Is Temporary Staffing a Permanent Headache When Workers Are Injured on the Job?

By Julie Lambeth, J.D., Executive Vice President, PartnerSource

Exciting news! Your company is experiencing a sudden increase in business, and you urgently need more employees to help process orders. A straightforward solution is to hire additional workers through a temporary staffing agency. These agencies handle recruitment, screening and provide insurance for the employees, allowing you to expand your workforce without increasing liabilities. But, as Lee Corso famously says, "Not so fast, my friend!"

While utilizing a temporary staffing agency can be an ideal solution for some employers, it must be approached with caution and a thorough review of the staffing agreement. Typically, a staffing agreement states that the agency will provide various benefits to their employees, such as group health, a 401(k), and workers' compensation insurance in case of work-related injuries. However, for an employer utilizing the Texas Option, the critical question is whether this workers' compensation coverage extends to them as the client company.

Whose Employee is This?

In the case of Garza v. Exel Logistics, Inc., 161 S.W.3d 473 (Tex. 2005), Garza claimed he was an employee of Interim, a temporary staffing company, when he was injured while working for Exel Logistics, Inc. (“Exel"), a company exercising the Texas Option instead of workers’ compensation. He acknowledged that his recovery against Interim was limited to workers' compensation under the Texas Workers' Compensation Act's (TWCA) exclusive remedy provision. The court, however, needed to determine if Exel was also Garza's employer and covered by workers' compensation.

The court examined the actual control Exel had over Garza's work which led to his injury. Garza testified that while on Exel's premises, he received instructions from both an Interim supervisor and an Exel supervisor. At the time of his injury, he was working under the direction of the Exel supervisor. Consequently, the court ruled that Garza was an Exel employee at the time of his injury.

Now that Garza’s employment status had been determined, the court then needed to establish whether Exel had workers' compensation insurance. It was unclear from the record if Exel had such coverage. Exel argued that because they paid additional fees to Interim for workers' compensation insurance, they should benefit from that coverage. However, the court disagreed, stating that paying a fee for the staffing agency to purchase insurance in its name does not provide explicit coverage for Exel. There was no evidence that the insurance company was contracted to cover Exel's liabilities. The court held that Interim was subject to the TWCA’s exclusive remedy provision, preventing Garza from pursuing a negligence claim against Interim. However, since Exel did not have workers' compensation coverage, the case was remanded for further proceedings regarding Exel.

Protection from Temporary Employee Tort Claims

The court clearly determined that the workers' compensation insurance purchased by Interim did not extend to Exel. So, what can a company operating under the Texas Option do to protect themselves from temporary employee tort claims?

1. Review the Staffing Agreement: Ensure the agreement clearly outlines the responsibilities of both parties. Determine if the assigned employees are experienced or require training and clarify who is responsible for training.
2. Confirm Insurance Coverage: The agreement should specify insurance coverages and limits.
3. Require an Alternate Employer Endorsement: Ensure the agreement names your company as an alternate employer for workers' compensation insurance. Require a Certificate of Coverage naming your company as an alternate employer and a 30-day notice for any loss or cancellation of insurance coverage.
4. Review the Indemnification Provision: Ensure the contract provides indemnification for both negligence and gross negligence claims. Be cautious of one-sided indemnification provisions and carefully review what you agree to indemnify, especially if a temporary employee causes injury to your employee.
5. Location Use of Temporary Employees: All locations should notify Risk Management before engaging a temporary staffing company and provide a copy of the agreement before signing. This may seem intrusive but will protect the company if a temporary employee is injured (as established by the below Tractor Supply case.)

In 2016, Tractor Supply faced a lawsuit from a temporary employee injured at its distribution center. The Waco Court of Appeals reversed an $8,767,375.81 judgment against Tractor Supply, ruling that the plaintiff take nothing. The court found that Tractor Supply was subject to the TWCA’s exclusive remedy provision because there was a written agreement requiring the staffing company to secure workers' compensation for employees working on Tractor Supply’s premises. This outcome differed from the Garza case because Tractor Supply had written evidence that the staffing company’s workers' compensation coverage extended to them.

Incorporating these protections into your temporary staffing agreements will provide the necessary evidence to support your argument that you are protected by the TWCA’s exclusive remedy provision if faced with a lawsuit from a temporary staffing company’s employee.

Contact your PartnerSource attorney team leader with any questions you may have about utilizing temporary employees at your workplace.