The recent Utah district court decision in Kuhn v. Comfort Hospice Care, LLC highlights the importance of evaluating relationships with professional employer organizations ("PEO’s"), as these relationships may cause an unknowing employer to be held liable under the FMLA.

Comfort Hospice Care, LLC ("Comfort") provides medical care to terminally ill patients in Las Vegas, Nevada and Layton, Utah.

Comfort had a contract with a PEO, Innovative Staffing, Inc. ("Innovative") for human resource assistance, and Comfort employees were listed as employees of Innovative for compensation purposes. Innovative employees had no supervisory control over Comfort employees, they just performed administrative functions.

At the time Regina Kuhn was laid off, Comfort had a total of 36 employees. Kuhn filed a claim against Comfort and Comfort’s Chief Executive, alleging violations of the Family and Medical Leave Act ("FMLA"). Comfort responded by filing a motion for summary judgment arguing that Comfort was not an "employer" as defined by the FMLA. The FMLA defines an employer as "any person engaged in commerce or in any industry or activity affecting commerce who employs 50 or more employees for each working day during each of 20 or more calendar workweeks in the current or preceding calendar year." In addition, the FMLA definition of an eligible employee excludes, "any employee of an employer who is employed at a worksite at which such employer employs less than 50 employees if the total number of employees employed by that employer within 75 miles of that worksite is less than 50."

Throughout 2010 and 2011, Comfort never had as many as 50 employees in any workweek. Therefore, the Court granted Comfort’s motion on the ground that it is not a covered employer under FMLA, and Kuhn was not an eligible employee.

Interestingly, the court noted that Kuhn had made no effort to take advantage of the FMLA’s PEO regulations to argue that Comfort and Innovative were joint employers for jurisdictional purposes, which would have put Comfort above the 50 employee FMLA threshold. Specifically, the FMLA regulations state "[t]he determination of whether a PEO is a joint employer also turns on the economic realities of the situation and must be based upon all the facts and circumstances." If the PEO has the right to hire, hire, assign, direct and control the employees or benefits from the work that the employees perform, it may be a joint employer with its client. A PEO, however, does not "enter into a joint employment relationship…when it merely performs [] administrative functions." The court’s decision states as a matter of fact that Innovative performed only administrative functions for Comfort.

Kuhn demonstrates that employers with fewer than 50 employees should evaluate its human resources outsourcing options to determine which, if any, of the options may result in bringing them under the FMLA umbrella. The regulations provide that in those situations where a joint employer relationship exists between the PEO and the client, the client most commonly will be the primary employer responsible for the day to day FMLA administration. On the other hand, for employees of temporary placement agencies, for example, the placement agency most commonly would be the primary employer. If a PEO arrangement is pursued, employers should review carefully any proposed agreements to determine whether the allocation of responsibilities will result in FMLA coverage where it otherwise would not exist. It may well be that operational needs will trump the desire to avoid FMLA coverage, but this is the kind of surprise you do not want.