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Draw clear lines of liability when leasing your employees

by on
in Employee Benefits Program,Human Resources

When Interwest Insulation needed help with its employee paperwork and complying with state laws, it signed an employee leasing agreement with Barrett Business Services. The co-employer agreement said workers would be considered employees of Barrett for some purposes and employees of Interwest for others.

But a dispute broke out about who should pay workers' compensation premiums. Interwest refused, saying it didn't have to pay because it technically had no employees, they'd all been leased to Barrett.

The state appellate court ruled that Interwest did have to pay. Its reasoning: Liability for workers' comp premiums lies with the employer who exercises control over workers' activities. It was clear that Interwest hired, fired and controlled the staff. (Sonners v. Department of Labor and Industries, No. 24708-9-II, CA Wash., 2000)

Advice: When you draft an employee leasing agreement, include clear language regarding which party is responsible for state and federal benefits laws, including workers' compensation.

Also, don't relax even if the contract says the leasing firm will assume certain liabilities, such as the workers' comp costs. The state or courts may not go along with such an agreement. That's especially true when, as here, the employer-employee relationship is clearly still between the workers and the original company, not the leasing firm.

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