What is a Staffing Agency Contract?
A staffing company contract is a formal legal document that outlines the relationship between a staffing agency and its client. In general, a staffing company contract will incorporate terms of agreements by which a staffing company agrees to provide a temporary employee to a client company for a specified time in exchange for certain amounts of payments . Just as with any contract, a staffing company contract is typically composed of both standard terms, as well as additional terms that specify particular obligations of the parties.
Crucial Provisions and Clauses
Staffing company contracts should have terms detailing the extent to which the staffing company will be responsible for the employee’s tasks, the method of payment and timing of payment, as well as when staffing company can terminate the employee. All of these terms would be very common approaches in contracts. However, there are a few more specific clauses that should be in any staffing company contract.
Fair Labor Standards Act (FLSA) compliance The Fair Labor Standards Act ("FLSA") requires all employees to be paid no less than minimum wage and time and one half of their regular rate of pay for all hours worked in excess of forty (40) hours during a single workweek. The staffing company contract will typically indicate whether the client or customer is employing the staffing company worker. If the staffing company is employing the worker, it will be responsible for the worker’s wages and payroll taxes. However, the staffing customer will often employ the worker and the staffing company will charge a markup to the customer based on a percentage of wages paid to the worker and/or a flat fee. Staffing company contracts typically state that the company and the client or customer will cooperate with the other to comply with federal and state minimum wage, overtime, and record keeping requirements. The contract should also indicate that the staffing company will remain responsible for any alleged violations of the FLSA, even if the client or customer directly employs the worker.
Liability for Sexual Harassment Standard employment contracts can also contain-but usually do not-a clause that allocates liability for sexual harassment between the staffing company and the staffing company client or customer. Defining this liability is becoming increasingly important to businesses and staffing companies alike. A typical clause would allow the staffing company to conduct an investigation of such claims at its own expense. The terms of this clause must be mutually agreed upon by the staffing company and client or customer.
Right to Audit Staffing company contracts should give the staffing company the right to audit the client or customer’s records, including any employee records. Of course, the client or customer must agree to this right in advance.
Mutual Indemnification Staffing company contracts should also contain a mutual indemnification clause. This clause protects both the contract signing staffing company and staffing customer from each other. If a lawsuit is brought based on the actions of one party, that party will be liable for any damages and reasonable fees. Note, however, that laws vary by state and a court might find some indemnification clauses to be non-enforceable or contrary to public policy.
If a staffing company contract contains clauses such as the above, both the staffing company and the client or customer will not only be protected from liability in the event of any alleged violations, but they will also have a clear understanding of the other’s obligations.
Roles and Responsibilities of Staffing Agencies
Staffing companies have many responsibilities as a part of the employment relationship they establish with employees assigned to their clients. Understanding that their obligations to the temporary employees they place are both contractual and legal is vital for staffing companies in order to avoid lawsuits, arbitration claims and government agency investigations and audits. Some of the staffing company’s obligations to its temporary workers are the following: Personnel Records: Most staffing companies maintain records for their "employees" which may include information on pay dates, number of hours worked and payroll deductions. Paper copies of records are maintained in personnel files, while electronic copies are maintained in the company’s Human Resources Information System ("HRIS"). The information collected and the methods in which it is stored in accordance with state and federal laws, including but not limited to confidentiality. Recruitment and Hiring Processes: A staffing company must conduct a number of activities during the recruitment and hiring process to ensure that its employment decisions comply with immigration statutes and anti-discrimination laws. Amongst the actions taken are: Training: Staffing companies are responsible for providing the appropriate training for its "employees" to perform their work safely and effectively. The staffing company must evaluate the knowledge, skills and experience of its workers and the job requirements set forth by its client to determine the required courses of training. In addition, the staffing company may be required to offer and provide other courses of training to ensure that its workers comply with client policies and procedures, including on-the-job training. Compensation: Staffing companies serve as the employer to its "employees" and are responsible for their compensation. As such, the staffing company is responsible for determining how much to pay its employees. The staffing company is responsible for paying its "employees" their wages for each hour worked, overtime pay for hours in excess of 8 hours in a day and 40 hours in a week, and any bonuses and commissions in compliance with both state and federal wage and hour laws. Leaves of Absence: While the staffing company is the employer that must provide its employees with leaves of absence as required by law, its client is considered the employer responsible for taking action regarding any leave taken by its workers.
Responsibilities of Clients
Going beyond the key terms and conditions, contracts for staffing services often include a number of additional obligations for the client. Staffing companies must take care to ensure that they can comply with all of these conditions, as breach or failure to perform on any one of them can result in damaging liability. Exploring some of these common provisions is a good reminder for all staffing companies of the need to closely review client agreements for each new opportunity, and to negotiate deal terms wherever necessary to create a fair contractual relationship between client and staffing company.
Generally, staffing services contracts will include a provision establishing the working environment for staff provided to client. Clients will usually identify their working environment as professional, comfortable and free from hazards, while staffing companies may be expected to undertake some responsibility for providing a healthy workplace for staff. Some contracts go further to include protocols involving medical accidents or the presence of criminal activity at client premises, often allocating liability for losses in those areas expressly to client or staffing company .
In addition to working environment, contracts for staffing services may include an array of provisions relating to communication between client and staffing company. Clients may expect prompt notification of absences by staffing company employees, along with adequate notice prior to any departure by staffing company employees at the completion of any assignment. Clients may also require compliance with their own reporting protocols, including the provision of personal information for staffing company employees. More complex communication requirements may also apply, including the obligation to provide data regarding the timing and duration of employee assignments to staffing company employees.
When reviewing contracts with clients, important client expectations or obligations may jump out as being absolutely unacceptable to the staffing company, and thus may not be easily negotiated. Far more problematic for staffing companies, however, are client obligations that are far less obvious, yet might be interpreted broadly when it comes time to perform on the contract.
Legal Compliance and Obligations
Staffing company contracts, like all service contracts, are governed by industry best practices and standard terms and conditions. But when it comes to staffing companies, there are industry-specific legal considerations and red flags that must be taken into account when negotiating and executing these contracts.
Staffing companies are typically considered "joint employers" with their clients under certain employment and labor laws. Thus, a staffing company is equally responsible for complying with substantially all of the same legal requirements as a traditional employer, such as the Fair Labor Standards Act (FLSA), the Americans with Disabilities Act (ADA), workplace safety requirements, whistleblower protections, and drug testing regulations. Staffing companies also have the same legal exposure as their client organizations when it comes to vicarious liability for the negligence of their employees at client locations. When negotiating a staffing contract, a staffing company should ensure that its liability is limited to its employees while imposing greater liability upon the client organization. However, the line between employer and employee is not always bright and may depend on the circumstances, so this distribution of liability may not always be clear-cut.
The FTC and some state agencies have investigated staffing companies related to wage and hour claims brought by employees and former employees. For example, in 2016, the FTC alleged that a staffing company violated the FTC Act, the Consumer Fraud and Abuse Act, and the FCRA by neglecting to advise its clients about their responsibilities under the Fair Credit Reporting Act (FCRA) or to ensure that the clients complied with those responsibilities. The Federal Trade Commission charged that the staffing company violated the FCRA by "selling consumers’ personal information to employers who use credit reports and criminal background reports in making employment decisions without ensuring that the employers were complying with the FCRA." Therefore, in negotiating a staffing contract, it is essential for the staffing company to include provisions that make the client organization responsible for complying with all relevant laws and regulations.
If a staffing company ignores the employer/employee distinction, it may be a costly error. If clients incorrectly treat staffing company workers as independent contractors, they may face substantial employment tax liabilities. Each staffing company should ensure that its standard client contracts clearly identify the staffing company as a temporary staffing agency and explain to the client organization how it must classify its staffing company employees under applicable state and federal law.
By entering into a staffing contract, are client organizations or staffing companies entering into a classic "contract of adhesion"? Staff leasing contracts, sometimes referred to as "co-employment agreements," often contain one-sided scenarios. Staffing companies also are urged to ensure that their agreements with their client organizations do not require the staffing company to cover certain personnel-related risks that are better transferred via insurance coverage. Because staffing contracts entail the sharing of workplace risk between the staffing company and the client organization, the parties should, at a minimum, work with experienced legal counsel to draft clear and precise contractual protections.
Common Mistakes in Staffing Contracts
In the haste to get the work done and the bills paid, there are several common pitfalls that staffing companies face in their initial contracts. Hopefully focusing on these aspects will avoid problems down the road.
One of the most common mistakes is not elaborating on party expectations. When details and expectations are vague, relationships become strained very quickly. I discussed the importance of writing everything in the contract two weeks ago, but it bears repeating. Too often party A assumes party B is doing something when they aren’t.
Different types of documentation can also be a cause for trouble. Federal law requires that an employer have an employee’s medical records on site. One way to do this is to have the temporary employee deliver a doctor’s note to the employer . But if party A has that on site and party B isn’t in possession of the record, what happens when you get joint employment litigation?
Party A also needs to evaluate the insurance requirements. Discrepancies in the insurance requirements and coverage minimums can cause a lot of problems. The first place to look is at your insurance broker. The broker should be able to help. If you’re not sure of where to look, you can check with your company’s trade association. They usually have sample contract language for staffing agencies.
It’s important to be concerned about the specific type of coverage required. Be sure you understand the type of coverage needed and how much is required. Many times parties have different expectations of the insurance coverage and limits. Make sure you go over those expectations with your broker.