How “Alternate Employer Endorsement” Can Help If You Hire Temporary Workers

October 23, 2011

Businesses often depend on staffing companies or “temp agencies” to supply their workers.  The contract between the staffing company and the client business typically has a provision for workers’ compensation insurance coverage.  Depending on the nature of the services provided by the staffing company, the client business may or may not qualify by statute for workers’ compensation insurance coverage through the policy held by the staffing company.  Nevertheless, recent case law suggests that a little-known endorsement in workers’ compensation insurance policies known as the “alternate employer endorsement” may allow businesses who hire temporary workers to have coverage under the staffing company’s workers’ compensation insurance policy.

The Staff Leasing Services Act (Texas Labor Code § 91.001, et seq.) provides for licensing and regulation of staff leasing services companies that assign workers to client companies on assignments “of a long term or continuing nature, rather than temporary or season in nature.”  For workers’ compensation insurance purposes, the Act makes the client company a co-employer who, thus, can benefit from the licensed staffing company’s workers’ compensation insurance coverage when a leased employee is injured.  But what if the staffing company supplying your workers is not properly licensed?  In Houston, only 25 staffing companies are currently licensed by the Texas Department of Licensing and Regulation.  What if you go through a temporary staffing agency to supply temporary workers?  The Staff Leasing Services Act specifically does not apply to companies that provide temporary help.  These situations beg the following question: can you still benefit from the staffing agency’s workers’ compensation insurance coverage?  The alternate employer endorsement may provide a solution.

The U.S. Court of Appeals for the Fifth Circuit recently held in Cal-Dive Intern., Inc. v. Seabright Insurance Company that “when endorsements such as the Alternate Employer Endorsement add additional insureds to the policy, these additional insureds enjoy the same benefits and are subject to the same restrictions as a named insured absent policy language to the contrary.”  This is consistent with a prior holding of the Fourteenth Court of Appeals of Texas in Brown v. Aztec Rig Equipment, Inc., in which the court held that a client listed as additional insured in an alternate employer endorsement had workers’ compensation coverage through the temporary employment agency and was an “employer” within the meaning of the Workers’ Compensation Act.  Beyond the courts’ holdings, the Texas Department of Insurance recognizes that alternate employer endorsements provide workers’ compensation insurance coverage “as though the alternate employer is insured” (Texas Workers’ Compensation and Employers’ Liability Manual).

What does this mean for businesses that hire temporary workers?  In addition to maintaining your own workers’ compensation policy, you can better manage your risk for liability from injuries to temporary workers by ensuring that the staffing company you deal with has a workers’ compensation insurance policy with an alternate employer endorsement listing your company as an additional insured.