PEO, ASO, Temporary Staffing and HR outsourcing Law

Looming Deadline for PEO UI election in Colorado

2009-12-01T10:45:00.003-06:00

PEOs with operations in Colorado are facing a looming deadline to make a one-time election whether to pay unemployment insurance taxes on their own account & rate, or to pay the UI taxes on the account/rate of their client companies.

2008 amendments to the Colorado PEO statute, had established that PEOs were to be treated as the sole employer for UI tax purposes. However, Colorado Senate Bill 09-258 effectively reverses that change, and instead imposes a "gotcha."

PEOs must file a written designation by 12/31/2009 electing to pay the UI taxes on their own account/rate. If a PEO fails to meet the 12/31 deadline to make a written election to pay on their own account, then the new statute states that the PEO has made an irrevocable election to pay on the client accounts/rates. In other words, if you miss the deadline there is no chance to make a change later.

If you do elect to pay on the PEO basis, SB 09-258 does allow a one-time later choice to report & pay on the client basis. However, once you elect to pay on a client basis, there is no going back.

Also, SB 09-258 makes the election binding on ALL of the PEO's entities under common ownership, managment or control. In other words, a PEO group cannot have two Colorado PEOs - one that pays UI taxes on the PEO account/rate and a second Colorado entity that pays UI taxes on the client account/rate.

Amendements to PEO statute signed by Texas governor

2009-05-28T15:56:00.004-05:00

Amendments to the Texas PEO licensing statute (HB 2249) passed both houses of the Texas legislature, and were signed into law by the Governor on 5/27/2009. Most of the law will go into effect on September 1, 2009. Changes in the financial statement requirement however will not be effective until December 31, 2011.

Authorization for TDLR to accept electronic filings via an authorized assurance organization as part of the licensing process. This is entirely optional on the part of PEOs, who will continue to have the option to satisfy all licensing requirements in the current fashion. ESAC is authorized as such an assurance organization in other states, and can be expected to seek authorization in Texas. For PEOs that participate in ESAC, this will make compliance with state licensing easier. This is particularly true for ESAC participating PEOs with operations in multiple states.

Change in the financial requirements. The new law will require audited financial statments, plus the financial requirments are now defined as a positive working capital requirement, rather than net worth. The numbers have not changed, $50,000, $75,000 or $100,000 - depending on the number of covered employees. The statute expressly delays the audit requirement to 12/31/2011. This means that PEOs operating in Texas will have to supply an audited financial statement with the first license application or first license renewal filed on or after 12/31/2011.

Clairification that a client company will continue to be eligible for state employment based tax credits, grants or other incentives based on the co-employees.

While some PEOs will oppose the change to working capital and required audits, these changes were essentially inevitable. The tide has been moving in these directions for some time. It just took a while to hit Texas.

USERRA & Discrimination against returning military service members

2009-05-07T13:56:00.002-05:00

Recent news reports indicate that the U.S. Department of Justice is taking an aggressive stance against companies (and government agencies) that discriminate against military service members who seek to return to their civilian jobs following completion of their military service. USERRA is the federal prohibiting employers from discriminating against returning service members, and effectively guaranteeing job reinstatement. The DOJ is aggressively filing suit to pursue these claims. http://www.law.com/jsp/article.jsp?id=1202430518180

PEOs are well positioned to assist their client companies to understand and comply with this somewhat obscure employment statute. For most small to midsized employers, USERRA is not well known.

Amendements to PEO statute pass Texas House

2009-04-24T13:52:00.002-05:00

HB2249, which would amend the existing Texas PEO licensing statute has been passed by the Texas House of Representatives, and will now head to the Senate for consideration. As reported earlier, this bill would change the nature of the financial requirements from net worth to working capital, would require audited financial statements, and would provide an option for somewhat streamlined reporting and filing via an approved assurance organization.

The changes here are positive for the industry, and in the case of audits probably inevitable.

Draft legislation affecting Texas PEOs

2009-04-06T11:32:00.003-05:00

The Texas legislature is considering legislation that would modify the licensing of Professional Employer Organization - PEO - firms under the Texas Staff Leasing Licensing Act. See House Bill 2249 - Search by bill number (HB 2249) at the Texas Legislature website

The proposed legislation would only make a small number of changes:

Change the current "net worth" requirement to one of "working capital", while leaving the dollar amounts in place. Under existing law, most PEOs must show $100,000 in net worth, under this proposal the requirement would become $100,000 in working capital.
Require the submission of audited financial statements. This would do away with the current law permitting financial statements that were merely reviewed or compiled by an outside CPA.
The proposed legislation would delay the effective date of the change to working capital and audited financial statements to December 31, 2010. The other portions of the proposed legislation would go into effect, if passed, on September 1, 2009.
Allow for optional / voluntary electronic filing of reports, forms and license renewals or applications via an approved "Assurance Organization." For PEOs with multi-state operations, this is beneficial as this option will help reduce the paperwork burden of keeping in compliance in multiple states.
Add a clear provision that state tax credits or similar benefits to employers, will go to clients based on the Client's total employment of both co-employed staff and direct staff. This avoids the risk that participation in a PEO arrangement would bar a client from participating in certain state government programs such as tax credits.

The proposed legislation is pretty straightforward. The shift to states requiring Professional Employer Organizations to submit audited financial statements has been accelerating for some time, so it should be no surprise that Texas is now considering this change. Similarly, as more and more PEOs move to multi-state operations, the idea of electronic filing via an assurance organization, is likewise an idea that makes sense. For now, PEOs can consider ESAC as the source for this electronic filing and reporting, assuming it is approved as an Assurance Organization. Note that this approval is not automatic, as ESAC is not written into the statute. Those not interested in participating in ESAC are free to submit all filings in the traditional manner, or band together with like minded folks and establish an alternative organizations that meets the requirements specified in the statute.

Will it pass? Only time will tell. Much depends on the general climate of the Texas Legislature, including whether the Legislature becomes bogged down in addressed the economic climate.

PEO arrangements with Texas Law Firms

2009-03-03T11:49:00.003-06:00

PEOs have often wanted to do business with lawfirm clients. High wages, low workers' compensation risks, and fairly stable business operations tend to make lawyers attractive to PEOs. The stumbling block in Texas for many years was an old State Bar Ethics Committee opinion that appeared to prohibit Texas lawyers from entering into PEO arrangements.

That is no longer the case, and has not been for some time. In 2005, the State Bar Ethics Committee issued Opinion no. 560 which squarely allows Texas lawyers to enter into PEO arrangements for their firms, without running afoul of the ethics rules. Opinion 560 can be found here.

Here is the Committee's summary of their decision:

"Under the Texas Disciplinary Rules of Professional Conduct, a law firm may contract with an employee leasing company for the provision of limited employee compensation and benefit services for the law firm's employees so long as the law firm maintains exclusive control over the hiring and termination of its employees, there is no sharing of employees among various clients of the employee leasing company, the leasing company has no managerial or supervisory rights over the law firm's employees, and the leasing company has no access to client information."

Opinion 560 squarely supersedes the older opions on the subjcet, No. 508 and 515. Since the publication of this opinion in 2005, Texas has been consistent with the modern authorities in other states, which have also permitted lawyers to enter into PEO arrangements.

Because this is a state by state kind of issue, PEOs will need to look at this question for each state in which they propose to do business with a lawfirm. Unfortunately, there is no "one size fits all" answer here. While it is true that this issue is a problem of professional ethics for the lawfirm and not directly for the PEO, do you really want to sell a lawfirm on a PEO deal only to have them figure our somewhat later that they just put their law licenses at risk?

PEOs would be well served to provide a lawfirm specific addendum to their customer service agreement confirming that the lawfirm customer and the PEO have agreed to terms consistent with that state's ethics opinions. In addition, PEOs might want to consider whether to permit the lawfirm to easily cancel the contract in the future if the lawfirm believes that the arrangement would be ethcially improper. I can't imagine a worse situation than a PEO trying to hold an unhappy lawfirm client into the PEO arrangement.

New I-9 forms delayed

2009-02-02T11:16:00.001-06:00

On February 2, the U.S. Citizenship and Immigration Services (USCIS) announced that it delayed by 60 days, until April 3, 2009, the effective date for using the revised Form I-9, originally scheduled to go into effect today.

Here comes the tricky bit - Employers who use the new form prior to the April 3, 2009 effective date are subject to civil monetary penalties.

Be careful, and don't jump the gun. ONLY use the form which is currently in effect, not the new one.

Proposed FMLA Rules will affect PEOs

2008-02-12T10:04:00.000-06:00

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.

New regulations on Social Security No-Match letters

2007-08-14T10:11:00.000-05:00

Immigrations & Customs Enforcement (ICE) just published new final regulations related to employer obligations when receiving "no-match letters" from the Social Security Administration. The real issue here is, of course, not social security taxes. The real issue is the employer's obligation to determine whether it is only employing persons lawfully entitled to work in the United States - i.e. I-9 compliance.

Basically, the regulations provide a safe-harbor for employers. The employer will be protected from sanctions, if it exercises due diligence to promptly re-verify an employee's information and does not otherwise know that the employee lacks work authorization.

More to follow, once I have digested the full set of regulations.

Ohio-Does client owe workers' comp. premium if PEO fails to pay?

2007-07-16T13:25:00.000-05:00

In a June 28, 2007 decision an Ohio Court of Appeals looked at whether the client of a PEO would be responsible for unpaid workers' compensation premiums if the PEO fails to pay its own workers' compensation insurance premium bill. State Ex Rel K.A.B.E. Ents, Inc. v. Mabe, 2007 WL 1847662 (Ohio App. 10th Dist. June 28, 2007).

Here, K.A.B.E. entered into a PEO arrangement with Reliance Resources, a PEO under Ohio law. Reliance held a workers' compensation insurance policy. Reliance Resources failed to pay the premiums due for the first six months of 2003. The Ohio Bureau of Workers' Compensation advised K.A.B.E. that it was required to report the employees as its own for this time period and that K.A.B.E. was required to pay the workers' compensation premiums for this time period.

The Court found that the PEO's failure to pay the workers' compensation premiums triggered a statutory obligation on the client company to report the employees as its own and to also pay the full amount of the unpaid workers' compensation premiums owed by the PEO on its employees. The court expressly rejected the client's argument that it should be responsible for the unpaid premiums only after it received notice that the PEO had failed to pay.

Exclusive Remedy Protection for the PEO customer

2007-07-10T16:59:00.000-05:00

In a recent decision, the Texas court of appeals in Dallas held that the client company of a Texas licensed PEO is protected by exclusive remedy. Vega v. Silva, 223 S.W.3d 746 (Tex.App.—Dallas 2007). Link here

This decision is completely consistent with the language of the Texas PEO licensing statute and so is no surprise. This decision is the first Texas court decision squarely addressing the issue.The case is based on an auto accident in which two worksite employees of a PEO were injured on their way to work in a vehicle owned by the client company. The driver was a worksite employee.

The injured passenger brought suit against the client company and claimed that the client was not covered by exclusive remedy protection flowing from the PEO’s workers compensation insurance policy.

The Court of Appeals easily found that the Client Company was protected. “[B]oth the staff leasing company and the client company are subject to the exclusive remedy provisions of the workers’ compensation act.”

Based on evidence that the PEO was licensed in Texas, held and workers’ compensation policy and that the client company was the PEO’s customer the court held that: “We conclude that [the client company] conclusively proved the affirmative defense that the exclusive remedy provisions of the workers’ compensation act applies in this case.”

The Texas Supreme Court previously addressed the consequences of a client entering into a PEO arrangement with a PEO that does not carry workers’ compensation insurance. Tex. Workers’ Compensation Ins. Fund v. Del Industrial, Inc., 35 S.W.3d 591 (Tex. 2000). The Supreme Court’s decision in Del Industries strongly supports the conclusion that exclusive remedy protects the client company, provided the PEO holds a Texas license and carries Texas workers’ compensation insurance. Although the hints are there, Del Industries does not actually decide the question.

Client Insurance & Certificates of Insurance

2007-07-10T10:58:00.000-05:00

Most PEOs include in their customer service agreement a clause requiring the client company to maintain GL insurance and to provide the PEO with a certificate of insurance. In addition, many PEOs also require the client to name the PEO as an additional insured. These are basic steps towards safeguarding the PEO against the risk of litigation arising out of the client's business operations.

But - PEOs cannot become complacent. It is absolutely essential that PEOs have in place a process to monitor and verify that the customer has actually provided the certificate of insurance, that the customer has renewed coverage with no lapses and that any required additional insured endorsement is in place. Too many PEOs treat this as a one-time task, to be worried about only at the time the client is signed on.

If you want to sleep at night, you must establish a smooth, well functioning business process that provides for verification and monitoring. Once the lawsuit is filed, it is too late.

In addition, PEOs must evaluate the insurance requirements for each client individually based on the nature of the client's business operations and their risk posture. For some clients, $500,000 in GL will be adequate. For others, ten times that much will not be enough. PEO management must set the insurance requirements for each client based on a review of that client.

TDLR revises enforcement plan

2006-12-21T12:35:00.000-06:00

The Texas Department of Licensing & Regulation recently adopted a revised enforcement plan addressing all of the licenses issued by the Department.

The enforcement plan gives license holders notice of the specific ranges of penalties and license sanctions that apply to specific alleged violations of the statutes and rules enforced by the Department. The enforcement plan also presents the criteria that are considered by the Department's Enforcement staff in determining the amount of a proposed administrative penalty or the magnitude of a proposed sanction.

The enforcement plan describes in some detail the range of penalties that the Department may assess for various kinds of violations, and the factors that will be taken into account in setting the specific penalty in a particular case. The enforcement plan includes penalty matrices that are specific to each of the license programs administered by the TDLR.

The introduction and general description of the enforcement plan can be found here.

The penalty matrix that is specific to PEOs and Staff Leasing firms is here.

The revised enforcement plan was adopted by the TDLR at the Commission's regularly scheduled meeting held December 6, 2006. Notice of the revised enforcement plan was filed with the Texas Register on December 18, 2006, and will be published in the December 29, 2006, publication.

PEOs and staff leasing firms benefit from this, as it reduces the risk of the Department threatening penalties out of keeping with the seriousness of the offense. While the Department's enforcement efforts under the current Executive Director appear to have been reasonable, in prior years the Department often threatened to assert the statutory maximum fine or to revoke a license in a minor case as a method of "encouraging" a settlement.

There are only a few types of violations for which the TDLR will seek revocation of the license on the first offense:

Giving materially false or forged evidence in connection with obtaining a license, or during disciplinary proceedings - 91.061(4), 72.70(d) and 60.63(b)
Failure to comply with a previous order of the Commission or the Executive Director - 51.353(a) and 72.90
Obtaining a license by fraud or false representation - 60.63(b)
Failure to pay the Department for a dishonored check - 60.82

The moral of this story - don't give the TDLR a hot check!

Time to revisit old contracts

2006-12-04T10:22:00.000-06:00

I recently worked on a problem for a PEO client that made me think about the problem of good customers. You know, the customers who signed up in the early days of your PEO - before you actually knew what you were doing. If you are like most PEOs, you have some clients that are under really old versions of your customer service agreement.

PEO owners need to periodically review the contracts they have their clients under. You may find that some clients are under contracts so outdated, that an update is needed. There is nothing easy about recontracting these clients.

One strategy for securing the client's cooperation is to tell them the truth - you are a good client and have been with us a long time. However, state law has changed over the years, and we want to make sure that our agreements are in compliance with current state law regulating the PEO business.

Time to rethink minimum wage agreements?

2006-11-28T14:03:00.000-06:00

For some time now, some PEOs have adopted minimum wage agreements in an effort to moderate the financial risk posed by a client company that fails to pay. A recent Department of Labor opinion letter may require rethinking the wisdom of that strategy.

In a March 10, 2006 opinion letter, the Acting Administrator of the DOL weighed in on the question of whether (& how) an employer may make deductions from an employee's wages. DOL Opinion Letter FLSA2006-7.

Specifically, the DOL was asked to consider whether an employer could make deduction from an employee's wages if the employee damaged company provided equipment, such as a laptop computer or cellphone. The opinion letter flatly says "No" to such deductions for all exempt employees, and warns that any such deduction from the wages of a non-exempt employee cannot reduce the employee below minimum wage.

OK, so how does this impact PEO minimum wage agreements? First, lets review the basic strategy. The idea is that the PEO enters into an agreement with the worksite employees providing for a reduced wage rate for any pay period that the client company fails to pay its invoice from the PEO. In essence, the worksite employees agree, in advance, to a lower (usually minimum wage) rate of pay when the client fails to pay.

The DOL opinion letter calls this strategy in question. First, the opinion letter notes that the regulations require exempt employees to receive their full salary, without reductions.
"an exempt employee must receive the full salary for any week in which the employee performs any work." 29 C.F.R. 541.602(a). More worrisome is the comment - "The Wage and Hour Division (WHD) interprets these regulatory provisions to mean that if a particular type of deduction is not specifically listed in Section 541.602(b) (formerly section 541.118(a)) then that deduction would result in a violation of the 'salary basis' test."

In addition, the opinion letter notes: "It is WHD's long-standing position that an exempt employee must actually receive the full predetermined salary amount for any week in which the employee performs any work unless one of the specific regulatory exceptions is met."

The risk is that under the DOL's view, such deductions are incompatible with exempt status. In otherword, you risk the loss of the employee's status as exempt from overtime, and could end up owing the employee overtime.

The opinion letter focused on deductions or charges for damage to company provided equipment. In the typical minimum wage agreement, the PEO and the worksite agree in advance to two different wage rates depending on whether or not the client pays the invoice. It is not at all clear that this distinction will be enough to survive the scrutiny of either the DOL or the courts.

Further, the opinion letter looked at similar deductions made from the wages of non-exempt employees, usually those paid on an hourly basis. In the case of non-exempt employees, the DOL cautioned that deductions from wages should not take the employee below minimum wage.
So where does this leave PEOs? I think this opinion letter requires PEOs to reconsider their use of minimum wage agreements. Certainly any such agreement with an exempt employee must be looked at very carefully. The DOL opinion letter seems to support the idea with respect to non-exempt/hourly employees.

Joint Employment, PEOs & the Fair Labor Standards Act

2006-11-28T10:23:00.000-06:00

What does an FLSA case against a Saudi Prince have to do with overtime pay risks for PEOs? Surprisingly enough, quite a lot. The federal court of appeals for the Fourth Circuit recently decided an FLSA unpaid overtime case on the basis of joint employment. Schultz et al v. Capital International Security, 4th Circuit, 2006.

The plaintiffs were five bodyguards employed through a security company that had the contract to supply personal protection to a Saudi Prince. The plaintiffs worked 12 hours shifts at the Prince's residence, but were paid a flat salary with no overtime. The bodyguards worked for several different security companies that held successive contracts to provide a security detail for the Prince.

Ultimately, the Prince fired the security company and one of the Prince's employees set up a new security company (Capital International Security) to provide the security detail. Capital International Security exercised little to no supervision over the bodyguards, for example the Prince's personal staff replaced personnel without consulting Capital International Security. The Prince's personnel staff also handled such details as scheduling, compensation, discipline, and termination of the bodyguards. Capital International Security had little involvement in these matters. Although Capital International Security provided the bodyguards with some equipment, the Prince provided cars, cellphones, cameras and office supplies.

At one point Capital International Security made a half-hearted attempt to convert bodyguards from employees into independent contractors. The Fourth Circuit had no trouble seeing past the ruse, and coming to the obvious conclusion that the bodyguards were truly employees.

From a PEO point of view the more interesting questions related to whether the bodyguards could only sue Capital International Security, the Prince or both. The Fourth Circuit began by quoting from the FLSA joint employment regulations "all joint employers are responsible, both individually and jointly, for compliance with all of the applicable provisions of" the Fair Labor Standards Act. See, 29 C.F.R. 791.2(a). In addition, joint employment must be determined by taking "into account the real economic relationship between the employer who uses and benefits from the services of the workers and the party that hires or assigns the workers to that employer." The ultimate determination must be based upon the "circumstances of the whole activity." Given the regulations, the Court easily determined that the Prince and Capital International Security were joint employers of the bodyguards. The Court thus found that Capital International Security was jointly and severally liable for the unpaid overtime owed the Plaintiffs.

This case clearly suggests how a court might analyze an FLSA claim involving a PEO and its client company. Under the facts of this case, Capital International Security was functioning somewhat like a PEO, with the Prince as its client. As in a PEO arrangement, the Prince (i.e. Prince) effectively set the wage rates, controlled hiring/firing/discipline, established the rules governing the details of the work to be done, and supplied virtually all of the supplies and equipment needed by the workers.

The regulations make this determination by the Fourth Circuit easy:
If the facts establish that the employee is employed jointly by two or more employers, i.e. that employment by one employer is not completely disassociated from employment by the other employer(s), all of the employee's work for all of the joint employers during the workweek is considered as one employment for the purposes of the [FLSA].
29 C.F.R. 791(2)(a). Section 791.1(2)(b) gives additional examples of situations in which "a joint employment relationship will be considered to exist." For example, "where one employer is acting directly or indirectly in the interest of the other employer (or employers) in relation to the employee."

The Fourth Circuits opinion clearly shows how the Department of Labor or a private litigant could easily argue for PEO liability for wage & hour violations that were actually the fault of the client company.

As always, bear in mind that this article is a brief discussion of a complex issue. Treat this a magazine article, not as legal advice for a specific situation.

Proposed rules on Social Security "no match" letters

2006-06-29T12:19:00.000-05:00

The Department of Homeland Security has issued a proposed rule that would address employer obligations when notified that an employee's social security number appears to be invalid or to not match the employee.

The proposed rule can be found here. Public comment is due by August 14, 2006.

The proposed regulation addresses two different situations: the employer receives a "no match" letter from the Social Security Adminsitration asserting that the employee's social security number appears to be invalid or the employer receives a similar letter from the Department of Homeland Security related to immigration status. Importantly, the proposed rule would provide a "safe-harbor" procedure giving the employer a clear rule on what it is supposed to do to avoid liability.

The proposed regulation would require employers to:
a) promptly check their records on receipt of a no-match letter to see if the problem is simple clerical error - such as a misspelled name or transposed digits in the social security number. If so, the employer would be required to correct its records, and inform the relevant agency. These steps would have to be completed within 14 days.

b) If not resolved as in (a), the employer would have to request the employee to confirm that the information is correct. If the employer's records are not correct, the employer would have to take prompt action to correct and then verify with the relevant agency. This may require the employee to take the matter up directly with the relevant agency. Again, the employer would need to act within 14 days.

c) if not resolved as in (a) or (b) within 60 days, the employer would have to follow a new verification procedure, essentially completing a brand new I-9 form as if the employee were newly hired. If the employer cannot verify the employee's status, then the employer must either choose to dismiss the employee or face the risk of sanctions for employment of an unauthorized alien.

Since the I-9 law and rules include non-discrimination provisions, employers will have to apply the same process uniformly to all employees that are the subject of no-match letters.

New interim regulation permits electronic storage of I-9 forms

2006-06-29T11:22:00.000-05:00

A newly adopted interim regulation will (finally) permit employers to electronically store images of I-9 forms. The Department of Homeland Security adopted the interim regulation effective June 15, 2006. Public comments are solicited through August 16, 2006.

The interim regulation can be found here.

The interim regulation seems pretty straighforward. The I-9 rules are amended to explicitly list electronic storage as a permitted method of recordkeeping for the I-9 forms. In addition, the interim regualtion permits electronic signatures. Slightly different standards apply, but both the employee and the employer are permitted to sign the form I-9 electronically.

Data Destruction Regulations

2005-09-06T08:35:00.000-05:00

On June 1, 2005 the Federal Trade Commission adopted a new regulation concerning the disposal of consumer report information and records. The new regulation will be found at 16 CFR part 682. The FTC was required to adopt this regulation as a result of recent federal legislation addressing the problem of identity theft.

The key requirement is actually pretty simple: Anyone who has possession of a consumer report for a business purpose, must take reasonable measures against unauthorized accesss or disclosure when disposing of the information. This new regulation is specific to disposal of consumer information, and for example does not address how such information may be used, shared or stored.

The new regulation covers any information that is a consumer report or investigative consumer report within the meaning of the Fair Credit Reporting Act, as well as information "derived" from such reports. The new regulations do not apply, however, to records or data which contain no personally identifying information.

This new regulation will plainly apply to PEOs as employers if, for example, you have possession of any background check reports on the worksite employees. In most caes, a background check report used for employment purposes would be a "investigative consumer report" under the Fair Credit Reporting Act, and would thus be covered by this new regulation.

The regulation pretty clearly indicate that the FTC expects employers to "implement and monitor compliance with policies and procedures." The FTC comments are even more straightforward, "reasonable measures are also likely to require elements such as the establishment of policies and procedures governing disposal, as well as appropriate employee training."

The FTC's comments recognize that complete destruction of records is difficult. Instead, the regulations only require "reasonable measures" to ensure that the information "cannot practicably be read or reconstructed."

Computer data is notoriously difficult to competely destroy. The FTC 's comments to the final regulations suggest that covered entities may want to consider measures such as smashing computer hard disk drives with a hammer before disposal, or wiping or overwriting the data on a disk via software programs. However, the FTC noted that "whether wiping as opposed to destruction of electronic media is reasonable" will depend on the circumstances. In otherwords, if you choose to wipe disks electronically, you'd better make sure you do it right.

PEOs should review their existing business practices in light of this new regulation, and take this opportunity to ensure that you have a compliant data destruction process.

Possible action steps:
1. Do you have any reports or records falling within the new regulation? In particular, consider whether you have background check reports.

2. If so, you should evaluate your current policies and procedures for disposal of these records.

3. If necessary, update policies and commit them to writing.

4. Make very certain that unwanted or obsolete computers and electronic media are being checked for data and that data is destroyed or effectively wiped before disposal. Keep in mind that simply "deleting" files or formatting a disk under any version of Windows does not actually destroy the files. Consult with computer professionals as needed.

5. Establish a training process and internal quality control checks to ensure compliance with your policies.

6. Consider what guidance to give to client companies regarding their use and disposal of any consumer reports, such as employee background check reports.

Revision to UI report back statute passes Senate

2005-05-26T09:26:00.000-05:00

On May 19, the Sentate Commitee on Business & Commerce considered HB1939. The Sentate Committee declined to adopt the version of the Bill sent over by the House, and instead reported out a committee substitute.

The Committee substitute does not seem to me to significantly change the House version, as the Committee substitute continues the House language requiring written notice to the worksite employees given at the time of termination of employment.

(1)  at the time the employee's assignment to a client
company concluded, the staff leasing services company, or the
client company acting on the staff leasing services company's
behalf, gave written notice and written instructions to the
assigned employee to contact the staff leasing services company for
a new assignment [on termination of assignment at a client
company];

The Committe substitute is here.

HB1939 on UI report back rule - moves forward

2005-05-18T09:48:00.000-05:00

HB1939 on the employee report back rule has passed the House, and been sent on to the Senate. The version that passed the House has the following key components:

The PEO must give written notice to the employee about the report back requirement.
The notice must be in a separate document.
The notice must be given at the time of termination of employment.
The notice must be in the specific language stated in the statute.

While not explicit in the statute, I think it is a fair reading that the only consequence of not giving the required notice would be that you could not invoke the report back rule to challenge an employee's UI claim.

HB2995 substantially watered down

2005-05-11T10:05:00.000-05:00

HB2995 recently had a hearing before the House Committee on Business and Industry. The Committee substitute bill significantly changes the nature and scope of the lien, quite possibly rendering it useless.

Under the original version of the bill, PEOs would be treated as a subcontractor under the existing mechanic's lien statute. PEOs that were not paid by their client, could file a lien against a construction project, provided that the client company was a contractor or subcontractor on that construction project. Because of the lien against the project, the project owner would then have an incentive to make certain the PEO got paid.

The Committe substitute fundamentally changes the bill, rendering it substantially less valuable.

Under the committee substitute, two crucial changes were made: First - the lien attaches only to the client company's prooperty, and second - the lien expires after one year.

Also, the substitute bill removes the language from the existing mechanic's lien statute, and makes it a stand alone lien. This is significant, since it means that any uncertainty in the langauge of the bill will have to be litigated to be cleared up. Also with no other lien to cross reference, it is doubtful in my mind that you can read this bill as providing a basis to attach a lien against the property of anyone other than the client company.

Here is what the Committee substitute says:

Sec. 64.003.  PROPERTY SUBJECT TO LIEN.  The lien attaches to
all products, papers, machinery, tools, fixtures, appurtenances,
goods, wares, merchandise, contracts, chattels, or other things of
value that are created wholly or partly with the staff leasing
services provided or that are necessarily connected with the
performance of the staff leasing services provided and that are
owned by or in possession of the client company or the agent of the
client company that entered into the contract with the staff
leasing services company.

This section unfortunately is not clear, given the number of "or's" in the sentence. There are two ways to parse this sentences.

Possible reading #1:
The lien attaches to: (A) all products, papers, machinery, tools, fixtures, appurtenances, goods, wares, merchandise, contracts, chattels, or other things of value that are created wholly or partly with the staff leasing services provided or that are necessarily connected with the performance of the staff leasing services provided; and (B) that are owned by or in possession of the client company or the agent of the client company that entered into the contract with the staff leasing services company.

If this is the correct reading, this means that the lien applies ONLY to property owned by the Client Company.

Possible Reading #2
The lien attaches to: (A) all products, papers, machinery, tools, fixtures, appurtenances, goods, wares, merchandise, contracts, chattels, or other things of value that are created wholly or partly with the staff leasing services provided or (B) that are necessarily connected with the performance of the staff leasing services provided and that are owned by or in possession of the client company or the agent of the client company that entered into the contract with the staff leasing services company.

If #2 is the correct way to read the Committee Substitute, then the lien could attach to any property "created wholly or partly" with the labor of the worksite employees, even if not owned by the client company.

I have to say, I think #1 is the more likely way to read the bill. Especially since there is no mention in the bill of the rights of third parties whose property would be subect to this lien. I think the courts would be very troubled by the idea of a lien attaching to the property of third parties, when there is not a clear basis in the langauge of this (stand alone) lien statute addressing the rights and obligations of third parties.

Also, the Committee substitute also provides that the lien is valid for only one year. This restriction did not exist in the original version of the bill, and is not part of the general mechanics lien statute. What happens at the end of the year? Possibly, the lien automatically "evaporates." Does the PEO have to explicitly release the lien if not paid? Suppose the PEO has not been paid, but has not yet filed suit?

On the whole, I no longer like HB2995 very much.

Texas PEO law and Unemployment Claims

2005-03-25T07:48:00.000-06:00

For some time, Texas law has addressed unemployment claims by worksite employees. Section 207.045(i) of the Texas Labor Code requires worksite employees to report back to the PEO and request reassignment, as a condition of receiving unemployment benefits. The PEO rule is essentially identical to the longstanding rule for temporary staffing firms at 207.045(h).

Here is what the existing law actually says:

(i) An assigned employee of a staff leasing services company is considered to have left the assigned employee's last work without good cause if the staff leasing services company
demonstrates that:
(1) the staff leasing services company gave written notice to the assigned employee to contact the staff leasing services company on termination of assignment at a client company;
and
(2) the assigned employee did not contact the staff leasing services company regarding reassignment or continued employment; provided that the assigned employee may show that good cause existed for the assigned employee's failure to contact the staff leasing services company.

In short, the statute lays down three rules:
(A) When a worksite employee is fired, the employee must report back to the PEO for reassignment, or face denial of unemployment benefits.
(B) However, benefits will only be denied if the PEO proves that it gave the employee written notice to the employee of the requirement to report back to the PEO on terimination of employment.
(C) If the worksite employee fails to report back benefits will be denied, unless the employee can show "good cause" for failure to report back.

HB1939 would change the rules on this issue. Specifically, the bill would make the following changes:

The written notice currently required under 207.045(i) would have to be provided by the PEO to the worksite employees in a separate written document.
The employee must receive a copy of the notice.
The employee must sign the notice.
The notice must be printed in bold face, capital letters or other conspicuous print.
The notice must substantially conform to the language specified in the bill. In otherwords, the bill would provide the wording for the standard notice.
The notice must be given to the employee at the conclusion of employment.

The effect of the bill would be to require PEOs to obtain a separate signed statement from the employee at the time of termination of employment.

More thoughts on PEOs and Mechanics Liens

2005-03-16T09:03:00.000-06:00

I reported yesterday on HB2995 that would explicitly authorize Texas PEOs to file mechanics' liens to secure themselves against client non-payment. After some additional thought, I am inclined to think this is a reasonable idea, but one that does have limits. The reason why this change is needed at all is that current Texas law is unclear on the question of whether a PEO can properly file a mechanics lien.

The key case is AMS Staff Leasing v. Warm Springs Rehabilitation, 94 S.W.3d 152 (Tex. App.--Corpus Christi 2004). AMS entered into a PEO arrangement with a construction contractor which was a subcontractor on a construction project. When AMS was not paid by its client, AMS filed a mechanics lien. When it did not get paid, AMS sued to enforce its lien rights. In defense, the owner asserted that AMS had no right to file a lien since AMS had not "furnished labor" to the project, only provided administrative services to the subcontractor who was the one who actually provided the labor and did the work. The Court of Appeals agreed that this was a fair question, but one that could not be decided on appeal, and so sent the case back to the trial court for additional factual determinations. The AMS case thus raises more questions than it answers, other than making clear that there is an issue as to whether a PEO has standing to assert a lien.

In a later case, the same Court of Appeals looked at similar arguments in the context of a lien claim filed by a temporary staffing firm. Advanced Temporaries v. Reliance Surety Company, 2004 WL 1632737 (Tex.App.--Corpus Christi 2004).

Here the Court pointed out that only those who furnish "labor" within the meaning of the lien statute have a right to file a lien. The statute defines labor as "labor used in the direct prosecution of the work." Tex. Prop. Code 53.021(3). Helpfully, the court rejected the idea that the statute requires every lien claimant to "engage in the business of construction" as being "contrary to the legislature's intent to construe the lien statute liberally for the purpose of protecting laborers and materialmen." The Court of Appeals held that "the property code affords protection to those who 'furnish labor' as well as those who actually labor on a construction project in Texas."

But, here is the rub. Simply providing HR or staffing services does not necessarily mean that you have standing to assert a lien. The Court cautioned: "However, we conclude that not every arrangement will establish that a temporary employment agency "furnishes labor" as defined by chapter 53. For instance, a temporary employment agency may contract with a construction company to provide only administrative services for the contractors employees and not labor engaged in direct prosecution of the work."

Despite these concerns, the Court of Appeals did find that the temporary staffing firm had "furnished labor" and thus had a right to file a lien. However, the Court of Appeals relied on the following facts in reaching this conclusion:

The temp service actually recruited & hired the employees that were provided to its contractor client.
The temp service "qualified" the workers by verifying legal documentation, driver's licenses, social security cards, and federal employment forms.
There was no evidence that the client company had done any employee screening, qualifying or hiring of the temporary workers.
The temp service recruited and hired the workers as its own employees, and provided the workers' compensation, unemployment insurance, and general liability insurance.
The workers received their paychecks from the temp service, not the contractor, and the temp service made the payroll deductions.

On these facts, the Court of Appeals reversed the trial court's holding that the temporary staffing firm had not "furnished labor" and instead held that it had and therefore had standing to assert a lien claim under Chapter 53 of the Texas Property Code.

Keep in mind the limits of a lien claim. Mechanics liens exist only to the extent provided by Chapter 53 of the Texas Property Code - i.e. for "labor furnished" in connection with construction of improvements to real property. No lien is available under the mechanics lien statue where the work is something other than construction of improvements to real property.

This means that the mechanics liens are not available to PEOs whose clients are engaged inanythong other than construction work. For example, no mechanics lien is available under Property Code chapter 53 if the client company is an auto repair shop, a barbershop, a childcare facility, an optometrists office, or a manufacturer. Liens are available only where the labor is furnished in connection with construction projects related to real property.

New Bill - PEOs and Mechanics Liens

2005-03-15T13:43:00.000-06:00

A new bill just introduced would expressly authorize PEOs to assert mechanics & materialmans liens. The bill, HB2995, was filed last week.

The bill would add express authority for PEOs to file liens under Chapter 53 of the Property Code and under Chapter 2253 of the Government Code by enlarging the definition of a subcontractor to include a PEO.

Pending Texas PEO legislation - updates

2005-03-15T09:51:00.000-06:00

SB976, which would authorize PEOs to sponsor self funded group health plans, has been referred to the Business & Commerce Committee. SB976 was NOT sponsored or authored by NAPEO and is being opposed by NAPEO. Expect state agencies, such as the Texas Department of Insurance, Attorney General, and others to register strong opposition to this bill.

HB1939, related to disclosures to be made to terminated worksite employees, has been referred to the Economic Development Committee. It is not clear who is behind this bill, or the real reason for it. I am concerned that this bill will complicate (rather than improve) the problem of giving notices to terminated employees under the rule that provides PEOs with a defense to some unemployment insurance claims.

Pending Texas PEO legislation

2005-03-07T14:57:00.000-06:00

Two bills related to PEOs have been introduced into the Texas legisalture.

SB 976 - Would change existing law to permit PEOs to sponsor self-funded group health plans. Under the current Tewas PEO licensing law self funded health plans are not permitted, unless permitted under ERISA. The current language is fairly murky, but is generally interpreted as effectively forbidding self funded plans. The U.S. Department of Labor has consistently held that PEO group health plans are MEWAs subject to state regulation. Texas has consistently interpreted this language as barring all self funded PEO plans.

SB 976 is thus a significant alteration in existing law.

HB 1939 - Would modify the rules related to giving notice to worksite employees regarding the requirement for reporting back to the PEO to seek reassignment. HB 1939 would define specific requirements for the disclosure to be made to the worksite employees.

What is not in HB 1939 is any indication that this statute would give PEOs any assurance that the TWC would actually apply the statute. Most PEOs have seen only inconsistent enforcement of the existing law by the TWC.

Texas Hazardous Employer Program preempted by OSHA?

2005-02-28T10:11:00.000-06:00

A recent decision from the Austin Court of Appeals holds that the Texas Hazzardous Employer program is preempted by the Occupational Safety & Health Act. Skilled Craftsmen of Texas, Inc. v. Texas Workers' Compensation Commission ( Austin Court of Appeals 2/3/2005).

Under the Hazardous Employer program, empoyers with injury rates above the average for their industry are subject to being designated as "hazardous employers" by the state. This desigation is reported to the employer's workers' compensation carrier, and continues in effect until the employer improves its injury rates enough to be classified as "hazardous" under the formula.

This case was brought after a temporary staffing firm was designated as "hazardous." The Austin Court of Appeals agreed that the effect of the program was to punish employers that fail to provide a safe workplace and fail to improve safety. The Court of Appeals found that the federal Occupational Safety & Health Act comprehensively regulates this issue, and thus the Texas program is not enforceable.

The Hazardous Employer program has proven to be a regular problem for PEOs. The Commission has applied the hazardous employer formula to PEOs by analyzing injury rates at each client location, a PEO with a stellar safety record overall, can be targeted by the state on the basis of a single client location with a poor safety record.

Fee Reductions - final adoption of new rules

2005-01-31T14:49:00.000-06:00

The PEO license fee reductions proposed by TDLR will become effective as of February 1, 2005. The rule changes will significantly reduce the fees to be paid by Texas PEOs.

The final rules can be found here on the TDLR's website.

The final rules were published in the January 28, 2005 Texas Register, and can be read online here.

NCCI Guide to State Workers' Comp Issues for Employee Leasing Firms

2005-01-20T15:12:00.000-06:00

PEOs might be interested in NCCI's guide to state specific workers' compensation insurance requirements for "employee leasing firms." This state-by-state guide covers policy, reporting, and ratining issues. Although prepared in 2001, this guide is a good place to start in evaluating PEO workers' compensation issues.
http://www.ncci.com/nccisearch/Industry/Employee/elhome.htm

M-1 filings : MEWAs and the DOL - 3/1/2005 deadline

2005-01-19T17:41:00.000-06:00

PEOs should remember that the deadline for filing the annual M-1 reports is swiftly approaching. The filing deadline is March 1, 2005 with an extension to May 1, 2005 available.

DOL press release regarding M-1 filing for 2004.
http://www.dol.gov/ebsa/newsroom/pr1220a04.html

The DOL now has an online filing system to speed the filing. To use the online filing process, go to www.askebsa.dol.gov/mewa/

Past M-1 filings are available on-line. Search the DOL's on-line database of M-1 filings.
http://www.askebsa.dol.gov/epds/

TDLR (finally) implements fee reductions

2005-01-19T11:08:00.000-06:00

The TDLR has finally gotten around to actually implementing the fee reductions proposed and recommended some time ago.

The fee reductions will result in changes to the TDLR's regulations, and will be found in 16 Texas Administrative Code ("TAC), Chapter 72, Staff Leasing Services, §§72.80 and 72.81. In addition to reducing most fees, the TDLR also did away with the application/administrative fees. Thus rule §72.82 will be eliminated.

The adoption was filed with the Texas Register on January 12, 2005, and will be published in the January 28, 2005, issue of the Texas Register. The fee changes will be effective February 1, 2005. Obviously, if possible PEOs will want to wait until 2/1 to submit applications

The TDLR's explanation of the new rule, including the rationale for the changes can be found at: http://www.license.state.tx.us/sls/slsprop.htm

Texas PEOs are enjopying the benefit of the TDLR's administration of a new state-wide electrical licensing law. The addition of this new licensing program allows the TDLR to spread its overhead acros tens of thousands of new license holders.

Texas CPA firms as PEO clients

2005-01-05T16:08:00.000-06:00

In a November 20, 2003 informal staff opinion, the Texas State Board of Public Accountancy held that provided that CPAs could enter into PEO arrangements.

Here is the quick summary on what the Board said:

In addition, the Board considers any arrangement that cedes control of a CPA firm to a non-CPA to be a violation of the Act. However, in the arrangement described above, the PEO would not have any control over the work performed by CPAs, nor would the PEO have an ownership interest in the client. The PEO would provide human resource management services to the CPA firm and would not provide public accounting services to the public through the CPA firm. Therefore, a contract as described above would not violate the Act.

In effect, the Texas Board imposed three requirements:

The PEO cannot not have an ownership interest in the CPA firm.
The PEO may not hold itself out as providing accounting or auditing services.
The PEO cannot direct or control the work done by the CPA firm or its employees.

DC Bar Association Ethics Opinion on PEO Arrangements with law firms

2005-01-05T10:20:00.000-06:00

The District of Columbia Bar Association has recently issued an ethics opinion addressing whether lawyers and law firms may enter into PEO arrangements. D.C. Ethics Opinion 304 (2001).

In general the D.C. opinion takes a permissive line, finding no inherent ethical problem with a lawyer or law firm entering into a PEO arrangement. However the opinion expresses serious reservations about two common elements of PEO arrangements: the PEO's reservation of a shared right to hire & fire the work site employees, and the PEO's right to inspect the client company's books and records.

Here is what the D.C opinion says on these issues:

Finally, some PEOs adhere to published standards of a trade organization known as the Employer Services Assurance Corporation (“ESAC”). ESAC requires that a PEO share with the “client” (i.e., the law firm), and in some instances exercise exclusively, the power to hire and fire employees (who here would include lawyers and legal assistants as well as clerical and secretarial staff), that the PEO have at least a shared right to direct and control the work of the employees, and that ESAC have access to client (i.e., law firm) work sites and records. A lawyer owner who permitted the removal of these rights and responsibilities wholly or partly from the management of the law firm would violate the Rules of Professional Conduct. Hence the use of a PEO by law firms in this jurisdiction is prohibited if the arrangement gives the PEO actual (as opposed to merely legal) authority over the hiring or firing of lawyers or legal assistants, or authorizes the PEO to direct or control the provision of legal services by any employee of the law firm. The responsibilities in question include the duties to exercise independent judgment on behalf of clients, see D.C. R. Prof. Conduct 2.1, 1.8(e)(2), maintain client confidences and secrets, see id. 1.6, 1.8(e)(1), act zealously on behalf of the client’s interests, see id. 1.3(a), avoid conflicts, see id. 1.7, and supervise the conduct of the others working for the firm, see id. 5.1, 5.3. By contrast, the ASO form, or the PEO form without such objectionable attributes, does not appear to raise any of these concerns.

Thus we answer the inquiry in the affirmative, subject to the limitations and concerns noted above. Use of an employee management company by a law firm is permissible only if it does not affect the firm’s provision of legal services and does not limit or infringe any of the duties and responsibilities of lawyers set out in the D.C. Rules of Professional Conduct.

The italicized sentence in the first paragraph quoted above is probably the heart of the matter. While the PEO may retain a "legal right" to hire and fire, the law firm cannot lose actual control over hiring and firing.

I think both the issue of hiring and firing and the question of access to the law firm's records could be addressed by an addendum to the customer service agreement providing that the PEO will only hire and fire in consultation with its law firm client, and that the PEO's access to the law firm's books and records is limited to that necessary to address payroll, UI, and workers' compensation issues.

Texas PEO Arrangements with Law Firms

2005-01-05T10:00:00.000-06:00

PEO arrangements with lawfirms (and other professional practices) raise particular and unique problems. In 1995, an ethics opinion from the Texas Bar Association effectively held that lawyers may not enter into PEO arrangements. Texas Ethics Opinion 508 (1995)

The opinion finds that a PEO arrangement is impermissible becuase of potential conflict of interest problems. Here is what the opinion states:

To avoid conflicts of interest, a law firm should be able to determine internally, from its own records and by consultation between members of that firm, whether a conflict of interest exists. Under the arrangement described above, a law firm leasing lawyers from the employee leasing company necessarily would have to consult and exchange information with each other law firm leasing lawyers from the same company to insure that no conflict exists.

The disclosure of confidential and privileged information about a client (even the fact that a person is a client of a law firm may be confidential and privileged) likely would be necessary to eliminate any conflict or potential conflict of interest.

CONCLUSION
Because of the potential for conflicts of interest between clients of different law firms to whom lawyer employees are leased by the employee leasing company, the employee leasing arrangement described above is not permissible.

In effect, the opinion finds that there is a potential conflict of interest that the law firm could never avoid.

In Texas, the effect of this holding may be mitigated (at least somewhat) by the subsequent amendements to the Texas PEO licensing statute. The relevant part of the licensing statute is::

Sec. 91.004. Effect of Other Law on Clients and Employees.
(a) This chapter does not exempt a client of a license holder, or any assigned employee, from any other license requirements imposed under local, state, or federal law.

(b) An employee who is licensed, registered, or certified under law and who is assigned to a client company is considered to be an employee of the client company for the purpose of that license, registration, or certification.

(c) A license holder is not engaged in the unauthorized practice of an occupation, trade, or profession that is licensed, certified, or otherwise regulated by a governmental entity solely by entering into a staff leasing agreement with a client company and assigned employees.

This question is really one for the lawfirm client company, rather than a problem for the PEO. Only the law firm and its lawyers are responsible for compliance with the ethical rules governing lawyers. For the PEO, the wisest course of action is to point out this issue to the potential law firm client and allow them to make up their own mind. For many law firms, the subsequent statutory amendements provides enough assurance that the law firm will still engage a PEO's services.

Texas law has prohibited SUTA dumping since 2003

2004-11-11T08:31:00.000-06:00

For some time, Texas law has only vaguely addressed SUTA dumping. In 2003 the Texas Legislature amended the Texas Unemployment Compensation Act, to provide the TWC with authority to combat some forms of SUTA dumping abuse. In the rush to analyze the recently adopted federal law addressing SUTA dumping, Texas firms should not lose sight of the existing Texas law on this issue.

Section 204.084 of the Texas Labor Code was amended in the 2003 session of the Legislature to provide the Texas Workforce Commission with the regulatory tools necessary to combat SUTA dumping.

Since September 1, 2003 the TWC has had the statutory authority to refuse to recognize corporate transactions that would result in a transfer of UI experience, if the TWC "determines based on credible evidence" that the transaction was "done primarily to qualify for a reduced unemployment tax rate" by circumventing or manipulating the UI exeperience rating system.

Under the 2003 amendement to the UI statute, the TWC can simply refuse to transfer a UI tax rate thus preventing an employer from "buying" an artificially low UI tax rate from a dormant company.

Texas Department of Licensing proposes fee reduction for Texas PEO licenses

2004-11-11T07:56:00.000-06:00

The Texas Department of Licensing & Regulation has published a proposed rule that would significantly reduce the licensing fees paid by Texas PEOs. Although the Department has not yet formally adopted the rule change, there is every reason to expect that it will be formally adopted in substantially the same form as the proposed rule.

Under the proposal, the various fees paid by PEOs for a new, renewed or limited license would be reduced significantly. The Department was able to reduce fees for PEOs because of the additional revenue being received by the TDLR as a result of its administration of a new statewide electrician's license. The TDLR has processed more than 80,000 electrical licenses and the fees received have allowed the TDLR to spread its overhead expenses across a broader base of licenses.

Application fee
Old fee: $300
New fee: $150

License Fee
0-249 employees
Old fee: $1,000
New fee: $250

250-750 employees
Old fee: $1,500
New fee: $500

More than 750 employees
Old fee: $2,000
New fee: $750

Background check fee
Old fee: $150
New fee: None. Although the TDLR will continue to conduct background checks, the proposed rule eliminates a separate background check fee.