Temporary Workforce Increases Along with its Compliance Risks

Allen Smith, J.D. By Allen Smith, J.D. October 24, 2017
Temporary Workforce Increases Along with its Compliance Risks

​The contingent workforce continues to grow, but unwary employers can run into many risks associated with using nontraditional working arrangements. Those risks range from placing confidential information and trade secrets in potentially disloyal hands to a company being sued for alleged violations of wage and hour laws, noted Eric de los Santos, associate general counsel, senior director of employment law with TrueBlue Inc., a temporary employment agency, in Tacoma, Wash.

Confidential Information

The contingent workforce includes temporary staffing, long-term staffing, employee leasing, third-party payroll providers, managed services and hybrid outsourcing with freelancers, he noted. With employee leasing, the leasing company and business owner share employment responsibilities. With managed services, a third party manages information technology.  And hybrid outsourcing involves outsourcing on a local and global basis so the workday can be extended between multiple locations. By 2020, 199,639 new jobs are expected in the temporary help services industry. Right now, there are approximately 3 million temporary help services jobs, he said.

Because temporary workers don't have long-term relationships with employers, they tend to be less loyal, potentially putting trade secrets and intellectual property at risk, de los Santos said Oct. 16 at the Association of Corporate Counsel annual meeting in Washington, D.C. He noted that 72 percent of temporary workers admit to being given administrative privileges on their employers' IT systems, according to security software firm Avecto. Only half of temporary workers are informed of any data restrictions during their onboarding, he said.

De los Santos recommended that employers take the following steps to protect confidential information:

  • Introduce security guidelines and processes to contingent workers during onboarding.
  • Apply the same thoroughness to contingent workers when managing their identities and access as one would for the business's own staff.
  • Ensure that HR and legal counsel are on the same page about expectations regarding background checks and security.
  • Have contingent workers sign confidentiality and nondisclosure agreements to protect proprietary information.
  • Have a strict written contract prohibiting independent contractors who have access to trade secrets from disclosing the information to others.

Benefits Plans

One risk of employing contingent workers for the long term is that courts may deem them eligible to take part in the business's benefits.

This problem might be managed through a so-called tenure policy, noted Micah Heilbrun, counsel, labor and employment law, with Exxon Mobil Corp. in Spring, Texas. Under such a policy, after a certain period of time, a temporary employee must leave the position. The company must determine under its tenure policy how long the term of employment will be—often companies choose three to six months or even a year, he noted.

Under a tenure policy, a worker's job must be terminated automatically, regardless of the person's job performance, de los Santos noted. He added that tenure policies can be costly. If the work is not completed by the end of the tenure, someone new must be brought up to speed in the position.

In addition to considering a tenure policy, employers should ensure that their corporate benefits plan documents clearly define who is a nonemployee and specifically eliminate these workers from eligibility for designated benefits and profit-sharing rights, according to Heilbrun. Consider whether contingent workers should sign a waiver that states that he or she is a "special agreement person" not eligible for benefits, he recommended.

Significant Wage and Hour Case

The gig economy is creating an entirely new breed of contingent workers, raising novel legal issues.

In one significant case, former delivery driver Raef Lawson is arguing that he was an employee of food-delivery app GrubHub, noted David Zins, an attorney with Morrison & Foerster in Los Angeles. A bench trial commenced on Sept. 5, and closing arguments are expected at the end of the month.

The decision might indicate what the future will hold for California Private Attorneys General Act (PAGA) claims of this type, he said. While the case was not allowed to proceed as a class action, Lawson's PAGA claim has gone forward. PAGA actions can't be waived because the plaintiff is standing in the state's shoes to bring the claim on behalf of others. So, the case "could still turn into big dollars," Zins said.

Unemployment Claims

Heilbrun also recommended that employers clearly understand who in the organization handles unemployment claims. Often, when companies release temporary workers from assignments or work orders, these workers do not identify the temp agency as the employer but instead point to the agency's business client where they worked.

[SHRM members-only toolkit: Managing Unemployment Compensation Costs and Caseload]

Not recognizing the temp as an employee, the employer will deny the claim, which may lead to additional state agency inquiries on the displaced worker's status as an independent contractor or employee under the Fair Labor Standards Act, Heilbrun indicated. In some instances, both the staffing agency and company engaging the temporary worker's services may be found to be liable as a joint employer.

Make sure when unemployment claims are processed that claims from contractors or temps are looked over by counsel to find out if those workers whom the employer does not recognize as employees were employees of a temporary agency, he recommended.


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