Spring 2005-16 Employment leasing
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Spring 2005-16 Employment leasing

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Number 59
Spring 2005
What you should know about

Employment leasing

The recent Puerto Rico Supreme Court case of Ocasio v. Kelly Services Inc., 2005 T.S.P.R. 5, sets the standards.

Law No. 26 of July 22, 1992, regulates the provision of temporary employees to client companies by temporary service companies. This law not only defines what are “temporary service companies” and “client companies,” but also clarifies the areas concerning the liability of each company and the rights of the temporary employees.

A “temporary service company” is defined as “any person or organization engaged in providing employees to render services to a client company.” A “client company” is “any person or organization that solicits the services of temporary employees from a temporary service companies.” 29 P.R. Laws Ann. § 575.

Law No. 26 specifically provides that both the temporary service company and the client company will be deemed joint employers as though they were one single company. In Ocasio the Supreme Court clarified that the liability under the labor and employment laws for both the client company and the temporary service company will vary depending of the statute on issue. Therefore, this case could be construed as disregarding the general application of the “joint employers” doctrine set forth in Law No. 26, and replacing it with specific-type liability, depending on the statute in question.

In Ocasio the Court clarified the issue of liability between the two companies as to claims of discrimination, wrongful discharges, salary, benefits and reinstatement of the temporary workers. In claims for unjustified dismissal, discrimination in employment and sexual harassment, whoever commits the unlawful actions will be responsible. Contrary to the clear words of Act No. 26, the Ocasio holding establishes that the assigned employees could claim for unpaid wages and benefits under the applicable salary and benefits laws from both employers, which makes them both jointly liable for these types of claims.

Law No. 26 also provides that the temporary service company is responsible for the payment of the Christmas bonus of the temporary employees, unless an employee has worked for the client company at least the 700 hours required by Law No. 148, in which case the client company will be secondarily liable if the temporary service company fails to comply with its obligation. This provision of the law is contrary to the “joint liability” standard established in Ocasio for salary and benefits claims.

In cases where the employer is obligated to retain the employee’s job position, the principal responsibility rests on the temporary service company. In case of non-compliance by the temporary service company, the client company must answer to the employee reinstatement request. The Ocasio case refers to the client company liability as subsidiary.

The case fails to mention it, but based on the clear provisions of the statute, the obligation to retain the employee’s position is just during the term of effectiveness of the contract. 29 P.R. Laws Ann. § 575b.

The main purpose of employment leasing is the placement by an employer of all or most of its work force in the payroll of an employee leasing firm. The idea is to “outsource” the administration of all payroll, benefits and other human resources activities. The Ocasio opinion strikes at the main reason why a company would acquire the services of a leasing firm. This decision directly affects the relationship between the leasing firms and its clients because now they are both jointly liable for all payroll and benefits claims.

© 2005 Goldman Antonetti