By Matt Heldt
Oregon is expanding licensing requirements for businesses that lease employees. This legislative session, the Oregon legislature enacted HB 2800, which amends Oregon’s employee leasing law. Starting July 2027, entities that share their employees with third parties will need to be licensed before leasing employees to another business, regardless of whether they receive a fee for doing so.[1]
Background
For more than 30 years, Oregon has required “worker leasing companies,” to have a valid license from the Oregon Department of Consumer and Business Services (Department) before leasing employees in Oregon.[2] Before HB 2800, however, a business was only a “worker leasing company” if it provided workers in exchange for a fee.[3]
This fee requirement created an implied exception, where business owners could use an “employing entity” structure—whereby one business entity is the designated employer for all employees working for the related entities—without being subject to the licensing requirement, so long as the employing entity did not receive a fee for leasing its employees.
While the new law does not prohibit using an employing entity structure, it revamps longstanding statutory language and disrupts this longstanding practice.
Key Takeaways
HB 2800 changes long-used terms. Rather than “worker leasing companies,” the newly revised worker leasing statute will apply to “professional employment organizations,” or “PEOs,” and will govern any “PEO relationship.” A “PEO relationship” is defined as “an agreement between a PEO and a client employer under which certain employer responsibilities for some or all of the client employer’s workers are allocated.” While the change from “worker leasing company” to “professional employment organization” is largely semantic, the change in application to any agreement allocating employer responsibilities is a substantive expansion of the law.
Soon, all entities that are in a PEO relationship—i.e., agreeing to allocate some or all employer responsibilities between two or more entities—will be subject to new legal requirements regardless of whether the employees are leased or borrowed for a fee. Any entity that meets the definition of a PEO needs a Department of Consumer and Business Services license before leasing its employees, and must comply with reporting requirements.
While non-PEOs (the businesses receiving employees) need not be licensed, under current regulations a business may be fined for knowingly leasing employees from a PEO that is not licensed. While the Department will update these regulations before HB 2800 becomes effective, it will likely keep some form of enforcement mechanism.
Importantly, these requirements apply regardless of where a business is located, so long as the leased employees at issue are in Oregon. And employers should be aware that other states may have their own versions of similar laws.
Next Steps for Employers and Businesses
To stay in compliance, business owners currently using an employing entity structure, and whose employing entity is not currently licensed, should consider their preferences between licensing with the Department or moving away from an employing entity structure.
Businesses subject to the existing law will also be subject to additional requirements to ensure employees receive workers’ compensation coverage and proper training and supervision, among other things.
While HB 2800 aims to update Oregon’s employee leasing law, the expanded coverage to PEO relationships (as defined) may apply beyond employee leasing. All businesses should review their agreements with third parties that involve employees to identify terms that may unintentionally fall under HB 2800.
Some businesses providing certain temporary workers or administrative services may be exempt from HB 2800 but should consult counsel before determining a license is not required.
Oregon’s Department of Consumer and Business Services is expected to update current regulations before HB 2800 goes into effect. The Department has indicated that updated regulations may preserve existing rules and narrow the statutory definition of PEO closer to current law. But currently there are no guarantees. Employers and business owners should be prepared for regulations that effectuate a broad reading of HB 2800.
For more information about HB 2800, or guidance on handling employee leasing or employment risk allocation, please contact a member of our labor and employment team.
This update is prepared for the general information of our clients and friends. It should not be regarded as legal advice. If you have questions about the issues raised here, please contact any of the attorneys in our Labor & Employment Practice Group, or the attorney with whom you normally consult.
[1] Absent new Department of Consumer and Business Services regulations maintaining this longstanding practice.
[2] ORS 656.850(2).
[3] ORS 656.850(1)(a).
