What is a Special Employer?

A special employer is 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.

Key Takeaways

  • A special employer is an employer who receives an employee on loan from another business.
  • In a vertical joint employment, a worker is economically dependent on both his employers. In a horizontal joint employment, a worker can be employed by two separate companies that are affiliated to each other in some form.
  • Employees who are loaned out have the same rights and protections under federal employment laws as any other worker in the U.S.
  • Worker liability for special employment has to be specified in a contract and has to meet certain conditions.

Understanding Special Employers

Businesses may let other businesses borrow their employees for a period time. This arrangement is known as a special employer relationship, and it 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.

A worker employed under a special employment arrangement has the same rights and protections under federal employment laws as any other worker in the U.S. As such, the Department of Labor has created rules regarding special special employment. When special employment exists, all of the employers are responsible, jointly and individually, for complying with the laws. A special employment arrangement can be vertical or horizontal in nature.

  • Vertical. In vertical joint employment, one employer provides workers to another, and the worker is economically dependent on both. An example is a worker employed by a staffing agency and assigned to work at a manufacturing plant.
  • Horizontal. In horizontal joint employment, the employee has two or more employers that are separate companies but have a relationship or affiliation with each other. Typically, the employee performs work for each company. For example, Jim and Bob are brothers and each owns a restaurant. Whether workers are hired by Jim or Bob, they typically work at both restaurants.

Liability for Special Employers

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.

  1. An express or implied contract to hire the borrowed employee must be made, and the employee has to be aware of the contract details.
  2. The work being done is the work that the special employer typically does.
  3. 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.