The tsunami of new employment laws and regulations in the last two months has challenged employers and human resources professionals, created a host of new employee rights, and caused many bouts of compliance head-scratching. Despite these changes, some employment principles remain fully intact. The employment law principles surrounding the world of third-party workers is one of those constants—at least at the 30,000-foot level. As many human resource professionals recognize, most employment laws and regulations were drafted with a single employer-employee relationship in mind—and organizations with potential employer obligations to a worker have always had to analyze their potential employer status on a case-by-case basis. This same analysis must be undertaken with regard to temporary employee leave rights under the Families First Coronavirus Response Act (FFCRA).  

Covered FFCRA Employers

On April 1, 2020, the day the FFCRA took effect, the U.S. Department of Labor (DOL) released temporary regulations interpreting this new law that requires private employers with 499 or fewer employees, and certain public employers, to provide covered employees emergency paid sick leave (EPSL) and emergency unpaid and paid family leave (FMLA+). In conducting this coverage determination, the DOL makes clear the “employee” count is a pretty broad sweep, so employers must include: employees on leave; internal temporary employees; and temporary employees whom they jointly employ with another employer (regardless of whether another employer maintains the jointly employed employees on its payroll).

With these threshold criteria, it is not uncommon for a temporary staffing agency and the client company to have different statuses under the FFCRA. Most often, the staffing agency has over 500 employees and would not be covered under FFCRA, but the client company has less than 500 employees and would be covered under FFCRA. In such a scenario, if the customer were considered a joint employer of the agency’s temporary workers, it would be obligated to provide leave to the employee under the FFCRA.

Joint Employer Test and the DOL’s Initial FFCRA Guidance on Joint Employer Status

Under the DOL’s January 2020 final rule, a second organization is a joint employer of a worker if it:

• Hires or fires the employee;
• Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
• Determines the employee’s rate and method of payment; and
• Maintains the employee’s employment records.

In a prior version of the DOL’s posted FFCRA FAQs, the DOL summarily assumed that a staffing agency customer jointly employed assigned workers and would therefore need to provide FFCRA leave. This particular FAQ caused some confusion and concern because the DOL’s joint employer analysis is very fact-specific. 

Recent Important Change in DOL Guidance

To the relief of employers concerned by the DOL’s assumption that a staffing agency client would be a joint employer of the agency’s assigned workers, the DOL recently provided clarity with FAQ # 90. Rather than assume the joint employer status of the staffing agency customer, the DOL now specifies the customer will have joint employer status “if” certain circumstances are at play:

90. If I am employed by a temporary placement agency that has over 500 employees and am placed at a second business that has fewer than 500 employees, how does the leave requirement work? Are one or both entities required to provide me leave?

The temporary staffing agency is not required by the FFRCA to provide you (or any of its other employees) with paid sick leave or expanded family and medical leave because it has more than 500 employees. In contrast, the second business where you are placed will generally be required to provide its employees with paid sick leave or expanded family and medical leave because it has fewer than 500 employees.

Whether that second business must provide you with paid sick leave or expanded family and medical leave depends on whether it is your joint employer. If the second business directly or indirectly exercises significant control over the terms and conditions of your work, then it is your joint employer and must provide you with paid sick leave or expanded family and medical leave.

(Emphasis added).

This critical clarification now properly highlights that joint employer status for purposes of FFRCA leave is very much a case-by-case analysis.

So Who Pays for the Leave?

Let’s assume the staffing agency client, with fewer than 500 employees, determines it is a joint employer of a staffing agency worker and the worker qualifies for paid FFCRA leave. Who pays for the leave? The answer begins, and may end, with a review of the parties’ staffing services agreement. Staffing services agreements may or may not address this issue. Some staffing agreements include, for example, “pass-through cost” provisions or “new mandated benefit” provisions that permit the staffing agency to bill the client for the costs associated with providing such employee benefits. 

If the client of the staffing agency ends up paying for the leave and seeks the tax credit it is entitled to for doing so, the client may need to do something it typically would not do with respect to temporary agency workers—obtain documentation related to the purpose of their leave. Recall that employers providing FFCRA leave are entitled to recover a tax credit for the costs associated with providing such leave, but that DOL regulations require employers to collect and maintain documentation to support the circumstances for granting such leave. So, in order to process the paid leave and recover the tax credit, the client will likely need to work with the staffing agency to collect the necessary documentation (like a leave request form). In addition to collecting the proper leave documentation from the worker, the staffing agency and client should discuss how the cost of FFCRA leave will be documented between one another and invoiced.

Staffing Firms Beware: You Could Still Violate the FFCRA Regardless of Your Size

Staffing firms with 500 or more employees do not have an obligation to provide FFCRA leave, but still have certain obligations under the FFCRA. Specifically, staffing firms should recognize that if a customer provides its temporary employees with EPSL or FMLA+ leave, the staffing firm is prohibited from discharging, disciplining, or discriminating against those employees taking such leave.

Takeaways

Despite its creation of many new rights and obligations, the FFCRA still requires employers to carefully analyze their potential joint employer status. Staffing firms and their clients should review and potentially revise their staffing service agreements. Finally, like all other employers, staffing firms and their clients should continue to monitor future DOL guidance.