Since the landmark Vizcaino v. Microsoft case of the 1990s, where plaintiffs successfully sued Microsoft Corp. to participate in the company’s benefits plan, contingent workforce programs have sought to avoid co-employment risk. Among their strategies: instituting term limits, distinguishing contingent workers from employees via distinct badges and precluding participation in team activities.

Another strategy employed to ensure contingent workers are excluded from their benefits plans is using a “not my employee” contract clause. Staffing firms also have been offering such clauses in their contracts to appease their enterprise clients, which may read, “Referred CW workers will not be an employee of client for any purpose.” However, the risk mitigation these clauses provide often is an illusion that hides additional risks created for the program.

In fact, contractual language defining employee status within staffing partner agreements has primarily no effect on co-employment litigation, according to rulings and court precedent with regard to co-employment. There are numerous employee definition tests in use by courts as well as federal and state agencies, from the Darden and ABC tests to the IRS multi-factor test, and a “not my employee” contract clause may not even be considered once a test has determined employee status in a court proceeding.

In addition to a false sense of security in terms of excluding contingents from benefits plans, such contract language could put companies at risk in other ways. For example:

  • Possible elimination of the use of legal defenses such as tort. Sometimes it’s critical to be considered a co-employer, such as with an injury incident where access to workers’ compensation insurance is a key financial risk mitigation benefit if you are defined as an employer.
  • Potential loss of ownership of intellectual property. If there is no established employee status, then “work for hire” or “a work made for hire” may not apply on behalf of the buyer of the services unless specifically noted otherwise in the CW service agreement.
  • Potential loss of immunity to harassment. Employers are afforded special immunity to harassment claims if they address specific harassment incidents with responsive resolutions and enhancements to corporate harassment governance policies. There can be some limitations for non-employers to access this risk mitigation benefit.

In each of these circumstances, being deemed a co-employer is to the benefit of the enterprise organization, which the “not my employee” clause would put at risk. Meanwhile, the underlying issue behind the emergence and inclusion of these clauses — precluding benefit plan inclusion — is not avoided. As was the case with Microsoft in the 1990s, the proper solution to that concern would lie in the corporate benefit plan language itself.

Hence, enterprise organizations need to review their formal corporate benefit plan to determine proper documented exclusion. If your program is required by the leadership to include a “not my employee” clause in your CW agreement, there is additional contract wording that one should include so the buyer organization does not opt itself out of the risk mitigation benefits of being a co-employer.

This CWS 3.0 article does not constitute legal advice. It is recommended that you consult your internal company counsel prior to entering into any agreement or changing any company policies.

Learn about issues such as this risk in SIA’s Certified Contingent Workforce Professional Certification program and training class events.