Staffing agencies can be an effective tool for employers to reduce costs if they minimize their liability for agency workers
Who’s the boss?
Staffing agencies have become a significant source of labour for many employers, particularly because they can reduce cost and the effort of managing the workforce. Agencies do the recruiting, hiring and paying of the workers while the business simply pays the agency and benefits from the work being done.
However, sometimes the employee’s status can become muddled if the employer has a certain level of input and control over the employee’s duties and the employee’s perception of who is actually the boss. If this is the case, employers might not necessarily be able to foist the costs and responsibilities of the employment relationship on the agency.
Ottawa employment lawyer Anthony Moffatt of Ogilvy Renault takes a look at the nature of the relationship between businesses and staffing agencies and when employers could be crossing the line between being a work assignment for the employees and being their actual boss.
Tough economic times are motivating employers to take a closer look at reducing the costs of doing business. One way of reducing HR costs, especially in a period of high turnover, can be hiring workers through personnel or staffing agencies. Such agencies can provide employers with greater flexibility by lowering the costs of finding, screening and hiring workers, as well as relieving the employer of many associated costs of maintaining or downsizing its work force —paying EI premiums and pension contributions, holiday and vacation pay and amounts owed to the employee upon dismissal.
However, employers should understand how they can best profit from the cost savings that staffing agencies offer. Simply using a worker from an agency may not relieve a business from all of the costs and liabilities associated with carrying or dismissing employees.
A contract worker is usually still an employee
In most cases, employers cannot simply hire a worker on a contract basis in order to avoid all of the costs associated with the traditional employer-employee relationship. Usually, only employers who hire truly independent contractors will be found by courts or adjudicators to be free of all the obligations and costs employers typically bear.
There is no exhaustive test that courts or adjudicators use to determine whether a worker is an employee or an independent contractor. However, generally speaking, independent contractors are those workers who are considered entrepreneurs as opposed to simply working for a superior. Needless to say, most workers will usually not fit into this category and will be found to be employees.
A staffing agency can act as the employer
Staffing agencies, however, can effectively step in as the employer and allow a business to use the agency workers without incurring many of the costs employers usually cover. This is because the worker in such a situation is actually an employee of the agency.
However, a staffing agency is not necessarily the true employer simply because the contracting business acquires its workers through the agency. The test to determine the true employer is not exhaustive, but the factors considered include:
•Which party exercises control and direction over the worker?
•Who pays the worker, or who bears the burden of compensating the worker, rather than just signing the cheque?
•Who has the authority to hire the worker?
•Who has the authority to discipline or fire the worker?
•Who does the worker perceive to be her employer: The contracting business or the agency?
•Is there any intention on behalf of the contracting business or the agency to create a relationship of employer and employee?
•Who supervises the worker, assigns duties and provides evaluations?
•How integrated into the contracting business or the agency is the worker?
In other words, decision-makers look behind the formal relationship to assess who is the real employer. This question is critical for determining whether the worker will be considered a member of the bargaining unit at a unionized worksite or whether the contracting business may be responsible for the individual’s statutory entitlements arising from the employment relationship.
The contracting business may run the risk of the worker being treated as its own employee where the worker’s assignment is longstanding and she is so integrated into the business that the staffing agency plays little more than a payroll function.
Contracting businesses have legal obligations to staffing agency employees
Even if a worker is truly an employee of the staffing agency, the contracting business still has obligations and liabilities towards its agency employees. Under workplace health and safety legislation, for example, businesses have legal obligations to maintain a safe and healthy environment for all workers. The contracting business — as well as management and individual employees — can also be liable for breaches of human rights legislation in relation to agency employees.
New legislation in Ontario
The Liberal government in Ontario recently passed a regulation which extends the right to holiday pay to all “elect-to-work” employees under the Employment Standards Act, 2000 (ESA). While it is the agency that is usually responsible for ESA compliance with its own employees, the contracting businesses may in some instances see the costs of increased ESA entitlements passed along to them through their agency contracts.
The government also introduced Bill 139, which, if passed, will impose a variety of new obligations and restrictions on staffing agencies (or “temporary help agencies” as defined by the Bill 139). For example, staffing agencies will be required to provide prescribed information to its employees and be prevented from charging fees to their employees for certain activities such as assisting with resumes or assigning employees to a placement. If Bill 139 is passed, the government has also indicated an intention to extend the rights of notice of termination — or termination pay — and severance pay to elect-to-work employees as well. As of March 2009, Bill 139 had reached second reading.
Tips for employers
•Consider the possible benefits of using staffing agencies, especially in times of economic uncertainty and high turnover.
•Minimize conduct which results in the contracting business, rather than the agency,
having more control over the agency worker. Avoid directly hiring, evaluating, promoting or disciplining agency workers.
•While an agency worker should feel as though she is part of the team, always ensure there is an understanding between all parties that the agency worker is not an employee.
•Exercising more control over an agency worker over a long period of time may increase the chance of ultimately being found to be the employer. Be diligent and work with the staffing agency to minimize this risk.
Anthony R. Moffatt is a lawyer with the labour and employment group at Ogilvy Renault’s Ottawa office. He can be reached at (613) 780-1546 or firstname.lastname@example.org.
Proposed new temp regulations in Ontario
In December 2008, the Ontario government introduced Bill 139, the Employment Standards Amendment Act (Temporary Help Agencies), 2008. The bill will affect temporary staffing agencies and businesses who use their services.
If passed, the bill will establish special rules that will apply in the temporary staffing agency environment, including:
•Clarification that the agency is the employer of the agency employees — called “assignment employees” in the legislation — provided the assignment employees are assigned to perform work “on a temporary basis” for the agency’s clients.
•An assignment employee does not cease to be an employee of an agency just because she is assigned work with a client of the agency, or, conversely, just because she is not assigned work with a client of the agency.
•All new assignment employees will have to be given information about the agency — legal name, operating name, contact information — and this must also be provided to all existing employees “as soon as possible” after the amendments come into force.
•Assignment employees must also be given information about each new work assignment, also “as soon as possible” after the amendments come into force.