Tuesday, February 12, 2008

Proposed FMLA Rules will affect PEOs

The DOL has published a NPRM - notice of proposed rule making - in preparation for adopting new regulations under the Family & Medical Leave Act. The proposed rules may modify a PEOs responsibilities under the FMLA. Unfortunately, the proposed rules leave more questioned UNanswered than answered.

Here are the most relevant sections of the proposed rules. I've
bolded sections that seem particularly troublesome:

§825.106 Joint employer coverage.

(a) Where two or more businesses exercise some control over the work or working conditions of the employee, the businesses may be joint employers under FMLA. Joint employers may be separate and distinct entities with separate owners, managers and facilities. Where the employee performs work which simultaneously benefits two or more employers, or works for two or more employers at different times during the workweek, a joint employment relationship generally will be considered to exist in situations such as:

(1) Where there is an arrangement between employers to share an employee's services or to interchange employees;


(2) Where one employer acts directly or indirectly in the interest of the other employer in relation to the employee; or,


(3) Where the employers are not completely disassociated with respect to the employee's employment and may be deemed to share control of the employee, directly or indirectly, because one employer controls, is controlled by, or is under common control with the other employer.

(b)(1) A determination of whether or not a joint employment relationship exists is not determined by the application of any single criterion, but rather the entire relationship is to be viewed in its totality. For example, joint employment will ordinarily be found to exist when a temporary or leasing agency supplies employees to a second employer.

(2) A type of company that is often called a "Professional Employment Organization" (PEO) or "HR Outsourcing Vendor" contracts with client employers merely to perform administrative functions--including payroll, benefits, regulatory paperwork, and updating employment policies. A PEO does not enter into a joint employment relationship with the employees of its client companies provided it merely performs these administrative functions. On the other hand, if in a particular fact situation, a PEO has the right to hire, fire, assign, or direct and control the client's employees, or benefits from the work that the employees perform, such a PEO would be a joint employer with the client employer.

(c) In joint employment relationships, only the primary employer is responsible for giving required notices to its employees, providing FMLA leave, and maintenance of health benefits. Factors considered in determining which is the "primary" employer include authority/responsibility to hire and fire, assign/place the employee, make payroll, and provide employment benefits. For employees of temporary help or leasing agencies, for example, the placement agency most commonly would be the primary employer.


(d) Employees jointly employed by two employers must be counted by both employers, whether or not maintained on one of the employer's payroll, in determining employer coverage and employee eligibility. For example, an employer who jointly employs 15 workers from a leasing or temporary help agency and 40 permanent workers is covered by FMLA. (A special rule applies to employees jointly employed who physically work at a facility of the secondary employer for a period of at least one year. See §825.111(a)(3).) An employee on leave who is working for a secondary employer is considered employed by the secondary employer, and must be counted for coverage and eligibility purposes, as long as the employer has a reasonable expectation that that employee will return to employment with that employer.

(e) Job restoration is the primary responsibility of the primary employer. The secondary employer is responsible for accepting the employee returning from FMLA leave in place of the replacement employee if the secondary employer continues to utilize an employee from the temporary or leasing agency, and the agency chooses to place the employee with the secondary employer. A secondary employer is also responsible for compliance with the prohibited acts provisions with respect to its temporary/leased employees, whether or not the secondary employer is covered by FMLA (see §825.220(a))The prohibited acts include prohibitions against interfering with an employee's attempt to exercise rights under the Act, or discharging or discriminating against an employee for opposing a practice which is unlawful under FMLA. A covered secondary employer will be responsible for compliance with all the provisions of the FMLA with respect to its regular, permanent workforce.



These bolded sentences are the result of some Really Big Lawfirms trying to explain a difference between staff leasing and PEO, and telling the DOL that PEOs are not really employers and do not really have much to do with the client company's employees. It also appears that in their comments to the DOL, these Really Big Lawfirms also lumped temp staffing in under the heading of "employee leasing." The end result is destined to be confusion.

Lets make the rather optimistic assumption that we can figure out whether or not a PEO is a joint employer and whether it is the primary or secondary employer, then the proposed rules may bring a small amount of clarity to the situation. A very small amount. The proposed rules largely mirror the existing rules, with additions that reflect the DOL's opinion letters on PEOs and FMLA.