DEFINITION of 'Special Employer'

An employer who receives an employee on loan from another business, and who is not the employee’s original employer. A special employer may be held responsible for the actions of the employee, and the business that lends the employee is generally not held responsible despite being the permanent employer.

BREAKING DOWN 'Special Employer'

Businesses may let other businesses borrow their employees for a period time. This arrangement is regulated under the borrowed servant rule. The business that loans out the employee to the special employer is referred to as the general employer. The employee, despite not having a regular employer-employee relationship with the special employer, is considered to have an implied employment contract.

In order for a special employer to be considered liable for damages or injuries sustained by an employee borrowed from a general employer, three rules must be met. First, an express or implied contract to hire the borrowed employee must be made. The employee has to be aware of the contract details. Second, the work being done is the work that the special employer typically does. Third, the special employer controls the details of the work that the borrowed employee does.

In order for the special employer not to be held liable, an agreement between the general employer and the special employer would have to indicate that the general employer would provide insurance coverage to the employee being borrowed. For example, the general employer would have to extend workers’ compensation coverage. The insurer of the general employer will hold the special employer liable for the actions of the employee on loan unless there was an exclusion endorsement that extended coverage to the special employer.

Contracting firms are commonly associated with borrowed employee arrangements, since they function as middlemen between workers and companies that are looking to have work done.

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