Having a formal employment practices compliance program is the crucial first step to risk management and loss control, noted Frank H. Henry, a partner in the Miami office of Baker & McKenzie.

The program must specify the company's zero tolerance of discrimination and harassment, describe a system for filing complaints and provide for prompt and objective investigation of complaints.

But Mr. Henry stressed that a company also must continually and consistently apply the policy, update it and disseminate it to every employee.

Taking these steps helps provide a defense and a shield against punitive damages in employment discrimination lawsuits under federal law, he explained.

Good hiring protocols also are "extremely important," Mr. Henry said. Companies should give the managers responsible for interviewing and hiring written instructions or even training on what they can and cannot ask during interviews.

The interview process also helps companies determine whether applicants pose a potential for workers' compensation or medical claims, noted James N. McConnaughhay, managing partner in the Tallahassee office of McConnaughhay, Duff, Coonrad, Pope & Weaver.

The initial interview should focus only on the applicant's ability to perform the job, he cautioned.

But after receiving a conditional job offer, a prospect may be asked to complete a medical history questionnaire to determine his or her physical or mental qualifications to perform the job and whether any accommodations by the company would be necessary.

Mr. McConnaughhay advised the inclusion of a signed acknowledgement that the applicant understands that any misstatement or omission on the questionnaire can serve as grounds not to hire or to later terminate the employment.

Even companies that use independent contractors to provide temporary employees and leased employees may find themselves subject to various employment laws and regulations if not careful, warned Donald W. Benson, a member of the Atlanta-based law firm Constangy, Brooks & Smith L.L.C.

In determining whether a worker is truly not an employee for tax purposes the Internal Revenue Service applies a 20-factor test, he said.

Among other things, if a company provides a significant amount of training or detailed instructions to prepare a worker to perform the job functions, the IRS may conclude that the worker is an employee, Mr. Benson stated.

"You have a better chance of calling someone an independent contractor if he or she provides you peer support on contracts" rather than routine services performed by employees, he said.

He also noted that the most fertile grounds for lawsuits by outsource workers are discrimination claims. In fact, it is becoming increasingly common for minority temporary employees to file discrimination charges with the EEOC due to perceived inequities in the areas of discipline, hiring and discharge, he said.

Part of the problem, Mr. Benson noted, is that an employment agency eager to please a user company may be too quick to pull out, reassign or even fire a worker whom the company reports, for instance, as having made a sexual harassment complaint.