ATR recently released its latest eGuide, 6 Things You Can Do to Improve IT Contractor Retention, and in it we discussed tenure policies or term limits and how they affect retention of IT contract employees. This week I want to focus on term limits in more detail, especially the idea that they are not necessary and not protecting you the way you think they are. A radical idea? Read on and see what you think.
IC misclassification is a major concern for businesses. The use of independent contractors has risen over the past several years and government scrutiny of IC classification has become more aggressive at both the state and federal level. Staying on the right side of classification regulations and guidelines takes constant vigilance and the assistance of HR, legal and staffing professionals, working together, is invaluable. The issues can be complex and the guidelines are sometimes murky, open to interpretation and differ from state to state. The risk for accidental misclassification is high and the penalties are growing ever more costly. Companies must use a variety of strategies and tools to ensure that their use of ICs is a benefit, not a costly risk to the company.
Employing “term limits” is seen as one way to mitigate co-employment and worker misclassification concerns but is it effective? At the SIA’s CW Risk Forum panel, “Myths and Reality of Contingent Workforce Risk,” lawyers George Reardon of Littler Mendelson and Eric Rumbaugh of Michael Best refuted this idea pretty vehemently. Mr. Reardon called it the “biggest myth in contingent labor” and Mr. Rumbaugh said that it is “a myth that they are legally driven.” Both agreed that there are very few instances where they protect against an actual legal risk and both pointed out that there are much better, more effective ways to combat co-employment risk. There seems to have been a sort of knee-jerk reaction to the Vizcaino vs. Microsoft lawsuit in 1996 that continues to the present. Reardon and Rumbaugh say that reviewing the language in your benefit plans and ensuring that your participation rules and definitions are clearly and carefully spelled out is the best defense, and may address 95% of the issues. Term limits will provide no protection if your plans are written poorly. They worry that too many companies rely solely on term limits as a magic catchall that protects against a variety of issues and they warn that simply isn’t the case.
I wasn’t able to attend the session but listened to the MP3, which I highly recommend to you. There was a lot of other good advice and interesting discussions about hot topics, but their comments on term limits was music to my ears. I’ve been in the staffing business for almost 25 years and there are days when I think term limits are the worst idea ever. I sympathize with my clients who have to jettison successful contractors, often at critically important points in the project lifecycle, in order to comply with term limit policies. We work with our clients to make these transitions as smooth and cost effective as possible but there is no denying they create problems. I’ve always thought they were arbitrary and many companies we work with, some global Fortune 100 firms, do not have such policies in place. Now it seems there is a growing chorus of voices proclaiming their ineffectiveness. Talk to your counsel and if there are no real legal benefits, then consider doing away with them. Your policies may be needlessly creating problems for you, causing good contractors to look for other opportunities sooner than they want to and forcing your hiring managers to retrain new workers, an inefficiency that costs time and money. The news that they don’t provide real legal protection should be a wakeup call to all of us in the industry. Make sure that you are not needlessly hampering your CW workforce strategy from being fully successful under the false reassurance that your company is protected by term limit policies.