill set that the company does not already have in house.

Training managers and supervisors to understand how contingent workers should be treated is critical to avoiding misclassification issues. Specifically, control over contingent workers by supervisors should be minimized. Patton believes it is important that the human resources and legal departments have visibility within the company so as to be able to provide some guidance and input to business units that enter into contingent worker relationships.

One of the single biggest challenges for national and global companies is the variety of laws and regulations governing contingent workers. Within just the United States, staying knowledgeable about changing laws is challenging given subtle nuances to the tests set out by state and federal agencies. To ease this burden, Patton recommends in- house attorneys use tracking software or retain local private counsel when needed. For example, Littler GPS is a subscription service that provides clients access to updated legal employment requirements and sends alerts as laws change.

c. Joint Employment Classification with Staffing Agencies

Temporary workers hired through a staffing agency can also invoke risks, though not as great a risk as independent contractors. When employees and temporary workers from a staffing agency work side by side and under direction of the company’s supervisors, a company is frequently found to be a joint employer of the temporary workers. In fact, courts appear to be predisposed to finding an employment relationship under these conditions.

Patton recommends careful review of the contracts entered into with a staffing agency to minimize these risks. Generally the staffing agency is responsible for appropriately compensating the employee and complying with the associated employment laws. As such, when reviewing contracts with staffing agencies Patton requires assurances in the contract that legal requirements are being met. Due to the potential risk for joint employment, Patton also always ensures that there is a strong indemnification clause. In some instances, she requests the option to periodically audit the staffing agency or receive verification of compliance.


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3. Implications of the Affordable Care Act

The Affordable Care Act will not present different or more stringent classification issues, as the test for determining if a worker is an employee is the same. The ACA relies on the IRS test for determining an employment relationship. However, “the penalties for violating the provisions could be really astronomical,” Patton notes. The law provides a penalty of approximately $2,000 per employee - not per misclassified employee, but per employee within the company - for violating the terms of the ACA. As such, it is important for a company to ensure proper classification of its employees. Employers are becoming more cognizant of the impact of the Affordable Care Act and the “really savvy forward thinking employers are looking into this now and making sure their ducks are in a row,” assures Patton.

Companies should closely examine and reevaluate the independent contractor relationships within their company. She predicts that in a few years disputes between an independent contractor and the IRS for lack of health insurance could trigger more audits. The growing reliance on independent contractors may not be affected as long as companies closely monitor this segment of the workforce.

4. Best Practices and Leading Success Factors to Avoid Risks

A best practice if utilizing a contingent workforce is to conduct an internal audit and continually monitor those “under your roof,” instructs Patton. This audit includes closely looking at agreements, whether with an independent contractor or staffing agency. The contracts should clearly spell out and dictate the duties and responsibilities of both parties to the relationship.

Another best practice is to have clear policies for a contingent workforce. These policies include training of managers and front line supervisors as well as dictating situations when a contingent worker is appropriate. Policies and procedure should determine the type of contingent worker appropriate for jobs and the proper steps to be taken before bringing them on board. Patton also recommends a point of contact responsible for keeping track and periodically monitoring contingent worker relationships.

In summary, employers utilizing contingent workers must proceed cautiously. Success factors to minimize risks and liabilities of misclassified employees include knowing who is working for your company, being proactive from the onset in making sure appropriate documentation is in place, and monitoring to ensure that the “nature of these relationships and the reality of the relationships really fits the independent contractor model.”

B. American Staffing Association

The staffing industry has had a dramatic positive impact on the economy observes Stephen Dwyer, General Counsel for the American Staffing Association. The American Staffing Association is the largest trade association for the staffing industry with over 1,700 members. ASA acts as an advocate for staffing firms and provides guidance to its members. One third of staffing employees have been offered full time positions as a result of temporary or contract work and the industry takes pride in being a “bridge to permanent employment.” Individuals turn to temporary and



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contract work for a number of reasons, one of which is to get a foot in the door. However, these jobs also allow workers to gain other skills, work on a variety of projects, and maintain a flexible work schedule. Stephen Dwyer spoke with the ACC about the trends in the staffing industry and legal risks associated with using temporary workers through a staffing firm.

1. Growing Utilization Trends of the Contingent Workforce

“The staffing industry has created more jobs proportionally since the great recession than any other industry,” says Dwyer. Even with the growth in the past several years, however, the industry is still a small percentage – around 2% - of the non-farm workforce. While the staffing industry has been growing for many years, there has been a paradigm expansion in the type of positions to which temporary and contract workers are being assigned. While for many years temporary workers have been common in office and administrative jobs, recent trends show an increase in the use of temporary and contract workers for higher or specific skilled jobs. Dwyer reports that 13% of temporary employees work in professional and managerial jobs, 13% work in engineering, technical, information technology, and scientific jobs, and 9% work in healthcare.

2. Classification Issues of Contingent Workers

In creating a productive workforce, employers must achieve a balance between the need for flexible, short-term workers and the risks associated with using contingent workers. It is important when evaluating risks to properly define the different types of contingent workers. Staffing employees, a type of contingent worker, are actually hired, paid, placed, and removed by a staffing firm.

The staffing firms can actually provide a “level of insulation” to companies, explained Dwyer. When a staffing firm places workers with a company, the staffing firm is the employer, in most cases, so the issue of misclassifying employees as independent contractors is removed.

While misclassification risks may be minimized with temporary workers, there may be risks relating to who is the employer. The company can be legally classified as the common law employer or a joint employer based on the level of control exercised over the worker. The control or extent that an organization is telling the workers how to do their job is the “hallmark of an employment relationship,” Dwyer says, and at times creates confusion. Companies frequently try to relinquish to staffing firms employee supervision in order to avoid common law employment or joint employment. However, staffing firms, with limited exceptions, do not want to take on that role. Dwyer finds that it is generally “impractical and unrealistic” for companies to not supervise temporary workers in the day-to-day work. Staffing firms do not know the work force policies, the physical layout or the client’s business. As such, Dwyer believes the staffing firms are usually not the ideal candidates for supervising temporary workers placed at a company.

3. Joint Employment Classification: Are There Real Risks?

The risk for joint employment, Dwyer concluded in an article published by the ACC Docket, “should not be of concern since any potential liability should be no greater than that associated



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with internal employees and can be controlled and mitigated” by the company.7

In fact, in certain circumstances, companies can benefit from being a joint employer. In most states, a company that is a joint employer can be protected from accidental injuries incurred by temporary workers on the job. Staffing firms, which are required to maintain workers’ compensation for their employees, will pay benefits to a temporary worker accidently injured on the job. Once those benefits have been paid, the exclusive remedy doctrine prevents the worker from bringing additional claims against the staffing firm that employs them. In almost all states, either through statute or court decisions, this protection has been extended to staffing firm clients as joint employers.

Generally, contract language that disclaims joint employment status will not dictate whether a court determines that a company is a joint employer. Instead, the courts evaluate the facts and circumstances of each case. Some courts have ruled that the exclusive remedy doctrine is not extended to the staffing firm’s client when the contract specifically denies joint employment. Thus, disclaiming joint employment in the contract between the company and the staffing firm may open the door to workplace injury lawsuits. For that reason, Dwyer does not recommend such exclusionary language in contracts.

Being a joint employer is not without risk. In the Ninth Circuit decision, Vizcaino v. Microsoft8, temporary workers made claims for employee benefits. In that case, the court ruled that the contingent workers were common law employees of Microsoft and entitled to company’s benefits retroactively. In order to minimize this risk, companies can structure benefit plans to explicitly exclude workers, such as temporary workers, who are not on the companies’ payroll. Many courts have upheld this use of exclusionary language.

In other cases, joint employment provides no greater risk than the risks associated with internal employees, indicates Dwyer. Laws regarding workplace safety and equal opportunity, for example, should be applied towards all workers in the company’s domain, whether internal employees or contingent workers provided by a staffing firm. Thus, Dwyer feels that using temporary workers through a staffing firm can present no greater potential liability for an organization than using its own internal employees; in some cases in fact, doing so can mitigate liability.

4. Best Practices for Joint Employers

A best practice when using temporary workers includes careful consideration in contracting with a staffing firm. The ASA has promulgated a model contract for its agencies to use. Dwyer stresses the importance of clear and thorough language that defines the relationship and responsibilities of both the company and the staffing firm. He explains, for example, that staffing agencies should be responsible for the screening of candidates and the payment of unemployment insurance, workers compensation, and overtime. In contrast, the company should maintain a certain level of control over supervising the workers on a day-to-day basis. The importance of the specificity of the contract is demonstrated when OSHA conducts an audit, according to Dwyer. One of the first things OSHA will look at is the terms of the contract as to who is responsible for safety training. Clear and concise contracts reduce confusion and misconceptions that may lead to liability for both



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the staffing firm and company.

Good and periodic communication between the company, staffing firm and workers is also a best practice. This practice helps to ensure that the parties are living by the terms of the contract. Dwyer offers two examples to show the importance of this practice. First, direct communication allows confirmation of requisite safety training, thus ensuring the safety of employees and compliance with OSHA regulations. Additionally, when a temporary worker is doing a great job, there is a natural tendency for companies to ask him/her to do additional jobs not previously contracted for and for which the temporary worker may not be qualified. By regular communication the parties can ensure that the working relationship is productive and safe.

5. Impact of the Affordable Care Act

The temporary worker industry has been largely unregulated in the United States on a federal level, notes Dwyer. He predicts that the implementation of the Affordable Care Act will also not significantly impact the use of temporary workers. In a vast majority of circumstances, the staffing firm is the common law employer and the common law employer is responsible for compliance with the ACA.

Some companies, according to Dwyer, are taking additional precautions during contract negotiations in the event they are deemed the common law employer. They are requesting language in their contract that says both parties view the staffing firm as the common law employer but in the event that the company is ruled as the common law employer, any health coverage offered or ACA penalties paid by the staffing firm will be deemed to have been made on behalf of the company. This language adds another layer of protection to the company in the event they are found to be a common law employer of a temporary worker.

6. Resources and Leading Practices

Dwyer recommends numerous resources publicly available to staffing firms and organizations when evaluating a contingent workforce and specifically temporary workers. He strongly recommends counsel review the Temporary Worker Safety Initiative guidelines on the OHSA website as well as information regarding temporary workers on the EEOC and ADA websites.

As a leading practice, Dwyer suggests that organizations work with a staffing provider “that is not just a labor broker but rather a human resource partner.” Staffing firms should be extremely knowledgeable and provide education and guidance about the three party relationships that are company, worker, and staffing firm. As an example, if a temporary worker returns from leave under the Family Medical Leave Act, a staffing firm that is working as a human resource partner will recognize and advise the company of the need to return the temporary worker to the previous position even if the company prefers the replacement. The staffing relationship will be strong and productive when all three parties are working in tandem.

When ACC asked Dwyer to name two or three top traits to look for when vetting a staffing firm, he responded that he would want to know (1) a staffing firm’s methods for screening and placing the most qualified candidates and (2) how the staffing firm ensures that its personnel keep up with

https://www.osha.gov/temp_workers/index.html

https://www.osha.gov/temp_workers/index.html

http://www.eeoc.gov/policy/docs/conting.html

http://www.eeoc.gov/policy/docs/qanda-contingent.html


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the ever changing legal landscape specifically with respect to employment law.

IV. Company Profiles

A. Monsanto Company

Contingent workers are important for delivering business results, indicates Alice Conway, Assistant General Counsel, Commercial and Employment Law for Monsanto. Monsanto is a leading global provider of agricultural products for farmers. It is headquartered in the United States, with locations in 67 countries. Given the significance of contingent workers at this global company, a proactive and systematic approach to and policy for their contingent workforce is essential.

1. Contingent Worker Initiatives at Monsanto

At Monsanto, the biggest challenge with the contingent workforce is making sure the right combination of contingent and fulltime talent is engaged to fill the company’s needs and enable the accomplishment of high quality work most cost-effectively. Monsanto engages several types of contingent workers: agency temporary workers, to cover absences and spikes in work; managed service companies, to supply and manage workers for functions outside Monsanto’s core business; farm labor, to provide seasonal labor supporting field production; and Monsanto temporaries, for seasonal or part-time work. The Contingent Labor Office controls the contingent worker program at Monsanto.

The legal issues surrounding contingent workers had previously been handled in an ad hoc manner, but Monsanto is now developing a more proactive and systematic approach through a Global Contingent Workforce Strategy. While still in the early stages of this strategy, Monsanto is analyzing all aspects of their contingent workforce. They are evaluating how vendor management systems can best be used to standardize and track the process and cost of engaging contingent workers, and how to guide management through the process of deciding, from a business and legal standpoint, when it makes sense to hire what type of talent, for what type of work. They are also assessing their supplier relationships, and seeking to capture best practices and policies to maximize the effectiveness of their talent acquisition while minimizing risks.

2. Classification Policies and Risks of Misclassification

To control risks associated with contingent workers, Monsanto works to stay within the model classifications of workers. To do this, the company abides by a general practice of using contingent workers for their traditional purposes and employees for core business and in fields where loyalty, confidentiality, institutional knowledge and creativity are most needed. Following this practice helps keep employees and non-employees identified correctly.



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Conway acknowledges the challenge of having a variety of laws, tests and case law in each federal and state jurisdiction which all define “employee.” With no one factor or test being dispositive, Monsanto focuses on control – both behavioral and financial - as the primary, but not sole, consideration in classifying workers. Contingent worker relationships are evaluated for characteristics such as the length of time; the control of how, when and where the work is done; and involvement in hiring and firing workers. When looking at the financial control factors, like the economic realities test, Monsanto evaluates whether the worker is dependent on Monsanto for their livelihood, if they will be paid by project or hour, whether a purported independent contractor has other business, and how easily a staffing agency can place a worker following the assignment.

Misclassification of independent contractors presents the biggest risk to employers using contingent workers. It violates current law and can be severely punished. Monsanto prioritizes handling independent contractor relationships correctly and when possible they prefer to bring workers onboard through a staffing agency to avoid many of the risks. When independent contractors or small companies are engaged for projects, steps are taken to make sure they are and remain independent contractors.

3. Common Law Employer and Co-Employer Risks, Pitfalls, and Avoidance

The next biggest risk of using contingent workers is being a common law employer, where a company could be forced to assume responsibilities it may not have intended and may also face significant consequences, particularly under the Affordable Care Act.

A company can become a common law employer by misclassifying an independent contractor. It may also assume this role by gradually assuming more responsibility for non-payroll aspects of a temporary worker’s experience, including hiring, managing, and firing. Monsanto eliminates one risk of being declared a common law employer by having clearly articulated benefit plans that avoid defining eligible people in terms of common law employees. If agency temps were to become common law employees of Monsanto, the risks may not be greater than they would be for Monsanto’s own employees. However, traditionally, the justifications for actions regarding temporary workers may not be well documented. Risk occurs when a company is unprepared for discrimination and retaliation claims made by temporary workers because records have not been maintained regarding the decisions and actions, as they would have been with regular employees.

Likewise, the risks of co-employment or joint employment classification are similar in that adequate records to justify actions with regard to the co-employee may not exist. Employment decisions about temporary workers may be made quickly and without written justification or explanation of the facts leading to the decision. This lack of documentation could leave a company unprepared for and unable to defend a claim when a perfectly lawful employment decision is challenged.

Conway recommends to managers at Monsanto that if they are managing some aspects of the work or making decisions about temporary workers, they should be keeping some record of the decisions or issues. The challenge is to do that in an adequate way while stopping well short of treating temporary workers exactly like regular employees. Monsanto tries to minimize co-


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employment by engaging managed service providers or requesting a supervisor from the temporary agency with the temporary workers, particularly when a sizeable group of people is needed for work not core to Monsanto’s business.

Strong contracts with staffing agencies further protect Monsanto from the risks of co-employment. Strong indemnity and warranty provisions are included in the contracts as well as clear and specific details about the responsibilities of the parties for things such as management of workers, worker removal, training, payroll and other benefits. Conway also recommends meeting regularly with the staffing suppliers to review performance and human resource issues.

4. Centralized Compliance System

Given the significant impact contingent workers have on Monsanto’s business, the company uses a centralized solution to manage contingent talent acquisition. Their current system, Fieldglass, has processes and support tools to help them requisition, onboard, and work with agency temporaries. The system further directs department heads and requisition owners toward preferred providers for staffing. According to Conway, the system is “an important step in being able to understand, track and modify how [they] use contingent workers.”

5. Training and Audit Issues

A key factor to avoid classification issues is to educate requisitioners and managers on contingent worker models as well as key indicators that the relationship may be drifting toward an employment model. Monsanto provides interactive, live and webinar training for managers on employment matters. Realizing the challenges that exist for training managers, “we at Monsanto are augmenting our training programs to better educate our managers and HR partners on how to appropriately engage and interact with contingent workers.” Through the global contingent workforce strategy, Conway expects the training process to become more formalized.

The policies and programs being implemented by Monsanto’s Contingent Workforce Program help to prepare the company for an audit by an outside agency. Particular policies, such as a periodic reviewing of relationships and an internal attorney-client privileged audit, exemplify the new proactive approach. A self-audit would involve law, tax, Talent Acquisition, HR and procurement and would initially focus on finding any instances of W-2s and 1099’s being filed for the same person in the same or adjoining tax years. Then the audit would focus on understanding the relationships with independent contractors, the differences between the roles filled by independent contractors and those of employees, and a review of the associated documents. These steps would help to identify and correct any issues of misclassification.

6. Implications of the Affordable Care Act on the Contingent Workforce

Monsanto is aggressively addressing the Affordable Care Act, reports Conway. This proactive approach is necessary because of the heavy penalties for not covering all of one’s employees and for providing unaffordable or below minimum value coverage to one’s employees. Both of these requirements raise the standard question with many contingent worker issues of who is an



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employee. In determining if a worker is an employee, the ACA regulations use the IRS’s 3-factor, many sub-factor test, which focuses on control – both behavioral and financial.

The biggest impact the ACA has had on Monsanto has been on renegotiating its contracts with staffing suppliers. These new contracts have provisions reinforcing an agency’s responsibility to offer affordable, minimum value health care to all its employees and for providing notice about the insurance marketplaces. Indemnity provisions have also been included to protect Monsanto in case the agency’s employees are deemed to be their common law employees.

Conway feels that it is too early to determine how and whether the ACA will affect reliance on contingent workers at Monsanto. She expects that it may “shift the mix of contingent workers, focusing less on direct Monsanto temporaries and more toward agency temporaries and managed service providers.”

7. Key Success Factors, Best Practices and Recommendations for Utilizing a

Contingent Workforce

Given the contingent workforce engaged by Monsanto, they proactively and systematically approach their policies and procedures for utilizing this type of workforce. When the ACC asked Conway about Monsanto’s leading practices for minimizing misclassification risks and remaining compliant with the law, she outlined the following points.

First, a best practice is to use a Contingent Workforce Program to provide a single entry point and track contingent workers. The program provides management with comprehensive guidance regarding which kind of contingent worker would work best for their needs or whether a full time employee is more appropriate. Monsanto’s program includes a decision tree that is imbedded in the internal HR portal to steer managers to the type of resource they need.

Second, Monsanto’s process of choosing and contracting with staffing firms is a key factor in its success. Conway recommends partnering with high quality staffing suppliers that have demonstrated their ability to supply qualified workers quickly, treat their employees well, and are as proactive as possible in managing their employees. Contracts should provide a clear division of responsibilities and appropriate indemnity and warranty clauses.

A third best practice is to monitor relationships with agency temporaries periodically. Managers should be trained to be aware that if they begin treating agency temporaries like employees, they need to make employment decisions carefully, involve human resources and the legal department, and properly document their decisions.

If an agency temporary has been there a long period of time, either because of a spike in work that became permanent or the temporary’s particular skills, Monsanto reviews the position and considers converting it to a regular employee position. If converting the position proves to be the better option, the position is posted and the temporary and other interested candidates can apply.

In addition, a special temporary-tailored interview process for times when they need to be involved in the hiring or placement of temporaries by the agency is useful. The questions in this process focus on the functional competencies and how the person would handle the job as a


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temporary worker among regular employees.

Fourth, managed service providers can be a great solution with low risk. As with staffing suppliers, companies should partner with high quality managed service providers that offer good benefits to their employees. This solution, although time-intensive initially, can reduce many of the risks associated with contingent workers, especially if the managed service truly excels at managing their workers in the company's environment.

Fifth, as the most significant risk factor, independent contractors should be avoided if possible by bringing them in through a temporary agency. When engaging an independent contractor is necessary, the relationship should be carefully and regularly monitored to ensure that they are and remain an independent contractor. Independent contractors should be engaged for short bursts of work and for highly skilled jobs, and should function as autonomous talent to produce deliverables, designs, or evaluations. Monsanto has very clear and specific contracts with independent contractors.

Finally, Monsanto’s proactive and aggressive approach to the Affordable Care Act with temporary agencies is a particularly important best practice.

8. Trends for the Contingent Workforce

Monsanto has successfully integrated contingent workers for many years. Over time, they have seen significant growth in the interest in finding managed service companies who will handle certain segments of the work and manage their own employees.

Conway also perceives a trend towards embracing freelance and independent contractor work, especially within highly skilled professionals such as software developers, scientists, and engineers. However, Conway believes that these independent contractors may someday realize that they are not saving enough for retirement. In a similar vein, she has also seen an emerging trend with new laws, regulations and government scrutiny over classification issues that is intended to push companies toward hiring employees and punish misclassification.

B. A Mid-Sized Financial Institution

At a mid-sized, California financial institution we interviewed, less than 10% of the roughly 3500+ colleague workforce consists of contingent workers. These workers are a mix of temporary employees, temporary agency workers, independent contractors, and paid interns. The senior employment counsel at the institution believes that many companies are becoming more cautious about hiring independent contractors unless the contracted services to be performed are completely outside a company’s core business.

1. Misclassification and Best Practices to Avoid the Risks

The risks associated with misclassifying a contingent worker as an independent contractor is a rather big concern. Independent contractors who are sole proprietors are prime candidates for



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claims of misclassification.

The senior employment counsel interviewed recommends that contracts with independent contractors “expressly delegate to the independent contractor the right to control the manner and means by which the work is done.” The independent contractor should be the party who determines how to complete the project and the number of hours and/or amount of contractor resources to be invested in the project. Such delegation reduces the risk of “controlling” the independent contractor. When contracts are structured on a fixed price for completion vs. a time and materials basis, a profit/loss incentive is created for the contractor to work efficiently. The independent contractor should be required to carry and show proof of insurance (including workers compensation insurance) and utilize his/her own tools rather than the company’s where possible. The mid-sized financial institution uses contracts with very explicit language specifying the terms and responsibilities of both the independent contractor and the financial institution.

Problems can likewise arise with agency workers when agency supplied temporary workers are treated too much like employees. While the company may not consider or classify them as employees, the company is invariably a joint employer of such workers. Contracts with employee leasing companies and temporary employment agencies should specifically allocate all payroll, tax, insurance (including health care), workers compensation, background checks, I-9 compliance and other responsibilities to those agencies as the statutory employer. As a best practice, the senior employment counsel recommends keeping more distance with agency temporary workers. Such workers should be issued different looking identification badges, not be disciplined by company supervisors but rather only by their legal employer, be granted only limited access to company computer systems, not be invited to company events, and not participate in other company activities except to the extent necessary to perform their leased employee functions for the employer.

2. New Initiatives in Light of the Affordable Care Act

Beginning January 1, 2016, the ACA requires companies to offer affordable minimum essential health care coverage to 95% of their common law employees or face substantial tax penalties. In light of the growing attention to contingent workers, the senior employment counsel believes companies should take note of how such workers will count against them for penalty assessment purposes. If an employer has a large number of independent contractors or temporary agency employees who become employees under the law, the employer’s headcount for ACA purposes would increase and could unintentionally result in the number of workers who are offered affordable care dropping below the 95% threshold. This could result in significant ACA penalties based on the employer’s entire workforce head count. Spelling out temporary agency and contractor obligations for ACA compliance, supporting them with indemnity clauses, and being vigilant about proper classification is imperative.

3. Recommended Risk Management Initiatives in Using a Contingent Workforce

A first step in minimizing the risks associated with misclassification is to adopt an efficient process for tracking and correctly categorizing contingent workers. A checklist can be implemented which gathers information necessary to the determination of how best to categorize and or retain the


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services of a contingent worker, particularly for correct classification of a proposed independent contractor. Where a contractor does not supply its own agreement, employers should consider developing a standard one for their own use; one which clearly defines the parties’ working relationship, the terms for payment, the party retaining the right to control the work, and the nature of the work or services being contracted but which also addresses or considers indemnification, insurance, intellectual property, subcontracting, dispute resolution and other issues. Entities retaining non-corporate contractors should maintain a log of those individuals for audit purposes. Some states require that entities periodically report their retention of independent contractors including start dates and contract amounts.9

A second risk management initiative involves a periodic review of an employer’s independent contractor relationships to insure proper classification. Such reviews should evaluate the criteria for independent contractor status and where they have not been met, correct the issues or retain the contractor through a temporary services provider/employer.

Contingent workers, specifically independent contractors, may easily slide in to common law employment status if they are treated like employees. Accordingly, care should be taken to make lawful distinctions between contingent workers and regular colleagues in the workplace. At the financial institution interviewed, agency employees and independent contractors are designated as non-colleagues in any optionally provided internal internet address, are generally paid for their services through submitted invoices and not time sheets, are retained through well documented written agreements, do not receive any benefits, and are not invited to company events.

As a fourth recommendation, the senior employment counsel interviewed suggests that employers should insist that staffing agency contracts contain provisions regarding agency compliance with the ACA and indemnification for costs associated with non-compliance. Finally, one other recommended success factor for effective contingent workforce management includes narrowing the number of staffing firms used and building relationships with firms that have sound financials and good track records with employment practices compliance and for supplying quality individuals.

C. Allnex

Allnex, a leading supplier of coating resins (specialty chemicals) headquartered in Brussels, Belgium, with operations in 27 countries, makes use of several types of contingent workers. While their contingent workforce is spread around the world, it typically comprises only a small percentage of the company’s 2,200-person workforce. Recently, however, the company has experienced an unprecedented growth in independent contractors, most of whom are assisting with a new enterprise resources planning system. This rapid change in worker dynamics has required increased control, organization, and diligence, as Allnex has worked through the attendant challenges and developed methods to successfully monitor and minimize the risks of an uncharacteristically significant contingent workforce for their company.

1. Contingent Workforce Program

Allnex’s Marie Van In, Vice-President Human Resources and Legal Services, Juriste



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d’Entreprise/Bedrijfsjurist, indicated that while Allnex does not have a “deliberate program” for the contingent workforce, the company nevertheless continually assesses the needs of the organization to see what makes sense. Allnex primarily has three types of contingent workers.

First, Allnex’s contingent workforce includes participants in their apprentice program. These apprentices are provisional Allnex employees, who are part of a professional training program combining education and vocational training at Allnex’s labs or plants on a part time basis. Through this program, an apprentice obtains the benefit of real experience. Allnex both reinforces its ties and goodwill within the community and has the opportunity to test the skills and competency of potential young new employees. Van In has found this to be a low risk and very successful program.

Also part of the contingent workforce program, Allnex has a number of short-term workers who are obtained through temporary staffing agencies. A manufacturing and chemical business, Allnex requires each shift to be fully staffed in order to maintain production. Unexpected leaves of absences or vacancies caused by long or short-term disability can be critical and must be filled. Unexpected peaks in production may also lead to the need for temporary staff. These vacant positions often require specific skills and particular qualifications, and a temporary staffing agency can help meet those needs with minimal risk. These temporary workers are not employed by Allnex, but are still tracked within their ‘head count’ report in order to control costs. While strong contracts must be negotiated with the temporary agencies, the use of this type of contingent worker is relatively limited and is perceived as low-risk.

According to Van In, independent contractors present a higher level of risk that must be more carefully controlled. At Allnex, independent contractors are hired for specific and set term projects that are not generally part of the core business. Allnex also maintains some independent contractors on a longer-term basis throughout their operations where they do not feel it is necessary to employ full-time workers. These independent contractors typically would not work exclusively for Allnex but would have more than one principal. Allnex currently has an unprecedented number of independent contractors working on a new enterprise resources planning system. Of the approximately 200 independent contractors working for Allnex, almost 75% of them are hired individually for a particularly technical or project management skill - not contracted through a company. The company has overcome numerous obstacles and challenges in employing a large number of independent contractors and, according to Van In, this area of contingent employment “draws more attention from the legal department.”

2. The Risks and Challenges of a Contingent Workforce in a Global Company

Independent contractors present the largest risks due to the threat of sliding into a quasi-employment relationship. At Allnex, independent contractors are not hired to do the same type of work as full time employees, but have a specific skill set that is required for a project instead of a full time need of the company. Should this type of contingent worker become too integrated within the company and begin to be treated as a full-time employee, financial liabilities arise as they may be reclassified as an employee. These financial liabilities stem from local country laws as well as the Directive on Temporary Agency Work implemented by the European Commission.



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Van In explained that Social Security or tax authorities could evaluate the employment relationship and reclassify the relationship as an employer-employee rather than an independent contractor. In that instance, the reclassified “employer” bears all the risk (at least in most western European countries) for Social Security or taxes not previously withheld. In this situation, companies can also be responsible for payments or withholdings not previously made for paid vacation, taxes, overtime, bonuses and other mandatory employee benefits. If a contractor disputes a past relationship claiming an employment relationship, the reclassified employer may even be responsible for a severance package. As such, monetary risks resulting from reclassification can be significant.

Factors that Van In watches for to avoid this situation include a contractor becoming imbedded in a team composed of mostly employees where the contractor and employees collaborate on work schedules, work time, and vacation. “The company is put at risk when independent contractors are treated in the same manner as full-time employees.” Van In even challenges whether contractors should be invited to company social events or holiday parties. This presents something of a dilemma. While it may increase legal protection, attendance at company events can also be extremely valuable for contractors who are working on a team and who want to feel as if they are a part of that team, both professionally and socially. Of course, it depends very much on the situation and should be judged on a case-by-case basis. Thus, Allnex managers working with contractors must remain vigilant about monitoring independent contractor relationships that may slide into a seeming full-time employee relationship.

One of Allnex’s biggest recent challenges with its contingent workforce has been absorbing the different regions in which Allnex operates an unprecedented number of independent contractors for one particular project. As a part of this challenge, it was necessary to bring contractors into the positions in a methodical and proactive manner. Allnex felt it critical to ensure that all potential logistic and documentation issues were thoroughly considered and managed for each independent contractor in order to minimize the reclassification risks. Ensuring that proper contracts were completed for each contractor proved to be a time consuming endeavor. Template contracts helped streamline this process. Allnex also found it worked best to dedicate a single individual to contract management for this project.

3. Leading Practices and Trends

Van In has not found one single, perfect monitoring tool for contingent worker relationships. Instead, she finds the best and most helpful practice to stay ahead of classification issues is being curious and well connected within the business. She tends to ask questions about contingent worker relationships before they begin and then periodically thereafter, particularly when a relationship is extended. She looks for specific and clear answers that will help identify situations that others see as perfectly appropriate but which in reality may have slipped into a quasi-employee status. This continual curiosity and strong connection with the business helps identify and minimize the risks associated with contingent workers.

Other best practices Allnex uses when incorporating independent contractors into their contingent workforce include checklists and clear and specific template contracts. These practices help to control and minimize risks because they clearly set out the rules and responsibilities of both parties



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involved in the relationship.

In fact, Van In considers template contracts highly effective and essential tools. The legal department is actively involved in creating these templates and reviewing the contracts as they evolve for specific relationships to ensure the responsibilities are clearly defined and that they provide the necessary IT and data privacy provisions. While the terms of the relationship are imperative to reduce risks, the IT and data privacy provisions are particularly important to comply with European laws.

Additionally, checklists guide management so that the contingent workforce is distinguished from the regular workforce. Through the checklist, for example, directions are given to set up independent contractors’ emails and business cards with “contractor” after their name. They also help ensure that independent contractors are not misrepresented as employees graphically or visually on organizational charts. From a management perspective, the checklists provide practical advice about classification to heads of departments.

These checklists are produced so that they are applicable to more than one country, and are regularly being updated. Specifically, they incorporate the variations of country laws across Europe. To additionally stay up to date with ever-changing laws in the 27 countries they are located, many of the human resources personnel at Allnex have a legal background and if doubts arise they rely on outside counsel.

Marie Van In believes that the trend of employing a contingent workforce will continue to rise and that there will be an ever-greater reliance on independent contractors. She believes that the generation currently entering the workforce prefers not to be tied to a single employer but want to be “developed by challenging assignments.” Thus, they are more interested in working on a particular project than for a company. In addition, as technology continues to progress, contractors will have even greater ability to be “virtual”. For these contractors, working on a project on the other side of the globe is rapidly becoming a reality. Companies must be prepared to manage a workforce within this new reality.

D. Allnex USA Inc.

Allnex’s use of independent contractors for professional services that are not part of their business is exemplified by Bob Luss and Doug Gordon, partners at The Law Office of Gordon and Luss Pllc, that also serve as general counsel for Allnex, USA Inc. Allnex USA is the United States subsidiary of Allnex S.à.r.l., which is headquartered in Belgium. Allnex needed a professional legal team for their U.S. subsidiary, but did not feel that it was necessary to establish a full time legal department. As a solution, Allnex turned to independent contractors Bob Luss and Doug Gordon to find the expertise and extensive experience they needed for legal counsel in the U.S. Each having served as general counsel in the chemical industry for many years, Luss and Gordon were able to step right in to the role and provide the valuable services Allnex needed.

1. Contingent Workforce Program in the United States

Allnex USA does not have a defined program for contingent workers. Instead, issues are handled


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on a case-by-case basis for Allnex depending on the current needs of the company and the desires of the individual contractor. The contingent workers used by the U.S. subsidiary include temporary workers placed by staffing agencies as well as independent contractors.

The need for contingent workers at Allnex USA arises when contractors (like Luss and Gordon), can fulfill a specific professional need for the company when a full time employee is not needed, and increasingly when prior full-time employees who have either retired or need to resign for personal reasons work as a contractor or through an agency. These former employees are sometimes brought back with more flexible work hours on short-term contracts in order to provide a particular expertise.

For example, one Allnex full time employee wanted to resign to spend more time with family. Instead of losing the employee immediately, Allnex worked out a six-month contract with the individual to allow more flexibility for family time. This also allowed the company more time to find an appropriate replacement with equivalent expertise. Gordon and Luss have seen this as an increasing trend, particularly in light of an aging workforce and retirement eligible employees who are ready to work fewer hours, but who still have either the need or desire to work and who have valuable knowledge to share with the company. These returning individuals are brought back as independent contractors or through staffing agencies. Gordon and Luss work with these individuals to ensure the proper fit for both parties. If the worker is insured, they may become an independent contractor. However, if the individual is not insured and is continuing in a short-term capacity, they coordinate with a staffing agency to serve as the employer. In the end, Allnex benefits from the valued experience and special knowledge base and the former employee is able to enjoy more flexible work hours.

2. The Risks of Contingent Workers

Problems can arise when contingent workers start looking like employees. In such instances, there is a risk of legal reclassification of these workers as employees or joint employees. To evaluate that risk, the legal factor Luss places the greatest weight on is the amount of control exercised over the worker. Both Gordon and Luss agree that the most common mistake managers make is the micromanaging of contingent workers. Providing too much detailed instruction can lead to the question who is responsible for managing or instructing the contingent worker. Gordon and Luss caution that if a temporary worker or contractor is instructed exactly what to do on a task-by-task basis, a company runs the risk of that worker crossing the legal threshold to becoming an employee. There are many legal tests and factors to consider in determining whether someone is an employee, and Allnex’s human recourses staff and managers are conscious of the distinction. Regular in-depth conversations with human resources and managers on this topic can help mitigate reclassification risk.

In advising the company about the level of control and inclusion of contingent workers, Gordon and Luss recommend, for example, that company meetings concerning any type of employee benefit do not include the contingent workers – whether contractors or temporary workers. However, unlike their European counterpart, Allnex USA does not exclude the contingent workers at social events as they feel it is important for the overall morale of the company. Luss and Gordon highly recommend inviting the contingent workers to safety meetings and training, as well, to



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ensure that they comply with OSHA requirements and protect the company and those that work there in any capacity. Even when a staffing agency provides safety training for the temporary workers placed at Allnex, Luss and Gordon prefer to review the materials to ensure they are complete and thorough.

3. Leading Practices and Key Factors to Minimize Risks Associated with Contingent

Workers

These U.S. General Counsels recommend two main “best practices” to minimize the risks associated with contingent workers. First, Luss emphasizes the importance of understanding the criteria for determining when a worker is considered an employee under local, state, and federal laws. Gordon also recommends having a good contract in place with either a staffing agency or independent contractor that contains clear and strong protective provisions.

A key practice at Allnex USA to ensure workers remain properly classified includes having a staffing agency place a manager on-site when large groups of temporary workers are involved. This reduces the amount of control exercised by Allnex managers and thus reduces the risks that may lead to joint employee classification or misclassification.

Alternative strategies are used for smaller groups of temporary workers without an on-site manager or independent contractors. As previously discussed, Gordon has conversations with human resources and the contractor’s supervisors so that they clearly understand the roles of each party. Gordon explains that the contract worker is “generally told what job is to be accomplished but without micromanaging” the process. These methods are all used to minimize the amount of control Allnex exerts over the contingent workforce.

Luss also emphasizes the importance of clear contract terms as a key factor for success with contingent workers. In reviewing a contract, he spends extensive amounts of time laying out the scope of the project or work assignment. It is critical to make sure that there is clear agreement between the parties regarding the scope of the project and the independence of the contractor.

A successful contingent worker relationship begins with a strong contract that contains several key provisions. An “Independent Contractor” clause should explicitly state that the worker is not an employee and is not entitled to benefits. This clause should also articulate precisely what is to be accomplished -- but not how it is to be accomplished. Additionally, Luss and Gordon emphasize that it is important to include strong and specific warranty and indemnity clauses.

When using Staffing Agencies to fulfill needs at Allnex, Luss finds it beneficial to use larger staffing agencies that can specialize in highly trained professionals such as engineers and CPAs. These agencies have the experience and expertise to ensure that they are complying with the appropriate laws governing the rights of the staffing agencies employees. The contracts with these agencies are also closely reviewed and include assurances that the staffing agency complies fully with all relevant employment and benefits laws.


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E. Intel

As a global technology company headquartered in the United States, Intel Corporation has a supplier site that explains its contingent workforce philosophy and a Contingent Worker Global Engagement Policy that sets forth minimum requirements. However, additional requirements and guidelines are added for local country laws. In Europe, contingent workers are a feature of doing business. ACC spoke with Richard Devereux, European Labour Law Counsel, Intel Corporation, to gain the European perspective of the legal issues of utilizing a contingent workforce. Devereux’s legal group covers a region of approximately 40 countries in Europe and Africa.

1. Program and Policies

As an overarching goal, Intel only uses contingent workers in Europe when necessary and when doing so complies with the many laws governing these workers. Intel classifies the contingent workforce into two primary categories: Outsource Services Contingent Worker and Staff Augmentation Contingent Worker. While Intel does utilize independent contractors, they are generally avoided in Europe and when needed brought in through another agency or employer.

Outsource Services Contingent Workers, when used according to the model policy and in compliance with local laws, present a lower risk. Intel outsources certain ancillary functions or entire work streams, as necessary, with this category of worker. Outsourcing is reserved for non-core work, such as their canteens.

Staff Augmentation Contingent Workers are temporary workers hired through an agency and used for core work but only for a limited time. Intel limits staff augmentation workers to no longer than 12 months in a position.

As part of Intel’s global contingent workforce policy, specific do’s and don’ts exist to direct managers and human resources with minimum guidance in relation to how they handle the contingent workers. These policies are designed to minimize the financial and regulatory risks associated with misclassifying workers.

2. European Challenges of Contingent Workers and Co-Employment

One of the biggest challenges associated with staff augmentation in Europe is ensuring that contingent workers keep their classification. These claims occur when a company is found to be employing workers permanently but not giving them the status of permanent employees. Significant liabilities exist in Europe when employers are found to be either a de facto employer or a co-employer due to misclassification.

Intel concentrates on five areas to avoid risk of co-employment with staff augmentation. First, workers have an employer other than Intel. Second, Intel avoids treating them like an employee by minimizing the direction and control provided by Intel on a day-to-day basis. Intel also has duration limits on the length of service for staff augmentation workers. In Europe, generally that duration is 12 months. Fourth, the selection of workers for assignments is handled by the agency employing the workers and not Intel, if possible. Finally, the content of the work done by

https://supplier.intel.com/static/governance/cwsp/cwsp.htm

https://supplier.intel.com/static/governance/documents/Contingent_Worker_Engagement_Policy.pdf

https://supplier.intel.com/static/governance/documents/Contingent_Worker_Engagement_Policy.pdf



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temporary workers is important. Temporary workers can be hired to do core work as long as there is an identifiable reason of why they are coming in to do core work.

To further maintain correct classification, Intel takes several steps to keep contingent workers separate from regular employees. Organizational charts, business cards, and ID badges reflect a contingent worker status. Separate training is also provided to contingent workers so they know what to expect in the position they are filling. Intel does not refer to the workers as “employees,” provide performance reviews, disciplinary actions, promise full time employment, or make pay suggestions. Supervisory functions are left to the agency. Further, contingent workers are not invited to company events, business update meetings or employee training. These are all policies Intel follows to mitigate risks and ensure that the worker does not become an employee.

A best practice used by Intel is a well-systemized tracking procedure for contingent workers. In Europe, at Intel, the human resources department does not oversee the contingent workers. Instead, their purchasing organization maintains control over this workforce creating a distinction from regular employees. Contingent workers are procured, managed, and tracked through a purchasing contingent worker system. The system provides guidance to Intel in terms of when they arrive, where they are placed, the type of contingent worker and when they should leave. This system is very important to remain complaint with the various laws and regulations.

3. The Challenge of the Temporary Agency Workers Directive and Changing Laws

Across Europe

Another challenge faced by Intel in Europe is abiding by the regulations of the Temporary Agency Workers Directive and the variety of laws throughout Europe. The Temporary Agency Workers Directive was promulgated by the European Union to set out regulations to ensure that temporary employees are treated equal to regular employees. A few of the main headings under this act include requirements that temporary agency workers are paid the same as regular employees, given vacation time, and given training opportunities. Maintaining compliance with this Directive is imperative to avoid the regulatory penalties for violating the law.

Across Europe and Africa, where Devereux advises Intel, there are several countries with very particular contingent workforce laws that can be quite taxing. Russia and Italy, for example, are very restrictive and have very specific requirements for contingent workers, explained Devereux. Not only do laws differ from country to country, some laws are quickly changing. In Russia, for example, the laws surrounding contingent workers are evolving. Intel has had to revisit their model and guidelines in Russia many times to remain legally compliant.

A Contingent Workforce Management Review Committee at Intel uses the purchasing system to track and monitor the workers. With the aid of this system, the Committee works hand in hand with local management and the HR Legal Group to stay abreast of the local laws in each country and to ensure Intel is operating within the legal restrictions. When needed, the legal group will consult with outside counsel in a specific country to understand the local restrictions and peculiarities of engaging contingent workers there. This team approach is a best practice and necessary to mitigate the risks of a global contingent workforce.




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4. Other Best Practices and Trends for a Global Contingent Workforce

Devereux recommends continuous training and internal audits to reduce risks associated with the utilization of contingent workers. Intel trains managers extensively on how to work with contingent workers. Regular audits further diminish the risks of contingent workers becoming co-employees or defacto employees.

As a result of the risk of misclassification, Intel has become almost insistent on another entity acting as a contingent worker’s employer rather than hiring an independent contractor. Through various legal groups with which he is involved, Devereaux has seen the same trend at other companies. He has also noticed companies move away from agency workers and toward a fixed term employee due to the constraints of the Agency Workers Directive in Europe.

F. Tata Consultancy Services, Canada

Nagendra Krishnamurthy, Associate General Counsel and Head of Legal at Tata Consultancy Services of Canada, Inc., finds that in the IT industry, it is quite common to have contingent or alternative workers and that this workforce is advantageous to both the employee and the employer. Contingent work attracts individuals with unique or niche skills who deliberately choose to remain independent contractors, even when companies may offer full time employment. Employers, on the other hand, may need someone with a high level of IT proficiency for short-term projects.

Tata Consultancy Services Canada, Inc. (TCS Canada) is a wholly owned subsidiary of Tata Consultancy Services, Ltd. TCS Canada is an IT services, consulting and business solutions organization. It offers a consulting-led, integrated portfolio of IT, BPS, infrastructure, engineering and assurance services. TCS Canada provides a unique perspective on the use of a contingent workforce because they both engage contingent workers for their business and also place some of their employees temporarily at customer sites. A comprehensive agreement meeting the requirements of the specific nature of contingent workers and strong governance to ensure compliance with such contracts are the fundamental principles recommended by Mr. Krishnamurthy to mitigate the risks associated with contingent workers.

1. Identifying the Contingent Workforce

The best risk mitigation in using contingent workers is to have a clear internal guideline on how and when to use contingent workers. Properly identifying and classifying contingent workers is key to effectively managing this workforce. Contingent workers may be broadly grouped into three categories: independent contractors, workers provided by staffing companies and temporary foreign workers.

Independent contractors pose relatively higher risk to and as such will require the most attention from the legal group. The key is to determine whether it is most effective to use an independent contractor or a full time employee for a given task or project. Clear guidelines regarding contingent workers help managers and human resource personnel identify the appropriate type of staffing for a project. To reduce risks, an organization may reduce its dependency on the

http://www.tcs.com/offerings/it-services/Pages/default.aspx

http://www.tcs.com/consulting/Pages/default.aspx



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independent contractors. When an independent contractor is needed, the preferred course of action is to bring the individual in through a staffing agency rather than contracting with them directly.

Staffing companies can be retained to provide temporary workers to assist with short-term needs or projects. Fewer risks exist with this category of worker, but written procedures and best practices are still used to avoid joint employment issues.

2. Risks, Challenges, and Key Success Factors of Contingent Workforce Utilization

According to Krishnamurthy, the biggest legal concern regarding contingent workers is ensuring that proper contracts are in place in a timely manner.

Contracts with independent contractors need to be very closely scrutinized. A critical factor in mitigating risk is limiting the length of the work term. A best practice in this regard is for companies not to engage in back-to-back or automatically renewable contracts with independent contractors. When using a fixed term contract, an early termination clause is important to maintain control of quality and costs. Other important provisions of the contract for independent contractors include express statements regarding the benefits or entitlements that apply and do not apply for contingent workers.

The service agreements with staffing agencies need to be comprehensive as well. Due to changing laws across Canada, these contracts are not open-ended but include renewal or review provisions every few years. In Canada, regulations and laws regarding contingent workers vary from province to province and are also amended from time to time. A recent amendment (74.18) in Ontario’s 2014 Stronger Workplaces for a Stronger Economy Act holds both the staffing agency and client jointly and severally liable for the wages of a contingent worker.10 Given the potentially significant financial implications of this amendment and others, it is critical for companies to regularly revisit contracts with staffing agencies.

Clear responsibilities for the vendors need to be identified in these contracts along with provisions concerning insurance, indemnities, warranties and remedies in case of a breach of contract. To ensure compliance with both the law and the contract by the staffing agency, companies should include provisions that require the staffing agency to provide reports, compliance certificates, or submit to an audit.

A best practice in this regard is to conduct regular governance reporting meetings with the staffing agencies to identify any issues and indications of non-compliance. These meetings address issues to be corrected before they become problematic and reduce risks without the expense and time of an audit.

When using temporary foreign workers it is imperative that the contracts comply with work permit conditions. A work permit is granted with certain conditions, and proper governance ensures that those conditions are being met. Canadian law provides that work permits may be requested under international mobility program for specialized knowledge workers. However, the law does not clearly define specialized knowledge. Therefore, the legal group will often turn to an immigration counsel for an independent expert opinion as to whether they are compliant with the

http://www.ontla.on.ca/web/bills/bills_detail.do?locale=en&BillID=2916


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“specialized knowledge” requirement.

In a high tech industry with frequent remote transactions, local laws can be overlooked inadvertently. Krishnamurthy generally recommends abiding by local laws in the locations where a company does business as if it had a physical presence or shop in the location - even when transactions are handled electronically. For instance, companies may have a full time employment lawyer to manage compliance with employment laws. However, it will be occasionally necessary to engage an outside law firms across the provinces to ensure compliance with the applicable provincial legislation.

3. Best Practices and Recommendations When Using a Contingent Workforce

First and foremost, Krishnamurthy strongly recommends that legal advice precede the use of a contingent worker. By maintaining a strong working relationship between managers, the human resources department, and the legal department, risks associated with contingent workers are minimized from the onset. Close involvement by the legal team is a necessity given the variety and fluid nature of the laws within each province in Canada.

Managers and human resource professionals must fully understand the different types of contingent workers and what benefits each type receives. The distinction between the types of workers is key to deciding how employee entitlements and benefits are determined. Managers also need to understand how to treat contingent workers and why, for example, independent contractors should not be treated the same as employees. Another best practice is for the legal departments to conduct mandatory formal training for HR and business managers on contingent workers and small discussion groups meet periodically to stay abreast of issues.

Another best practice involves relying on different specialists to manage each type of contingent worker. For example, an immigration group within the human resources department can manage temporary foreign workers. These specialists can provide internal governance so contracts are entered into in a timely manner and include the necessary provisions regarding compliance and adequate protection to manage risks. If some of the customers require an extra background check, these specialists can work closely with the other managers to ensure provisions in client contracts are met when engaging contingent workers. The role of the legal department is to work closely with each of the human resource specialists to develop and standardize forms and best practices.

In conclusion, Krishnamurthy offered a general caution when using contingent workers. “Use contingent workers for more traditional needs such as seasonal or specialized requirements that are not generally available - and not as a means of controlling costs exclusively. In the end, failure to consider purpose or tap other suitable worker models before relying on contingent workers may actually turn out to be more costly.”



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V. ADDITIONAL RESOURCES

A. ACC Resources

1. ACC Docket

Stephen Dwyer, Less than Meets the Eye: Potential Liability when Using Temporary Workers, ACC Docket 2013, http://www.acc.com/legalresources/resource.cfm?show=1355243

2. Annual Meeting Programs

Using Independent Contractors and Other Contingent Workers: A Slippery Slope Getting Slipperier? ACC 2010 Annual Meeting,


What You Should Know about Contingent Workers, ACC 2008 Annual Meeting, http://www.acc.com/legalresources/resource.cfm?show=159633

Managing a Contingent Workforce, ACC 2004 Annual Meeting, http://www.acc.com/legalresources/resource.cfm?show=20388

Managing a Contingent Workforce, ACC 2002 Annual Meeting, http://www.acc.com/legalresources/resource.cfm?show=20629

3. Webcasts

The Future of Contingent Workers, ACC Northeast Ohio Chapter, Sept. 18, 2014, http://www.acc.com/chapters/neoh/index.cfm?eventID=15659

B. Additional Resources

The Emerging New Workforce: Employment and Labor Law Solutions for Contract Workers, Temporaries and Flex-Workers, The Littler Report, April 2009, http://www.acc.com/legalresources/resource.cfm?show=1212035

Pofeldt, Elaine. Shocker: 40% of Workers Now Have ‘Contingent’ Jobs, Says U.S. Government. Forbes May 25, 2015.

Warner, Mark. Public Policy Challenges and Opportunities in a Digital Economy. Posted July 9, 2015 adapted from remarks given at the New America Foundations’ “Connecting Talent with Opportunity in the Digital Age.” June 4, 2015.

U.S. Department of Labor Office of the Secretary. Goals For the 21st Century Workplace. http://www.dol.gov/dol/aboutdol/history/reich/reports/dunlop/goals.htm











http://www.acc.com/chapters/neoh/index.cfm?eventID=15659

http://www.acc.com/chapters/neoh/index.cfm?eventID=15659



http://www.dol.gov/dol/aboutdol/history/reich/reports/dunlop/goals.htm

http://www.dol.gov/dol/aboutdol/history/reich/reports/dunlop/goals.htm

For more Leading Practices Profiles please visit http://www.acc.com/legalresources/Leadingpracticesprofiles/index.cfm

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VI. ENDNOTES

1 Barbara Ann Berwick v. Uber Technologies Inc.

2 Douglas O’Conner, et al. v. Uber Technologies Inc. et

al, pending in the United States District Court of Northern

California. See also, uberlawsuit.com for status and links

to rulings.

3 Scheiber, Noam. Rising Economic Insecurity Tied to

Decades-Long Trend in Employment Practices, The New

York Times, July 12, 2015, The New York Times.

http://nyti/ms/1Hp2QUy

4 Ibid.

5 See 2013 ACC Docket article: Less than Meets the Eye:

Potential Liability when Using Temporary Workers by

Stephen Dwyer.

6 Vizcaino v. Microsoft Corp., 97 F. 3d 1187 (9th Cir

1996)

7 See 2013 Docket article: Less than Meets the Eye:

Potential Liability when Using Temporary Workers by

Stephen Dwyer.

8 Vizcaino v. Microsoft Corp., 97 F.3d 1187 (9th Cir 1996)

9 See, e.g. California Report of Independent Contractors,

Employment Development Dept. Form DE 542.

10 See Yosie Saint-Cyr, Ontario Employment and Labour

Law Amendments Protect Vulnerable Workers, De c .

18, 2014, Slaw.

http://www.slaw.ca/2014/12/18/ontario-employment-and-labour-law-amendments-protect-vulnerable-workers/

http://www.slaw.ca/2014/12/18/ontario-employment-and-labour-law-amendments-protect-vulnerable-workers/

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