Why Your Standard Agreements with Staffing Agencies Are Risky Business (Starring Tom Cruise)

broken-glass-joint-employment-agreementIt’s Valentine’s Day. You and your sweetie want to get away for the weekend. Your high school offspring will stay home. They seem responsible, promise not to break the law, and promise if they break anything they will pay for it. So you’re good, right?

Come on, wake up. Have you seen Risky Business? American Pie? House Party (very underrated movie, by the way)?

There’s going to be a party or some other problem, stuff will get broken, laws will get broken, and despite all the hilarious mayhem, if your kids don’t pay for the damage, you know you are on the hook.

Most agreements with staffing agencies work the same way. You make the vendor/staffing agency sign a contract promising not to break the law and saying that if they do and someone goes after you instead, they will pay you back. Good enough, right?

In real life, there is rarely hilarious mayhem, but there is mayhem. Stuff happens and people will look for deep pockets to sue. That’s you.

If you are deemed a joint employer under the FLSA, NLRA, state wage and hour law, etc., the law says you are jointly liable for 100% of the damages. It doesn’t matter if the mistake was the staffing agency’s fault. Their workers didn’t get paid overtime? Someone told them to work off the clock? A manager warned them not to discuss wages or working conditions? “Not my fault” is no defense if there’s joint employment.

But you have a contract, right? It says you aren’t a joint employer. It also says they’ll follow the law and if they don’t, they’ll indemnify you. Ok, you’re all clear then. This post doesn’t apply to you. (That was sarcastic. Hard to tell in print, I know.)

How certain are you that you will win the “no joint employment” argument in court? How badly do you want to test the strength of your indemnification clause and the financial backing of your staffing firm? What if your staffing agency does defend you, but they want to settle and you don’t? This may be a one-off case for them, but it’s not for you. Even if you are indemnified by this particular vendor, how would an adverse finding — even by a state unemployment agency — affect your “no joint employment” stance with other vendor labor agreements?

Have you thought through these scenarios? Are you still content to rely on your standard agreement?

Most Master Service Agreements with staffing agencies suffer from a lack of specificity, a lack of creativity, and a lack of forethought about how a claim might develop and how it could affect your company’s overall operations. With joint employment status being evaluated under a wide range of standards, including Right to Control Tests, Economic Realities Tests, ABC tests, customized state law tests, and industry-specific tests, using generic contracts that are not drafted by anyone with expertise in this area can be like handing your kids the keys to the house for the weekend. (“Ok, you can invite over a few friends, just promise you’ll be good.”)

Similar to your confidentiality agreements and handbooks, anything drafted a few years ago may already be outdated anyway, failing to account for the nuances that have developed in joint employment decisions over the last few years.

♥♥♥  So, for Valentine’s Day, buy your sweetie some flowers and chocolate. But it’s also the right time of year for a date. Not that kind of date, though. Set aside a day or a few thousand dollars and carefully review the terms in the Master Service Agreements you have with your staffing agencies or other vendors who provide non-employee labor.

Taking the time now to proactively edit and strengthen these agreements can save you hundreds of thousands of dollars in liabilities and attorneys’ fees later. Not to mention the headache of litigation or the ordeal of fighting with the agencies who are currently your allies.

Too busy? Do you go to the dentist for check-ups or just wait until you need a root canal? Do you see your physician for annual physicals or just wait for chest pain? Proactive steps are the key to effective risk management. Tackle the little problems before they grow into big problems, and don’t wait until it is too late.

And one last thing. If you do go away for the weekend, send the kids to grandma’s.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.