Employee Leasing

Employee Leasing and the Effect on Workers' Compensation and Liability

A. Workers’ Compensation


In Texas, workers’ compensation and employee leasing are governed by statute.  Under the Staff Leasing Services Act, the staff leasing company determines if workers’ compensation coverage will be provided to the leased employees.  Section 91.006 of the TEXAS LABOR CODE states that a certificate of insurance coverage showing that a license holder maintains a policy of workers’ compensation insurance constitutes proof of workers’ compensation insurance coverage for the license holder and the client company with respect to all employees of the license holder assigned to the client company.  This statute has been interpreted by Texas courts, which have held that if the employee leasing company elects coverage, its policy covers both the leasing company and its client company as to the leased employees.  Tex. Workers’ Compensation Fund v. Del Indus., Inc., 35 S.W.3d 591, 596 (Tex. 2000).  If the leasing company does not elect coverage, however, the LABOR CODE relegates both the leasing company and its client to the status of nonsubscribers in assessing liability. See TEX. LAB. CODE ANN. §§ 91.042(d), 406.033 (West 2006). Section 406.033 permits negligence suits against non-subscribers and prevents them from asserting certain common law defenses. Id. § 406.033 (West 2006). Thus, the staff leasing company and the client company are “co-employers” to the extent of the consequences of the staff leasing company's election. Del Indus. Inc., 35 S.W.3d at 596.  Thus, a company that leases employees does not need a workers’ compensation or employee injury policy, but to protect itself, the staff leasing agreement it signs should specifically state that the staff leasing company will elect and procure a workers’ compensation insurance policy for all leased employees.  In addition, before leasing any employees from the staff leasing company, the company should require the staff leasing company to furnish a certificate of insurance proving that it has procured workers’ compensation insurance for all leased employees.  In addition, anytime a new worker is leased, the staff leasing company should show proof that the new leased worker was specifically added to the policy.


B. Liability

Insofar as liability to third persons is concerned for acts of leased employees, section 91.032 (b)(3) of the LABOR CODE states that a client company retains responsibility for the acts, errors, and omissions of assigned employees committed within the scope of the client company’s business.  Thus, the Staff Leasing Act specifically states that the company who leases the employees is ultimately liable for the acts of the leased employee so long as those acts were committed while performing work within the scope of the company.  Thus, any company who leases employees should take out its own liability policies that would cover its leased employees’ acts and omissions, including a CGL, business automobile policy, or any other policy that would be required to insure the inherent risks for that particular company.