Educating Procurement: Being Liable for the Sins of Others

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Generally, when a staffing agency places a worker with a leasing company, that company assumes the role of “joint employer.” However, this joint employment relationship can come with hidden risks for staffing agencies. Many agencies enter into contracts indemnifying the company hiring contingent workers. These indemnification provisions limit liability for leasing companies, even when such liability is created as a result of the companies’ actions.

For example, where a leasing company directs a contingent worker to under-report hours worked, which coincidentally cheats the staffing firm out of money, the staffing firm will still be liable for paying these wages plus damages. Moreover, the employee will most likely sue the leasing company as well. Pursuant to the indemnification provision and usually under threat of losing their business, the leasing company will force the staffing agency to pay its legal defense costs and settlement payments. Oftentimes, this settlement amount is unreasonable and benefits the leasing company in some way.

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Accordingly, it is important for staffing firms to understand the risks associated with indemnification provisions and to develop policies and strategies to manage those risks. Here are some things to consider:

  • Policies requiring accurate reporting of hours worked: Placing notices on time sheets and pay statements that remind employees to accurately report hours worked will help safeguard staffing agencies from potential lawsuits.
  • Giving employees the opportunity to report any issues: Arranging for hotlines orother modes of communication which permit employees to report problems or issues that arise at the company where he or she is placed allows staffing firms to minimize legal risks associated with the joint-employment relationship. If a lawsuit is filed against the firm with claims such as underpayment of wages, the fact that there were multiple opportunities available to the employee to report any issues he or she faced would undermine the credibility of the employee’s allegations.
  • Conducting routine audits to ensure compliance: When placing leased employees within companies, agencies should conduct routine audits to ensure compliance with federal and state regulations, especially with regard to wage and hour laws. This will assist staffing agencies to uncover any issues and allow agencies to address these concerns internally.
  • Using arbitration clauses and class/jury waivers: Where available by law, staffing agencies should consider utilizing arbitration provisions and class/jury waivers, not only for staffing firms but also for leasing companies, since ultimately the staffing firm will be liable.

It should be noted that unlike discrimination cases, wage hour matters are almost never covered by insurance and payment of attorney’s fees is mandatory even if a minor technical violation is found.  Although these recommended actions do not shift the legal burden, taken together, they can limit exposure for staffing firms and provide a strategy to manage legal risks.

MORE: Risk Mitigation vs. Risk Eradication

Salvador P. Simao
Attorney at Law, Ford & Harrison LLP


Attorney at Law, Ford & Harrison LLP

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