Key Takeaways:

• The New York Workers’ Compensation Board continues to struggle with properly attributing the coverage Professional Employer Organizations provide to underlying employers
• Professional Employer Organizations must continue to provide their insurance policy, the client leasing agreement, a detailed list of all leased employees, and testimony regarding the same in defense against Workers’ Compensation coverage claims
• Per the most recent Board Panel Decisions, Professional Employer Organizations must additionally ensure that  their clients obtain and provide coverage to their non-leased employees

The battle regarding how much Workers’ Compensation coverage Professional Employer Organizations (PEOs) provide to underlying employers rages on at the Workers’ Compensation Board level. While the Third Department’s 2021 decisions led to multiple victories on behalf of PEOs on the issue of covering unleased employees early this year, the board has once again moved the goalposts on PEOs in its more recent decisions.

Pursuant to the board panel decision filed in December 2022, the board has compiled the most recent decisions on this niche issue and concocted its own interpretation of the law as it currently stands. As laid out in the decision, the panel notes its new analysis relevant to the issue of proper coverage as follows:

(1) The client is obligated to provide separate coverage for its non-leased employees;

(2) the PEO and its carrier (for the client’s leased employees) must ensure that the client did indeed obtain and provide coverage to its non-leased employees, and must document which employees are leased to the client at any given point in time; and

(3) the employee will be found to be a leased employee who is covered by the PEO’s carrier unless the PEO and its carrier prove that the claimant is a non-leased employee by providing: evidence that the PEO and carrier demanded proof of coverage; a detailed list of all leased employees, with specific dates when leased employees started and, if applicable, ended employment (a date-specific list); and evidence that the list was referred to or incorporated by the policy procured by the PEO for leased employees.

Whether intuitively sensible or not, this decision clearly sets forth an additional obligation on the part of PEOs to ascertain a client’s compliance with providing Workers’ Compensation insurance for non-leased employees. Without evidence of any such efforts to determine whether coverage was obtained – along with the satisfaction of the other requirements as stated – the board will simply find the claimant a covered co-employee of both the PEO and its client.

While it remains to be seen whether the recent board panel decisions leading to this new standard will be further appealed to the Third Department, it seems inevitable that this issue will ultimately need to be decided by that higher court, much like we witnessed was necessary in 2021.

In the interim, PEOs need to continue leaving no stone unturned in the conception of claims where an issue of an unleased claimant is present. Without providing precisely the evidence required by the board panel – including drawing out the necessary additional facts and testimony through trial – the board will continue to pin these claims on PEOs.

If you have any questions about these changes or how they may impact your business or coverage of unleased employees, please contact:

• Dustin W. Osborne
• Damon M. Gruber
• Sean J. McKinley
• Esther F. Omoloyin
• Or another member of the firm’s Workers’ Compensation or Professional Employer Organization teams