Staffing Companies and Their Clients: A Possible Disaster Brewing Because Of Independent Contractor Misclassification
I have many clients that use staffing/temporary agencies for securing personnel. The danger lurking in these relationships is that the two entities (staffing company and client) may be found to be a joint employer. Another danger, an offshoot of the joint employer problem, is that if the staffing agencies classify, or rather, misclassify, those workers as “independent contractors” when they send them to the clients, there may well be liability for the client company. The USDOL is now onto this tactic and there have been many recent investigations focusing on these relationships. If the staffing agency comes under legal fire for such misclassification, the client company may also be on the hook.
One problem is that client companies do not thoroughly check out the staffing agency or have the right type of agreement with such companies to provide protection for the client. Th client may assume that the staffing agency complies with all laws, especially wage hour laws, and will handle any claims/liabilities that may arise from its relationship with its employees. In reality, that may not happen. In cases where the staffing agency treats these workers as independent contractors, which they clearly are not, the USDOL (or a state DOL or a plaintiff suing in court) will seek to find both entities liable for the violations and will try to collect the wages due from either or both entities.
There has been an increasing upturn in DOL enforcement on this issue/problem. The DOL does not care where the money comes from and will seek to hold the client company as liable or more so than the staffing agency that caused the original problem, i.e., treating the assigned workers as independent contractors. The USDOL has recently taken such a client company to court seeking back pay in the millions for overtime. Amazingly, the staffing agency itself was not named in the case as a responsible entity.
As alluded to above, the danger here is a joint employer finding. That occurs when two employers share joint control, e.g., common supervision over a group of workers. In the staffing agency scenario, the agency will often hire the employees and send them to the client’s job site. If, however, as a means to avoid employment entanglements, the agency designates these clearly statutory employees as so-called independent contractors, it opens itself up to charges of misclassification and all of the legal ramifications, costly ramifications, that emanate from that misguided initiative. When that happens, a DOL can/will go after the agency’s client as well. That is very bad.
The Takeaway
Employers have to ensure, as far as they can, that their staffing agencies are complying with all laws, starting with treating clearly statutory employees as statutory employees. Given the joint employer “danger,” one which DOLs are eager to explore and exploit, the client entity cannot assume that it will escape liability because it is not the “employer.” I strongly recommend building into the contract that a company has with a staffing agency a strong indemnification provision as well as strong provisions indicating that the staffing agency will comply with all employment and wage hour laws.
As I often say, that ounce of prevention thing…