A recent decision of a U.S. District Court reminded me of some of the lesser-known legal principles that expand an employer’s legal liability. This particular decision involved the Family and Medical Leave Act (FMLA) and an employer who uses a Professional Employer Organization (PEO) as a way of outsourcing some of its Human Resource (HR) functions.  This is a relatively common practice in a variety of industries. 

PEOs recruit, do payroll, administer benefits, hire, fire, and or perform other human resource functions.  Hiring a PEO may result in cost savings, but employers should do their due diligence before signing on.  Consider the case Kuhn v. Comfort Hospice Care, LLC. 

Facts:
Comfort Hospice Care, LLC (CHC) had thirty-six (36) employees working at locations in Nevada and Utah. CHC had an agreement with a PEO in which the PEO did a variety of administrative HR tasks.  CHC retained the right to hire, fire, and control the daily tasks of employees. 

A CHC employee requested FMLA leave, but was denied.  The employee sued alleging that CHC has interfered with her ability to take leave under the FMLA, and had retaliated against her for requesting leave. 

FMLA Coverage:
CHC moved to dismiss the lawsuit arguing that that CHC was not subject to FMLA requirements because CHC did not have the requisite fifty (50) employees to be covered by the FMLA.  The Court agreed and dismissed the case. 

But the court offered a reminder to employers to be careful about joint employment.  The Court stated, “It could be argued … that [CHC] is a joint employer with [the PEO], thus presumably placing [CHC] above the 50 employee threshold.”  The employee did not argue that CHC and the PEO were joint employers, and the court stated that there was no joint employment relationship in this case.  

Joint Employment:
So what is joint employment?  Generally speaking, joint employment is when two or more separate entities are considered one entity as it relates to coverage and liability under the FMLA.  The primary issue in determining whether there is joint employment is control.  Courts look to who has the right to hire, fire, assign, direct, or control the work of employees.  If the entities share control, it is likely that they will be considered joint employers.  Performing administrative tasks alone usually does not result in a joint employment relationship. 

If joint employment exists, employers that do not meet FMLA coverage requirements alone may be liable for violations of the FMLA as joint employers.  This has serious practical implications for an employer, including providing leave to eligible employees and other possible liability for past denials of leave. 

Action Items:
Employers should:

  1. Identify any relationships employers have with PEOs or other similar organizations;
  2. Carefully analyze those relationships to determine if a joint employment relationship exists; and
  3. Take proactive action to ensure that they are compliant with the FMLA.

Please contact us if you have any questions.

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