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The determination of employee-independent contractor and employer-employee status has long been debated by judges and legal scholars. This determination is crucial for any would-be employer who expects to avoid paying employer payroll taxes, such as Social Security and unemployment taxes, as well as providing worker's compensation and health-insurance benefits. Employee leasing, or staff outsourcing, has become a popular device for employers to shift the responsibility to withhold payroll taxes and provide employee benefits to a third party--the employee leasing company.
Employee leasing arrangements bring other potential benefits. They eliminate the related record-keeping responsibilities that accompany payroll accounting, and can serve to insulate employers from liability that may result from employee-generated claims. Claims can run the full gamut of employee-generated lawsuits, from sexual harassment and discrimination claims under the Civil Rights Acts, Equal Pay Act, and Age Discrimination in Employment Act to obligations under the National Labor Relations Act or pension payment obligations under TEFRA. Clearly, employee leasing arrangements can offer the employer many advantages.
An "employee leasing firm" is defined in a Minnesota statute as "an employing unit that provides its employees to other firms without severing its employer-employee relationship with the worker for the services performed for the lessee." The lessee is sometimes referred to as the "client company" which is defined in a Florida statute as an "entity that contracts with an employee leasing company and is provided employees pursuant to that contract."
A critical legal issue created by these arrangements is whether an employee leasing contract prevents a judicial finding that the client company is also an employer for the purpose of ascribing liability. To resolve this issue, we can review current case and statutory law to clarify the definition of the employer-employee relationship. Additionally, there is an emerging body of case law that deals particularly with employee leasing, as well as interpreting the purposes of the first generation of state employee leasing statutes.
Employee leasing agreements make representations that traditional employer obligations are shifted from the client company to the leasing company. For example, one employee leasing company brochure states that it "assumes the responsibility for the provision of benefits, payroll, unemployment, and the provision of worker's compensation coverage." It further states that it "assumes many employment responsibilities and risks, while...