Beware the dangers of loaned employees under Wisconsin law

The outcome of a loaned employee inquiry determines which employer faces exposure for a workers’ compensation claim between the loaning employer and the borrowing employer. It can also affect the type of exposure the borrowing employer faces: workers’ comp benefits versus tort (wrongful act) damages. The loaned employee doctrine itself is very fact-intensive, and Wisconsin case law is difficult to reconcile. So, if an employer wants to ask an employee to perform any work for another employer, it’s best to touch base with counsel regarding the proposed arrangement.

What is a loaned employee?

The rationale of the loaned employee doctrine is that an employee who is loaned to a borrowing employer becomes a loaned employee (i.e., not an actual employee) of the borrowing employer for workers' comp purposes. Thus, if the loaned employee test is satisfied, the borrowing employer faces exposure for a workers' comp injury occurring in the course of and arising out of the work the employee performs for the borrowing employer.

That all sounds logical and straightforward, but the problem is the test. It is very fact-intensive, and Wisconsin case law is often irreconcilable, which creates the risk that the loaning employer could still face exposure for a workers' comp claim even though the employee is injured while working for the borrowing employer.