KEY TAKEAWAYS

• The New York Third Department once again held that a Professional Employer Organization (PEO) was not obligated to provide coverage for a worker who was never enrolled as a leased employee.

• The decision hinged on the production of a detailed PEO agreement, policy documents, payroll records, and clear testimony confirming the claimant was not submitted for enrollment.

• Notably, the court again declined to address whether PEOs must verify that clients carry separate coverage for non-leased workers — leaving unresolved tension between board-level expectations and appellate rulings.

Another day, another chapter in the evolving world of New York Workers’ Compensation for Professional Employer Organizations (PEOs). As discussed in prior updates, this decision follows the foundational Third Department rulings in Gaylord, Cardona, and Brown.

Fortunately, we continue to see good news coming out of the Third Department. In Fonseca v. Platinum Carpentry Inc., the court considered a scenario where the PEO agreement was in place, but the injured claimant was not listed on payroll and was compensated directly as a 1099 contractor. Critically, the agreement required the client employer to submit all hiring paperwork to the PEO at least 48 hours prior to the worker’s start date — a step the employer admitted it had not taken.

While the court reiterated that absence from a payroll list alone does not conclusively determine status, it gave weight to the undisputed failure to meet the agreement’s enrollment obligations, ultimately affirming the board’s decision that the claimant was not a leased employee covered by the policy.

Much like in Brown, the decision provides helpful reinforcement for defending these types of coverage disputes. However, challenges remain. As we have noted before, Board Panels continue to expect PEOs to take affirmative steps in verifying whether client employers have separately insured non-leased workers. Absent that, they may find co-employment and coverage by default — regardless of contractual language.

The Fonseca ruling does not speak to that additional burden, leaving the question unresolved at the appellate level. For now, successful defense in these cases still depends on a comprehensive paper trail, along with continued vigilance in ensuring compliance with enrollment protocols.

Drawing on Gaylord, Cardona, Brown, and now Fonseca, PEOs have a growing arsenal of support, but the front-line battles at the board remain complex and fact-intensive.

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