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Jul 12, 2023 Danny Herbert

The perils of PEOs: 3 reasons they endanger your business

When it comes to global expansion, companies often turn to Professional Employment Organisations (PEOs) as their go-to solutions. But let's pull back the curtain and expose the truth: PEOs are riddled with pitfalls that can lead to disastrous consequences for your business.

The big issue with PEOs lies in their co-employment contract with their overseas partners. While PEOs may demonstrate competence in understanding certain aspects of employment law and fulfilling basic law obligations, the reality is that the co-employment model wreaks havoc, subjecting unsuspecting businesses to three brutal problems. 

1. Zero IP protection

PEOs fail miserably when it comes to safeguarding your intellectual property (IP).

While your employees work diligently on projects that generate valuable IP, the convoluted nature of the co-employment relationship puts your ownership at risk. 

Imagine a software developer based in the UK who creates innovative algorithms and software solutions for their PEO’s client in the US. Since the US company entered into a co-employment contract with a UK-based PEO, legally, both the PEO and the US company jointly own the software and all of the design IP in it. In some cases, the employee may even assert their rights to the IP. 

This scenario poses a significant risk for the US company. By signing the co-employment contract, they lose their exclusive ownership of the IP. Instead, it will be fragmented across international legal jurisdictions. The tangled web of joint ownership involving the PEO and their US client plus the use of PEO subcontractors becomes a dangerous predicament for the US company, threatening the interests of stakeholders and investors.

Enter into a co-employment relationship with a PEO, and prepare for a messy tangle of shared or disputed IP ownership, leaving your trade secrets and proprietary information vulnerable and totally exposed. Without clear-cut contracts and explicit specialist international IP agreements, asserting your rights becomes an unwinnable battle of wits in a cutthroat business world.

2. Employment contract nightmares - no protection from legal battles

Engaging with a PEO means willingly stepping into the abyss of co-employment law employment contract problems. Brace yourself for a wild ride, as you find yourself unprotected when legal proceedings rear their ugly heads. 

Navigating foreign legal mazes and defending your business becomes a perilous dance of uncertainty, draining your resources and tarnishing your hard-earned reputation.

Thanks to the co-employment model, the US-based PEO client continues to be burdened with unrelenting foreign law obligations as they are still an employer. The consequences are dire, as the PEO client becomes entangled in legal battles in unfamiliar territories, subject to the whims of foreign legal systems.

So in the event of workplace disputes or labour law violations, both you and the PEO may face the wrath of lawsuits. Picture yourself battling legal action without the shield or support you expected from the PEO because, like you, they’re the co-defendant. 

In this example, let's say the US company engages a PEO in the UK to handle HR services and employs ten individuals in the UK and a further five in France. To manage the French workforce, the PEO collaborates with a local entity in France, potentially a subcontractor, as its PEO partner. Because of co-employment, the US company finds itself in a precarious position, liable in UK courts for UK employees under UK law and in UK courts for their French employees under French law in courts only operating in the French Language.

But what if the PEO’s contract solely encompasses hiring employees in the UK? The harsh reality is that the US company remains painfully liable within that jurisdiction. US companies using PEOs are often unaware of the perils that accompany co-employment contracts. They may believe they are legally covered under the model, but this is not the case. 

3. Employment continuity catastrophes

Your plans for a seamless transition to your own entity are about to hit a major roadblock. The dirty little secret of PEOs is the glaring absence of employment continuity. 

Typically, companies employing people through a PEO only intend to use the third party as a temporary solution until they amass enough growth to establish their presence in a foreign jurisdiction. This transition could take three years. Once the company opens its own entity and directly hires employees, it'll want to transfer all PEO employees currently working for them.

But when this time comes, these PEO employees who have diligently served the company will face an unjust fate. 

Co-employment arrangements mean employees are stripped of the continuity of service they deserve and had expected and had been told they would receive - which do not legally transfer with them. It’s goodbye to cherished entitlements like essential protections against dismissal and redundancy. 

Ruthlessly deprived of their hard-earned employment rights and benefits accrued during their tenure, they're left in a state of disarray. Prepare for disgruntled employees, legal battles, and a tumultuous environment that threatens your productivity, employee morale, and ability to retain top talent.


Danger lurks behind the PEO facade, and it's time to confront the truth. 

Don't succumb to the allure of PEOs, as they put your business at grave risk. Protect your future and thwart these dangers by exploring alternative solutions that provide comprehensive legal safeguards, secure your IP ownership, and ensure seamless employee transitions. 

Align yourself with battle-hardened professionals who understand the cutthroat nature of global workforce management and tailor strategies to fortify your success. Defy the dangers. Stay vigilant. And choose your partner wisely.

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Published by Danny Herbert July 12, 2023
Danny Herbert

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