What is I-O?

Industrial-organizational (I-O) psychology is the scientific study of the workplace. Rigor and methods of psychology are applied to issues of critical relevance to business, including talent management, coaching, assessment, selection, training, organizational development, performance, and work-life balance.

Companies are increasingly relying on contingent workers who are not regular, full-time employees of their organization. These workers may be temporary employees, part-time or seasonal workers, or may be "leased" from an outside agency. An obvious advantage to organizations that are growing their business and in need of a workforce quickly is that such workers can be brought in-house by simply placing a request with a temporary staffing firm or an employee leasing firm. This is particularly beneficial to companies without a formal internal selection process or sufficient HR staff to process applicants. In addition, contingent workers provide flexibility and critical skills, while reducing the paperwork in other efforts associated with the staffing process.

While utilizing contingent workers provides a company with a workforce quickly, like every other aspect of contemporary society, there are liabilities that may be associated with this practice. What’s more, some of these liabilities have been further broadened by recent Equal Employment Opportunity Commission (EEOC) regulations. Contingent workers expose the employer to three broad areas of Federal statutory authority and a confounding fourth level of regulation at the state level. Among Federal laws exposing an organization employing contingent workers are laws dealing with:

• Compensation and benefits (ERISA, FLSA, Equal Pay Act).
• Discrimination (Title VII, E.O.11246, ADA and ADEA).
• Labor laws (NLRA, IRCA, FMLA and WARN).
• State laws.

The applicability of any one of these statutes, Executive Orders and/or state laws depends on how the organization structures the contingent employment relationship. Carefully drawn relationships with providers of contingent workers may limit the organization’s liability if the contingent worker is either an independent contractor, or an employee of another employer such as an outside contractor, temporary staffing agency, or employee leasing firm.

The recent Supreme Court Microsoft decision involving independent contract employees illustrates well the law’s complexity where state law confounds Federal laws governing 401(k) plans. In January, 1998, the Supreme Court rejected a bid by Microsoft Corporation to review a Ninth Circuit decision holding that they had improperly denied benefits to a group of workers who had initially been hired as independent contractors between 1987 and 1989, but were later reclassified as full-time employees.

The successful plaintiffs in the Microsoft case had been hired with the knowledge that they would not receive benefits. During those years, Microsoft neither withheld applicable taxes nor allowed the contingent workers to participate in the company’s pension and welfare plans. After the IRS determined that the contingent workers were employees for tax purposes, Microsoft began withholding taxes but denied retroactive participation in the savings and stock purchase plans. Microsoft argued that the employees had waived their rights when they signed on as independent contractors. Initially the Federal District Court sided with Microsoft. Then last July, the Ninth Circuit reversed, arguing that the stock plan had been created and offered to all employees and sided with the former contingent workers noting that "their labor gave them a right to participate in it" under prevailing Washington state law. Given Microsoft’s stock performance, this quite likely meant more than "spare change" to the former contingent workers.

There is a natural tendency for the contracting organization to want to maintain close control over contingent workers. If the organization is to succeed in maintaining that the contingent worker is an independent contractor, the organization must show that it dealt with the provider of such services in a hands-off, arm’s length contractual relationship.

According to EEOC "enforcement guidance" issued in December 1997, for purposes of enforcing discrimination laws, contingent workers placed by staffing firms will be considered employees rather than independent contractors. The scope of liability with this single stroke of the EEOC Chairman’s pen covers both "temporary employment agencies, contract firms, and other firms that hire workers and place them in job assignments with the firms’ clients" and the client organization.

The applicable laws include Title VII, the Age Discrimination in Employment Act, the Equal Pay Act and the Americans with Disabilities Act. The EEOC’s guidance interprets these laws to hold both the staffing firm and the client organization liable in defending employment discrimination when claims are brought by temporary and contingent workers who are placed by the firm. A finding of discrimination means that both are liable for the full amount of damages up to the full amount of the statutory cap. Whether EEOC’s advocacy of joint liability will withstand likely legal challenge remains an open question. EEOC’s theory of joint liability is not new law, so successful challenges are unlikely. What’s new is that in recent years, the number of job bias cases filed annually in federal courts has more than doubled. This is because the Civil Rights Act of 1991 changed Title VII to give plaintiffs the right to compensation for emotional distress, punitive damages and jury trials. In effect, EEOC’s theory of joint liability doubles the plaintiff’s pot. The reality is that EEOC’s incentive for the plaintiff’s bar virtually guarantees more HR class-action litigation. Count on it!

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Jim Sharf is Vice President of Assessment and Selection in the Human Resources Consulting Group at Aon Consulting in Washington D.C. He can be reached at: Jim_Sharf/HRS/Aon_Consulting@AONCONS.COM or by phone at (202) 223-0673.

TIP

Vol. 36/No. 2  October, 1998

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