Who’s Employee Are They Anyways?, by Lexi Laufer, Associate, Atlanta

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Few concepts have spurred more debate and dispute in recent years than the ever-changing definition of “employee,” and the establishment of an employment relationship under the Georgia Workers’ Compensation Act. As the national work force continues to evolve from one-dimensional employment relationships to multilevel employment relationships, the foundational principles upon which the Workers’ Compensation Act was founded become increasingly more difficult to apply, often resulting in complicated, multi-party litigation.

At the forefront of this dispute are organizations such as Temporary Help Contracting Firms, employee leasing companies, and Professional Employment Organizations. In practice, the relationships between these employers can lead to scenarios in which a worker receives wages from one company, which is insured through a different company, but performs work on behalf of some other company; it gets much worse but bear with me for now. If a worker in that particular situation is injured on the job, a dispute often arises amongst the companies to determine which employer’s workers’ compensation policy covered the injured worker on the date of accident.

Of course, each employer’s potential liability for workers’ compensation benefits is largely dependent on the type of employer it is, and what that organization’s relationship with the worker was on the date of accident. As a result, in a multi-party scenario like the one discussed above, each of the potential employers point fingers at the other, and argue that one of the other alleged employers covered the injured worker. In other words, each alleged employer argues that one of the other alleged employers was in an employment relationship with the injured worker on the date of accident and is therefore liable for their workers’ compensation benefits.

In an effort to provide some sort of clarity to an exceedingly complicated area of the law, the following is a “10,000 foot view” of the most common employment relationships provided for in the Workers’ Compensation Act:

1. Direct Employees

Definition: person who is hired by, performs work for and is paid by one company.
Coverage: If the injured worker’s direct employer has three or more employees that are “regularly in service,” it must carry a workers’ compensation policy which in turn makes that employer subject to the Workers’ Compensation Act. i

Example: Jeff Justinjured was hired by Goldring Jewelers which has more than three employees. If Jeff Justinjured is hurt on the job in the course and scope of his employment, Goldring Jewelers is their employer and therefore liable for his workers’ compensation benefits.

Important Note: It is often the case in multi-level employment situations that the claimant’s direct employer is uninsured, or has an insurance carrier who has become insolvent. The Georgia Workers’ Compensation Act provides for secondary coverage “up the ladder” in either of those scenarios – uninsured or insolvency – through the statutory employment doctrine which is discussed in Section 4 below.

2. Leased Employees

Leased employees are direct employees of employee leasing companies or PEOs which lease the employee to client companies to perform labor. ii

a. Employee Leasing Companies

Definition: the term “employee leasing company” is defined by O.C.G.A. § 34-8-32, but essentially describes a business entity – such as temporary staffing agency – that supplies workers or contractors to a client company on a temporary basis or for a specific project with a defined start/end date. iii

Coverage: During the temporary employment period the leased employee remains a direct employee of the staffing company.

Example: Feyonce’, a wedding dress designer, needs 30 seamstresses to assist with making dresses to fulfill a special order for Bridezilla, a large wedding dress retailer. Feyonce’ seeks the help of Short and Sweet, a temporary employment agency, who provides 30 workers to fulfill Bridezilla’s order. If one of the employees Short and Sweet supplied to Feyonce’ is injured on the job, Short and Sweet is their employer under the Workers’ Compensation Act.

b. Professional Employer Organization, “PEO”

Definition: The term “professional employer organization” is, in simple terms, an employee leasing company that has established a contractual agreement with the client company to undertake certain employer responsibilities that establish a coemployment relationship. iv In practice, the PEO does not provide staff for the client company nor does it offer short term contractors; instead, the PEO is responsible for handling the human resources responsibilities of the client company such as payroll, employee benefits, etc. v

Coverage: The PEO is considered to be the leased employees “Administrative Employer,” and the client company who hired the PEO to handle the leased employees payroll and benefits is considered the “Worksite Employer.” As the Worksite Employer, the client company maintains full control and direction over the leased employees’ day-to-day operations.

Example: Although Feyonce’ is a world-renowned designer, they lack the business-savvy needed to manage employee-related responsibilities and liabilities. Given the sudden surge in weddings Feyonce’ is desperate for help and hires SOS, a PEO, to take over all administrative tasks related to payroll and benefits of the company. Feyonce’ and SOS enter into a contractual agreement that establishes a coemployment relationship between the companies, allowing SOS to take over the employee-related responsibilities and liabilities, which in turn, gives Feyonce’ more time to focus on designing dresses.

3. Statutory Employees

Definition: A statutory employment relationship arises when an injured worker’s immediate employer is not covered under the Act, or becomes insolvent. Instead of leaving the injured worker without benefits, the Act attaches secondary liability to a principal, intermediate, or subcontractor who had control over the project or premises that the employee was performing work for/at on the date of accident. vi 2

Coverage: The contractor (principal, intermediate, or subcontractor), the employee leasing company or the PEO are considered the statutory employer under the Workers’ Compensation Act and are therefore responsible for the injured worker’s workers’ compensation benefits. vii

Example: Party Busses R US, a wedding transportation rental business, hires Ride At Your Own Risk to provide busses, trolleys and the like for its customers. Ride At Your Own Risk then hires Decent Driver to perform the work Party Busses R US hired Ride At Your Own Risk to perform. Ride At Your Own Risk’s workers’ compensation provider later becomes insolvent. The day after Ride At Your Own Risk’s workers’ compensation provider enters liquidation, Decent Driver gets hurt while performing work for Party Busses R US. Party Busses R US may be considered Truck Driver’s employer for workers’ compensation purposes.

4. Loaned Employees

Definition: When an employee is asked by their ‘general master’ (immediate employer) to perform work for a ‘special master,’ (some other employer), the employee may be considered a “loaned employee” under the borrowed servant doctrine if the following three elements are met:

(1) The special master had complete control and direction of the servant for the occasion;
(2) the general master had no such control; and
(3) the special master had the exclusive right to discharge the servant. viii

Coverage: The special master who “borrowed” the employee is liable for the injured workers’ compensation benefits instead of the immediate employer. ix

Example: Feyonce’ is in need of a few extra hands to fulfill wedding dress orders so he asks a fellow designer friend, Destiny, if they have any seamstresses that could assist with a short project. Destiny sends an employee, Sally Slipsalot, to work for Feyonce’ until the order is fulfilled. If Sally Slipsalot is injured while creating Feyonce’s dresses, Feyonce’ is the employer for workers’ compensation purposes, not Destiny. Undoubtedly, as the number of small businesses utilizing employee leasing agencies grows, so too will the number of cases dealing with the employment relationships under the Workers’ Compensation Act. In that respect, there are several cases currently pending before the State Board of Workers’ Compensation that should help to provide additional clarity on identifying who the actual employer is for purposes of workers’ compensation coverage. Further, and perhaps more importantly, we understand that there are several Bills that will be reviewed by our State legislators that could potentially change the current laws on these issues. As always, if you are interested in more information or have questions about anything discussed in this article please feel free to reach out to Lexi Laufer or any of the other EG Atlanta team members for assistance. We are happy to help!

Lexi Laufer | Georgia Office

iSee, O.C.G.A. § 34-9-2
ii See, Board Rule 126(a)
iii ExtensisHR, PEO and Employee Leasing, What’s the Difference?;
iv O.C.G.A. § 34-7-6(a)
vExtensisHR, PEO and Employee Leasing, What’s the Difference?;
vi See, O.C.G.A. § 34-9-8(a)
vii See, O.C.G.A. § 34-9-11, which establishes that employee leasing companies “shall be deemed a statutory
viii United States Fid. & Co. v. Forrester, 230 Ga. 182, 196 S.E.2d 133, 135 (1973)
ix Merry Bros. Brick & Co. v. Jackson, 120 Ga.App. 716, 171 S.E.2d 924, 927 (1969).