In 2009, I wrote an article for Contingent Workforce Strategies magazine called “It’s Not a Matter of Time” about the use of term limits as a risk management tool. In the 10 years since, there continues to be a dizzying array of questions and discussions regarding term limits and their effectiveness in addressing co-employment issues.

Given this odd industry fixation on term limits, Staffing Industry Analysts has asked for an update to the original It’s not a Matter of Time article, addressing some of the questions, comments and myths that continue in this area.

To restate one of the themes of the original article: There is nothing wrong with having a term limit. Term limits have legitimate business uses. They just don’t have much to do with co-employment in most cases.

Employee Status

While there are dozens of tests for employee status, the most commonly cited test comes from the United States Supreme Court case of Nationwide Insurance v. Darden. The Darden test (also called the “common law” test) sets forth 13 factors for determining employee status. Many readers are intimately familiar with these elements of the most famous and well-known test for employee status. Even strangers to the field of contingent labor, however, are likely at least somewhat familiar with the Darden common law test. The elements of the test are:

  1. The hiring party’s right to control the manner and means by which the product is accomplished;
  2. The skill required;
  3. The source of the instrumentalities and tools;
  4. The location of the work;
  5. The duration of the relationship between the parties;
  6. Whether the hiring party has the right to assign additional projects to the hired party;
  7. The extent of the hired party’s discretion over when and how long to work;
  8. The method of payment;
  9. The hired party’s role in hiring and paying assistants;
  10. Whether the work is part of the regular business of the hiring party;
  11. Whether the hiring party is in business;
  12. The provision of employee benefits; and
  13. The tax treatment of the hired party.

There are a number of other tests that may apply to the relationship between a business and a contingent workforce. The applicable test varies based on government agency, relevant statute and jurisdiction, but a primary factor in nearly every test is the company’s right to control the worker’s conduct. Examples of tests include the common law test, economic realities test and the hybrid test.

Court discretion. While most other tests borrow from or adapt Darden factors, one of the features of the Darden test is that it is not a “box checking” test. It is not the case that if six factors militate one way and three militate another, then “six beats three.” Courts can assess them however they please — they are not required to consider all 13 factors, or attach certain weight (or any weight at all) to any particular factor. While some courts will state that there is no most important factor, where courts do identify a key factor it is always the first factor — control.

Goes both ways. In the staffing firm/buyer context, there are almost always some factors that militate in favor of finding the staffing supplier to be an employer; some factors that militate in favor of the client as employer; some that militate for or against both; and some factors that are neutral.

In most staffing contexts, the key factors that usually weigh in favor of the client as employer are: control, location, supplying tools, right to assign projects, and control over when/how long to work. Some factors also often militate in favor of the staffing supplier as employer: tax treatment and payment of benefits. There are almost always some factors that weigh for and against employee status for almost every worker.

The reason why term limits are usually irrelevant is that, from the outset, the staffing company and the client usually both have sufficient indicia of employer status to qualify as “employers.” When that is the case, term length is irrelevant to co-employment.

Note: Duration is a factor. It is not the case that duration is legally irrelevant. It is the case, however, that if you already have co-employment, you aren’t doing anything (at least as to employee status) by having a term limit.

I continue this discussion in Part 2, including the US Equal Employment Opportunity Commission’s stance on co-employment, the US Department of Labor guidance, other court decisions, as well as the benefits and costs of putting a tenure limit in place.

Co-employment is discussed in more detail in SIA’s Certified Contingent Workforce Professional (CCWP) Program. For more information, go here.