Texas Staff Leasing Services Act

The Texas Staff Leasing Services Act (SLSA) was adopted in 1995 by the Texas Legislature.  On September 1, 2013 the law was updated  and renamed the Texas Professional Employers Organizations Act (PEOA) and remains codified  in Chapter 91 of the Texas Labor Code, §§ 91.001-.062 Tex. Lab. Code  Ann. The PEOA changed the law regarding who can sponsor insurance programs and workers compensation insurance for covered employees.

The Texas Professional Employers Organizations Act sets forth the legal requirements that must be followed in a professional employer organization (PEO) arrangement. The Texas Department of Licensing & Regulation has promulgated rules that are set forth in 16 TAC §§ 72.1 -72.100. Chapter 72 is written under the authority of the Texas Labor Code, Chapter 91 and Texas Occupations Code, Chapter 51.

Chapter 91 of the Texas Labor Code create a co-employment relationship between the PEO and the client. The relationship involves a contractual allocation and sharing of employer responsibilities between the PEO and its client. The PEO becomes the administrative employer, and the client becomes the job-site employer. The client retains supervision over the day-to-day activities and responsibilities of running its business while the PEO assumes many of the responsibilities for human resources. The workers become employees of the PEO and are assigned to work at the client’s location. The PEO establishes and maintains an employee relationship with leased employees that are intended to be long term and continuing in nature. Seasonal and temporary employees do not satisfy the legal definition of leased employees contained in the Texas Labor Code. PEO’s do not recruit employees and assign them to support the client’s workforce.

The Texas Department of Licensing and Regulation (TDLR) regulates Texas PEO’s. PEO’s generally provide the following services: payroll administration and payment of employment taxes; reporting, collecting and depositing employment taxes with state and federal authorities; and providing workers’ compensation insurance coverage for the workers that are leased by the staff leasing company to the client. A covered employee is the new term for the ‘assigned employee,’ and is a person having a coemployment relationship with a PEO and a client.

A written employee leasing agreement must document the terms of a staff leasing arrangement. The employee leasing agreement must also restate specific statutory language contained in the Texas Labor Code. An employee leasing agreement should clearly define the responsibilities and assumption of risk of each co-employer. The PEO and the client are solely responsible for certain obligations of employment, while both parties share responsibilities for other obligations.  Under the new law, the client or the PEO may offer workers’ compensation insurance. If workers’ compensation coverage is offered, the professional employer services agreement must state which party must maintain the coverage, and a copy of the agreement must be given to the Texas Department of Insurance (TDI) on request.

Reid & Dennis attorneys have extensive experience with PEO arrangements and resolving disputes that arise out of PEO relationships.  Our experience provides us with the ability to prepare employee leasing agreements that satisfy the statutory requirements and clearly define each party’s responsibilities to establish the framework for a long-term relationship. We also have the expertise to advise our clients of potential problems and solutions to keep our clients out of protracted litigation.

The importance of hiring an experienced PEO attorney is reflected in the Beaumont Court of Appeals decision in Gustafson v. Complete Mfg. Servs., 2020 Tex. App. LEXIS 5697, 2020 WL 4210499 (Tex. App. – Beaumont 2020, no pet. h.). Michael Gustafson (Gustafson) was injured while working for a PEO client, Complete Manufacturing Services, Inc. (CMS).  The PEO, Locke Technical Services, Inc. (Locke), employed Gustafson and assigned him to work for CMS.  After Gustafson was injured, Gustafson attempted to argue he was employed by CMS and CMS was a non-subscriber and asserted negligence and gross negligence claims against CMS.  CMS filed a motion for summary judgment asserting that Gustafson’s claims were barred by the exclusive remedy defense because Gustafson was an employee leased by Locke to CMS and relied on the Texas Staff Leasing Services Act (Codified at Tex. Lab. Code Ann. §§ 91.001-.062) to establish its defense.  The trial court granted summary judgment in favor of CMS.

On Appeal, the trial court’s summary judgment was reversed. The Court of Appeals found that the summary judgment evidence failed to establish a written agreement existed between CMS and Locke and failed to offer evidence that Locke had the required PEO license. In order to qualify as co-employers under the PEOA, CMS and Locke necessarily had established a contractual relationship governed their relationship. See, § 91.031(a) of the Texas Labor Code. The PEOA also requires that a PEO be licensed. See § 91.011. Co-employer status of a client company depends on the staff leasing services company being a license holder.

To benefit from Locke’s election of workers’ compensation insurance and thereby be entitled to the workers’ compensation exclusive remedy defense under the SLSA or PEOA, CMS had to establish it and Locke were co-employers under the statute.  CMS could do so by providing summary judgment evidence that Locke was a valid license holder and the parties operated under a written agreement. See Tex. Lab. Cod Ann. § 91.001(3-a), (3-b).  The agreement would also need to specify whether, Locke the purported license holder, or CMS, would obtain workers’ compensation insurance. See Tex. Lab. Code Ann. § 91.042(a-1). The summary judgment was reversed because CMS did not establish a valid co-employment relationship with Locke under either the SLSA or PEOA that would make Locke’s election to procure workers’ compensation insurance for Gustafson applicable to CMS.

CMS was also unable to rely on section 93.004 of the Texas Labor Code.  A certificate providing workers compensation insurance for the temporary employment service is proof which entities both the temporary staffing employer and the client to use the exclusive remedy defense. Section 93.004 of the Texas Labor Code differs from the SLSA and PEOA as it does not require the same type of written agreements or PEO license. Tex. Lab. Code § 93.004 with §§ 91.001(3-b), 91.011.

The Gustafson v. Complete Mfg. Servs decision demonstrates what can happen if the PEOA and Temporary Staffing statutes are not followed. Before an employee is injured make sure the business relationship between the PEO and the Client is documented by a written PEO agreement that complies with the requirements of Chapter 91 of the Texas Labor Code.  Make sure you retain an experience PEO attorney to oversee the process.  An experienced PEO attorney would never file a motion for summary judgment without establishing the existence of a written agreement between the PEO and the Client and proof that the PEO was licensed by the TDLR. Finally, if some technicality exists or a licensed PEO is not involved, an experienced PEO attorney will understand the impact of a PEO and Temporary Employer status and the ability to use §93.004 of the Texas Labor Code to establish the exclusive remedies defense if a Temporary Help employer is involved. When the workers compensation carrier had already paid an injured employee workers compensation  benefits, the carrier is also likely to provide evidence of workers compensation coverage necessary to assert establish the exclusive remedy defense.