Negotiating Staffing Agency Agreements:

Drafting Key Provisions, Minimizing

Individual and Joint-Employer Liability

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WEDNESDAY, JANUARY 11, 2017

Presenting a live 90-minute webinar with interactive Q&A

Janette Levey Frisch, Founder, The EmpLAWyerologist Firm, East Brunswick, N.J.

Jacob M. Sitman, Shareholder, Chair of Employment Law and Labor Relations,

Fitzpatrick Lentz & Bubba, Center Valley, Pa.

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Responsibilities

Staffing Firm:

• Pre-employment screening and hiring;

• Determine pay rates and benefits, if any;

• Pay wages and employment taxes;

• Provide Workers’ Compensation Coverage;

• Handle employees’ complaints and questions;

• Discipline, terminate, re-assign.

Client:

• Determine start date and length of assignments;

• Direct employees’ daily work activities;

• Control employees’ work environment;

• Conduct workplace safety and training.

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In Contracts With Staffing

Firm/Contractor

• Compliance: a) Staffing firm must comply with all laws,

including all employment laws and have all required licenses

and registrations; b) Specifically require compliance with laws

that apply to your company and might not otherwise apply to

the staffing firm (e.g. federal contractor rules, E-Verify, export

control rules, HIPAA);

• Any special rules for recruiting, screening, and/or background

checks.

Employer-of-Record: All staffing firm workers assigned to

your company are staffing firm’s W-2 employees, unless you

specifically agree otherwise in writing.

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In Contracts With Staffing

Firm/Contractor

Monitoring Compliance with Agreement and Laws: Client should reserve the right to audit staffing firm documents for compliance with any legal and/or contractual requirements (e.g. payroll records, I-9s, documents required to be signed by the workers, etc). Client should require that staffing firm have all assigned workers sign documents client wants them to sign.

Client and staffing agency should each have a contact person who

monitors compliance, and who deals with any issues that arise. Staffing firm should have a contact person that deals with scheduling, employee relations and other administrative issues. Workers should not be going directly to client on those issues, client should not deal directly with contingent worker.

One or more indemnities, applicable if staffing firm violates legal or contractual requirements.

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Indemnity/Limitation of Liability

Provisions

Defend, indemnify and hold harmless

Claims or losses incurred and proximate causation

Fault, negligence, gross negligence, willful misconduct or recklessness

Indemnification precondition: written notice to the other party within a timeframe of receipt of any claim, demand or notice for which indemnification may be sought

Limits/exclusion regarding liability for incidental, consequential, punitive, indirect or special damages (interruption of or loss of business, profit or goodwill)

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Confidentiality/Nonsolicitation

Provisions

Will assigned employee’s knowledge, possession or

use of staffing firm’s client’s confidential information

be imputed to the staffing company?

Require assigned employees to sign confidentiality

agreements/acknowledgements?

Staffing firm customer solicitation of staffing firm

employee on assignment (or during specific time

period without prior written consent

Consider liquidated damages and attorneys’ fees

provisions (in lieu of injunctive relief)

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Scope/Term/Termination Provisions

Survival of restrictive covenants despite termination

Initial period, automatic extension for successive

period of specified length, election to terminate

within specified timeframe and prior written notice

Immediate termination for nonpayment or

bankruptcy

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In Contracts With Staffing

Firm/Contractor, cont’d

• Insurance: Require staffing firm to have CGL, Professional Liability/E&O, Workers’ Compensation, all other applicable coverage, and name client company as additional insured, on primary basis; and as alternate employer on the Workers’ Compensation coverage.

• Payment: Include all payment terms. What is due when, what happens when payment is late.

• Guarantee period: Number of hours or weeks in which client can determine if satisfied with employee. If not, client is refunded all or part of monies paid for that/those workers. Staffing firm will not want that time period to be too long or they are vulnerable to providing free services. Client needs sufficient time to determine if employee is working satisfactorily.

• Conversion Fees: Charged when client wants to hire any workers directly. Usually a sliding fee. The sooner the hire date the higher the fee. Usually phased out after worker has worked a certain number of hours or weeks.

• Assignment limits: if desired – and appropriate.

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Joint Employment Myths

Myth #1: Joint Employment Increases the Risk of Litigation

Reality: Hiring temporary employees is no more risky than hiring additional direct employees. Access to courts is a reality, and corporations will not avoid lawsuits entirely. Companies do not lose lawsuits solely because they are co-employers. Companies lose employment cases when they base their decisions on illegal criteria. Ensuring proper decision-making is key.

Myth #2: Using temporary workers or a variant, automatically creates a joint employment arrangement.

Reality: The use of temporary workers by itself does not create co-employment. Exercising sufficient control over the workers triggers co-employment.

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Joint Employment Myths #3 -5

Myth #3 : Being declared a joint employer automatically means damages.

Reality: Damages are triggered by decisions based on illegal criteria or by negligent or willful misconduct. When joint employers work together to ensure appropriate decision-making and conduct, damages are much less likely.

Myth #4: : Imposing assignment term limits will prevent a finding of co-employment.

Reality: Length of assignments is only one of several factors in determining whether there is a co-employment arrangement.

Myth #5: : All companies using contingent (temporary) work staff are at risk of a Microsoft –type situation.

Reality: Microsoft failed to think about exactly how it was using its contingent workers and failed to review its benefits plan. Had it done so the case very likely would have ended much differently.

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What is a Joint Employer– DOL definition

• “[w]here the employee performs work which simultaneously benefits two or more employers, or works for two or more employers at different times during the workweek.” A joint employment relationship generally will be considered to exist in situations such as:

• Where two employers agree to share the employee's services;

• Where one employer is acting directly or indirectly in the interest of the other employer (or employers) in relation to the employee;

• Where the employers are not completely disassociated with respect to the employment of a particular employee and may be deemed to share control of the employee.

29 CFR 791.2.

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What Is Joint Employment Liability?

• Liability of one co-employer for the actions/inactions of another.

• Occurs most often in the area of anti-discrimination laws, workers’ compensation, OSHA, FMLA, ADA, FLSA, I-9 issues, benefits, and other similar labor and employment laws.

• Or, claims by employees of one co-employer that they are actually employed by the other co-employer, e.g. entitled to its employee benefits.

NOTE: Some states also have joint employment laws. Example: California passed a law, effective January 1, 2015, making clients jointly liable for allegations wage and hour and workers’ compensation violations by labor contractors

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Common Joint Employment Issues

• Discrimination (race, gender, religion, disability, sexual orientation, harassment);

• Wage and hour;

• Workers’ Compensation;

• Workplace Safety;

• HIPAA.

• Property damage alleged by temps;

• Employee benefits;

• FMLA;

• I-9 ;

• Background Checks;

• Collective Bargaining.

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Discrimination-

Title VII

Title VII of the Civil Rights Act of 1964 prohibits discrimination based on race, color, religion, gender, pregnancy, national origin, disability. Applies when there are 15 or more employees. Staffing firms and clients must count direct employees and contingent workers.

Harassment based on being a member of these protected classes is a form of discrimination.

The Age Discrimination in Employment Act (ADEA) prohibits discrimination based on age.

Anyone who exercises a right of control over the worker is an employer under Title VII. Since most clients of staffing firms do retain a right of control, they are employers under Title VII.

• Any firm that can affect a workers’ job can be liable even if it is not an employer under Title VII.

Staffing firms and their clients have a joint duty to refrain from discrimination. Staffing firms cannot knowingly assign “temps” to clients that discriminate or comply with a client’s discriminatory requests.

Note: Most states also have anti-discrimination laws, which impose additional obligations on the employer.

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Harassment

• To minimize harassment liability, staffing firms and clients should:

-Have anti-harassment policies and procedures;

-Notify employees of those procedures;

-Take prompt remedial action. Staffing firms should:

- Conduct investigations (with client, if appropriate)

- Assure confidentiality whenever possible;

- Not retaliate;

- Give employee(s) the option of re-assignment;

- Not send replacements until the problem is resolved.

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Americans With Disabilities

Act (ADA)

• Staffing firms and clients may not ask medical questions prior to a job offer;

• Staffing firms can assign another employee if they can’t make a timely accommodation;

• Can ask about accommodation if disability is obvious or applicant voluntarily discloses;

• Staffing firms and clients should share accommodation costs.

• Failure by one to contribute can cause “undue hardship” to the other.

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EEOC Guidelines

• Enforcement Guidance: Application of EEO Laws of Contingent Workers Placed By Temporary Employment Agencies and Other Staffing Firms

• Both staffing agency and client generally responsible for compliance with law. http://www.eeoc.gov/policy/docs/conting.html

• Enforcement Guidance on the Application of ADA to Contingent Workers Placed By Temporary Agencies and Other Staffing Firms

• Both staffing agency and client have accommodation and other compliance responsibility. http://www.eeoc.gov/policy/docs/qanda-contingent.html

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The EEOC and Joint

Employment

• What Happens in Joint Employer Situations

• Charge filed by joint employee is filed against both entities

• Joint employer may not be told about claim filed against the other

• Charges are mediated, investigated, conciliated separately

• Information from one entity can be used against the other entity

• If a right to sue letter is issued, it will be up to the Charging Party to decide whether to file one lawsuit against both entities, or file separately.

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Wage and Hour

• Staffing firms and franchisee-employers generally

have primary responsibility for record keeping;

• According to the US Department of Labor, clients

are “joint employers” for overtime pay purposes.

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FMLA

See 29 CFR § 825.106

Joint employee must be counted by both employers to determine employer coverage and employee eligibility under the statute.

Staffing firm is “primary” employer, responsible for most statutory compliance including notices. Client company, as “secondary” employer, is responsible for

accepting back the temporary worker returning from leave in place of any replacement worker (if the client continues to use a temporary worker).

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Workplace Safety

• Client is primarily responsible for workplace safety and training.

• Client must keep records of all illnesses and injuries of all temporary employees it supervises.

• Staffing firms may keep records but must do so in client’s name.

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Workers’ Compensation

Staffing firms are the “general employers”

Clients are “special employers” if:

they supervise the work;

the employee consents to the relationship;

the employee is doing the work of the client.

• Both the general and special employer are immune from liability for injuries if a temporary employee sues and alleges negligence.

• Clients are not immune if they:

intentionally injure the employee;

disclaim employer status.

Alternate employer endorsement on temporary staffing firm’s WC coverage allows the client to put the WC defense on that firm’s insurance.

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I-9 Compliance

According to the USCIS, all co-employers are responsible for

I-9 compliance.

Department of Homeland Security may impose penalties on

both the staffing firm and the client for non-compliance.

Staffing firms can minimize client liability by properly

completing I-9 forms for its employees and keeping records on

its premises.

Clients risk liability when they retain I-9’s and related

documents for staffing firm employees or become involved in

hiring decisions relating to I-9’s and documentation.

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HIPAA

• If you are a covered entity under HIPAA privacy rules, and

temporary/ contract workers have access to protected

information the co-employment issues will arise here too.

• Clients should include a Business Partner agreement with

the temporary staffing/contractor firm.

• Clients should require individual agreements signed by

the temporary/contract workers.

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Background Checks

• Federal and State Fair Credit Reporting Acts;

• If you use staffing firms and you require temporary workers to be checked, you and the staffing firm must comply with the applicable federal and state laws;

• If you impose criteria for the checks, make sure they are legal;

• Avoid per se rules;

• Clients should consider whether they want to be involved in discretionary decisions.

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Employee Benefits

• Clients must count “leased employees” when applying coverage tests to their benefit plans (to determine if they qualify for tax benefits) except group health plans.

• Clients only have to count leased employees, not necessarily provide them benefits.

A “leased employee” is one who:

works under the primary control of the client; and

works “substantially full-time” (i.e. 1500 hours in a year.)

Note: If the staffing firm provides benefits, the client still has to count leased employees, but client can take “credit” for staffing firm benefits when testing its own plans.

Another Note: : Assignment limits do not necessarily reduce benefits liability and will not reduce co-employment liability in the other areas discussed in this training.

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The Microsoft Case

10,000 “independent contractors” and staffing firm employees assigned to Microsoft since 1987.

Two issues: 1) Were they independent contractors or employees?

2) If employees, whose were they?

Held: “Temps” were common law employees to whom Microsoft had to provide benefits unless excluded from Microsoft’s 401k plan. (Microsoft settled in 2000 for $97 million).

THEREFORE clients should: a) exclude temporary “leased” or contract employees from their benefits plans; b) consider requiring “leased” employees to sign waivers, preferably tailored to the client’s specific plans; c) have staffing firm control all pre-employment screening, (except specific safety training and orientation), pay rates, benefits, expense reimbursement, assignment, re-assignment, workplace complaints and discipline.

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NLRB and Joint Employment

How the NLRB’s Position on Joint Employment Evolved

• Pre-1982, NLRB’s focus was on the “right to control” work of employees

• Putative employer had the right to hire, set wages, set working hours, approve overtime, determine manner and method of work, inspect and approve work, discipline and terminate. Control may be direct or indirect

• Joint employer status found when entities “share or codetermine those matters governing the essential terms and conditions of employment.

• 1982 -2015, NLRB narrowed the standards for joint employer

• Right to control not enough; joint employer status turned exclusively on actual exercise of control. Control must be direct, immediate and not “limited and routine”

• See Browning-Ferris Industries Decision, 362 NLRB No. 186 (2015), which articulates this new-old standard.

• Cases now before the National Labor Relations Board as to whether employees supplied by staffing companies must be included in collective bargaining agreements. If yes, then both the client and the staffing company may be required to bargain with the employees’ collective bargaining representative.

• The NLRB will look primarily to whether a client exercises sufficient control or has a right to exercise control in determining a joint employer arrangement.

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Managing Joint Employment Risks

• Client’s supervisors must not act like employers, e.g. DON’T: hire temporary workers, fire, set compensation or benefits, offer bonuses, grant leaves, deliver performance reviews, make promises, discuss transfers or advancements, etc. Staffing firm/contractor should take all these actions;

• Clients direct the work, train as needed (when staffing firm doesn’t), provide safe workplace

• Client should have a direct contact at staffing firm/contractor and discuss all changes (removing/adding workers, disciplines, pay issues, etc.) with the contact and have staffing firm implement, especially those that could have legal consequences, reaching agreement BEFORE making final decision.

• Make sure “temps” sign agreements regarding: confidentiality, IP ownership, staffing company is direct employer, non-entitlement to client’s benefits, anti-harassment policies and other rules of conduct.

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DOJ v. 1st Class Staffing

(December 2016) Enforcement action by DOJ’s Office of Special Counsel of Immigration-Related Unfair Employment Practices against Utah-based staffing company discriminated against employees during onboarding process on basis of citizenship and immigration status by requiring non-U.S. citizens to provide specific documents for employment eligibility verification

Immigration and Nationality Act’s anti-discrimination provision (8 U.S.C. § 1324b)

Staffing company agreed to pay $17,600 to settle claims, pay back wages to the complaining employee, and undergo training on anti-discrimination law, and be subject to government monitoring for 1 year

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Garcia-Celestino v. Ruiz Harvesting, Inc.,

(11th Cir. December 2016)

Affirmed finding that citrus grower was joint employer of temporary foreign/H-2A workers recruited from Mexico who were denied minimum wage (the adverse effect wage rate) and contractual pay by a labor contractor/staffing firm

FLSA broad definition of “employer”/narrow common law definition based on breach of contract claim

Staffing form was listed as employer on DOL forms to get visas approved and was responsible for workers’ pay and housing

Citrus grower was involved in clocking workers’ time, and general oversight of the work crews

Citrus grower was indisputably unaware of the staffing firm’s kickback scheme

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DOL v. J&J Snack Foods Corp.

(October 2015) NJ-based food and beverage manufacturer paid $1.3 million to settle DOL’s WHD enforcement action following investigation of alleged failure to pay wages to 465 workers following WHD finding that company was a joint employer with a staffing firm

Temporary workers were allegedly paid straight time for overtime hours by the staffing firm

J&J CFO: “We were completely unaware that the staffing agencies were not paying their employees properly. We now audit the payroll of all the staffing agencies we use to ensure they are in compliance.”

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Hunt v. Pers. Staffing Grp., LLC

(December 2016) and Shirley v.

Staffing Network Holdings, LLC

(November 2016)

Class action complaint filed against staffing

agency and its clients alleging them to be joint

employers and that staffing agency honored the

coded requests of its clients not to send them

black workers for temporary assignments (i.e.,

customer preference discrimination)

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EEOC v. S&B Indus., Inc.

(S.D. Fla. December 2016)

Court declined to dismiss case on summary judgment

on allegations of failure to hire or accommodate deaf

applicants for temporary work because the customer

of staffing firm had control over the employment

relationship it formed with temporary workers

Staffing firm customer directly supervised workers on

production floors and it instructed them it had the right

to end their work assignments

Also, note that EEOC added emerging issues relating

to “complex employment relationships” to its strategic

enforcement priorities for fiscal years 2017-2021

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On October 28, 2016, Senators Ask

OSHA to Explain Joint Employer

Policy Based on leaked internal memo directing OSHA

investigators to ask employers for information

related to franchiser fees, approval of signage,

etc.

“[R]aises questions about whether DOL and the

National Labor Relations Board have a

coordinated effort underway to change joint

employer laws.”

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EEOC v. Labor Ready Northeast,

Inc.

(W.D. Pa. November 2016) In addition to settlement payment to resolve allegations of race and sex-based harassment of staffing firm’s workers by client’s direct employees and retaliation, consent decree requires Labor Ready:

• Staff to personally investigate allegations made against customers and their employees, regardless of whether the costumer has investigated, including interviewing customer employees

• Ensure customers undertake appropriate corrective action to prevent their employees from harassing Labor Ready employees, and that Labor Reay take various corrective against customers who fail to do so

• Monitor the work environment after corrective actions have been taken

• Perform corporate audit of harassment investigations and proposed actions based on investigations

• Make reports to EEOC regarding future harassment complaints, investigations and remedial actions

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Garcia v. Nunn

(E.D. Pa. September 2015)

Class action by workers alleging they were jointly

employed by supermarket chain and staffing agencies

and denied overtime premium pay under the FLSA and

state laws

1. authority to hire and fire the relevant employees

2. authority to promulgate work rules and assignments

and to set the employees’ conditions of employment,

including compensation, benefits and work schedules

3. involvement in day-to-day employee supervision,

including employee discipline

4. actual control of employee records, such as payroll,

insurance, or taxes

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Thank You

Janette Levey Frisch

The EmpLAWyerologist Firm

janette@theemplawyerologist.com

Jacob M. Sitman

Fitzpatrick Lentz & Bubba

jsitman@flblaw.com

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