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Professional Employer Organizations See Win from NY Appellate Court in Unleased Employee Matter

Key Takeaways

  • The New York Workers’ Compensation Board and Third Department continue to grapple with the breadth of coverage Professional Employer Organizations provide to underlying employers.

  • A Professional Employer Organization must continue to provide its insurance policy as well as the client leasing agreement in defense against Workers’ Compensation coverage claims.

  • Per the most recent Third Department and board panel decisions, Professional Employer Organizations must additionally provide both a list of leased employees on the date of accident as well as additional evidence to confirm the list is exhaustive.

The issue of how much Workers’ Compensation coverage Professional Employer Organizations (PEOs) provide to underlying employers has continued to confound the Workers’ Compensation Board and New York courts since its inception years ago. Much to the chagrin of PEOs statewide, this confusion has consistently resulted in PEOs providing Workers’ Compensation coverage to employees that worked for the underlying employers and were indisputably unleased.

Fortunately, it appears a path has finally been constructed allowing for the proper application of a PEO’s coverage. In 2021, the Third Department affirmed multiple cases in which the claimant was unleased, the underlying employer had no Workers’ Compensation coverage, and the PEO and its carrier were found responsible for covering the claimant. However, in doing so, the court left the door cracked just enough to allow for future claims, essentially determining that if a PEO could indisputably prove its list of leased employees on the date of accident was exhaustive, it may avoid covering the unleased claimant under the Labor Law.

On January 19, 2022, the New York Workers’ Compensation Board rendered its first victory on the side of PEOs in the state. In reversing the law judge’s decision made at trial, the board panel opined that the PEO had established the claimant was an unleased employee and therefore not covered by its carrier’s Workers’ Compensation policy. This was accomplished by providing: (1) the policy itself; (2) the client leasing agreement; (3) a list of leased employees on the date of accident; and (4) testimony from a PEO representative to establish that the list was indeed exhaustive and identified all employees leased to the underlying employer for all of its projects. Thus, the PEO and its carrier were discharged and removed from notice entirely.

While this is certainly a step in the right direction, New York PEOs still face an uphill battle to avoid coverage over unleased employees. Moving forward and applying these most recent cases, PEOs need to be more diligent than ever at the conception of claims where an issue of an unleased claimant is present. This includes not only providing all necessary documentation at the outset of the claim, but also drawing out the necessary additional facts and testimony through trial.

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

Or another member of the firm’s Workers’ Compensation Professional Employer Organization team.