Many businesses use leased employees to fill their workforce. These leased workers are hired and paid by employee leasing companies, often referred to as Professional Employer Organizations or PEOs. Employee leasing offers certain benefits, but businesses that use leased workers cannot ignore certain traditional obligations of an employer. In dealing with most civil rights or similar employment claims, courts will typically treat a business that uses leased employees as a joint or secondary employer subject to liability.

In a recent decision from the Federal Sixth Circuit Court of Appeals, a leased worker took a leave of absence under FMLA. Once she returned from leave, she tried to return to the same position she had filled before taking the leave. The company who had used her services filled her position with another leased worker. She sued both the PEO and the company that had leased her services. The latter argued that it was not an employer since it only leased her services.

The federal appellate court sided with the worker and ruled that the leasing company was at least a “secondary” employer with some measure of control over the employee’s work and working conditions. It relied in part on language in the Department of Labor’s FMLA regulations which state that “joint employment will ordinarily be found to exist when a temporary or leasing agency supplies employees to a secondary employer.”
In a particularly troubling aspect of the opinion, the court also found that the “secondary” employer could be liable for interfering with the worker’s ability to return to work even if the secondary employer did not have the 50 or more employees typically required to invoke coverage under the FMLA. The ramifications of this portion of the decision remain unclear. For the time being, companies with a work force that is smaller than 50 workers but that includes some leased workers should pay close attention to FMLA requests from those leased workers.

This recent court opinion serves as a reminder that businesses using leased workers cannot afford to delegate to PEOs sole responsibility for analyzing and implementing compliance with state and federal labor laws.