Is it legal to employ skilled workers as temps for many years?
July 8, 2007 2:18 PM   Subscribe

Is my employer breaking the law by keeping people as temps for several years? The work is skilled and many people work for 3 or more years as temps before being made permanent employees.

The company does it's own hiring on site, but once hired, employees have to fill out paper work with a chosen "temp employment agency". This seems like a scam. Any lawyers out there know if this is illegal? This is in California.
posted by Charlie Lesoine to Law & Government (13 answers total)
It is not illegal. The company is treating them as contractors, and it's completely legal to employ a contractor for years at a time.
posted by Steven C. Den Beste at 2:25 PM on July 8, 2007

Just as a footnote, when I worked as a contractor for AOL, they forced us to take off 2 months after every year of work. Companies often hire people as temp contractors so they can avoid paying them health benefits.

IIRC, this was is in response to a precedent set by a case regarding Microsoft, where they had temp contractors working steady for several years - then the workers won a court case forcing MS to give them health benefits, since they had been employed full-time for so long.
posted by gnutron at 2:39 PM on July 8, 2007

A company doesn't "employ" contractors, it contracts with contractors. The IRS sets out general criteria it feels define who is an employee for tax purposes (and has withholding and W-2 wage reporting) and who is an independent contractor (and gets a 1099). But the question was not "Is it acceptable to contact with contractors?" but "Is my employer breaking the law by keeping people as temps for several years?"

If the employer is looking to class people as "temporary," in order to avoid paying benefits or compensation, yet otherwise treats the employees as full time employees, they may be in violation of some California or federal case or administrative law, but if this being done as a means of grouping personnel under a union contract, or because they are working on projects of unknown duration, there may be nothing wrong with the practice.

I suspect most employers will be operating under direction of their attorneys with regard to employment practice, but this question, with considerably more detail added, is more suitable for the California Department of Industrial Relations.
posted by paulsc at 2:43 PM on July 8, 2007 [1 favorite]

I know there are issues around that for software companies but I don't know the specifics. The maximum period a temp can work at the companies I've worked for is 6 months, and then cannot be employed by them for three months, before stating a new contract. I believe, at Microsoft anyway, it was because they were using temps to fill what were full time, on-going positions and thereby avoiding having to give them employee benefits (like stock purchasing and healthcare), so the temps sued (and won, i believe). I don't know if it's a law or just a lawsuit avoidance practice for big companies.
posted by doctor_negative at 2:47 PM on July 8, 2007

On preview, what paulsc said.
posted by doctor_negative at 2:48 PM on July 8, 2007

Paulsc is right. Frankly, it depends on how, when, and where they work. Short and oversimplified version? If the boss controls how, when, and where they work they should be considered employees. If the contractors can work remotely and set their own hours they might not be. Here are the official IRS rules.
posted by ilsa at 3:28 PM on July 8, 2007

The answer varies from state to state, and from judge to judge within the state once the trial lawyers get involved. I've spoken to high-ranking executives at Fortune 500 companies who complain that they can't get a straight answer to this question either.

Of course, the Coase Theorem teaches us that it doesn't really matter in one direction or the other: if the company had to hire you as an employee and pay you employee-style benefits it might not have bothered hiring you in the first place, or would have offered you a lower wage. You knew when you signed up with them that you would be a temporary employee with one set of benefits and wages. That doesn't mean that you can't use the legal system to screw them retroactively, as unfair as that is; you may well be able to.
posted by commander_cool at 4:32 PM on July 8, 2007

In this situation the temps are actually employees of the agency. The agency then contracts with the company the person is laboring for. It's the same sort of arrangement that occurs when a company uses a proper third-party temp agency and is pretty normal.
posted by wemayfreeze at 5:19 PM on July 8, 2007

If there's an actual temp agency involved, most of the above answers are moot.

Yes, it's legal.

Why a company would want to pay a temp agency $50/hour (employee take-home: $30/hour, no benefits) instead of paying the employees $40/hour and giving them $5/hour worth of benefits, which presumably would let them hire a much better class of employees and yet would cost less, I do not know. Probably the CEO's cousin runs the temp agency.
posted by jellicle at 5:32 PM on July 8, 2007

Why a company would want to pay a temp agency $50/hour (employee take-home: $30/hour, no benefits) instead of paying the employees $40/hour and giving them $5/hour worth of benefits, which presumably would let them hire a much better class of employees and yet would cost less, I do not know.

No way that a $40/hour employee has $5/hour of benefits. Social security and workers' comp taxes alone are more than that. The figure is closer to $20/hour, and that's before the expense of litigation risk from the California employment laws.
posted by commander_cool at 6:15 PM on July 8, 2007

Response by poster: Yes there is a temp agency involved, but they didnt actually DO anything. Employees are told to go fill out paperwork there after they have been hired. And the company has no intentions to fire the temps that they have.
posted by Charlie Lesoine at 7:06 PM on July 8, 2007

I ain't no lawyer, but I used to work at a temp agency, and as well, I used to manage a temp-employee contract for a former employer- I've been on both sides of the desk. What he is doing is legal and is fairly common. There are a number of reasons your employer could be doing this.

1. He's using the temp agency as an employee management practice. They track the hours, the pay rates, the taxes, all the overhead, legal, and immigration issues that are part of running an HR department.

2. Contracting for employee management allows him to "audit' employees, and turn away those that don't fit. The 3 year term is long, but he's probably getting a significant discount on hourly rates. That discount is probably based on the number of employees he's committed to contracting from the temp agency. That means he keeps them on contract for an extended period to keep the body count up.

3. He may be able to offer a "better" compensation plan for those employees because temp agencies get good rates on a health plan for them. Health insurance is a huge expense for a small company and using a temp agency lets the employer offer a better benefit.

And finally, he may be turning employees frequently, or has a history of churning them because he's not interested in their loyalty. The cost of hiring and firing employees is high, compared to trying to retain them. By using a temp agency, he avoids the extra issues around terminating unsuitable employees and trying to find replacements. It may be cheaper to use a bodyshop than try to keep the staff happy.
These are obviously guesses on my part, but they are the most common reasons companies engage in this practice.
posted by disclaimer at 7:51 PM on July 8, 2007 [1 favorite]

I said that last paragraph badly: It's cheaper to retain employees than hire/fire them constantly, but it's even cheaper to NOT try to retain them, but churn them instead through a temp agency.
posted by disclaimer at 7:53 PM on July 8, 2007

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