Addressing Co-Employment Risks When Drafting Agreements with Staffing Agencies

Companies use staffing agencies for a variety of important purposes, such as to temporarily replace an employee on leave, obtain specialized expertise for a project, or to outsource a function that the company does not ordinarily perform.  However, recent lawsuits, agency guidance, and agency investigations have highlighted the co-employment risks that exist when an employer uses workers provided by staffing agencies.

Often, plaintiffs’ counsel, workers, and agencies allege that there is a joint employer relationship between the staffing agency and the company based on the multi-factor tests that are used to determine whether workers are true independent contractors or employees, and some courts are in agreement. For example, one court has recently stated that “[a] business that utilizes staffing agencies may be deemed a joint employer of the staffing agency’s employees.” Jackson v. Fed. Nat’l Mortgage Ass’n, 181 F. Supp. 3d 1044, 1054 (N.D. Ga. 2016) (finding joint employment relationship and conditionally certifying FLSA collective action by staffing agency workers); accord Watson v. Advanced Dist. Servs., LLC, 298 F.R.D 558, 560-66 (M.D. Tenn. 2014).  While employers cannot eliminate potential misclassification risks solely through their services agreements, they can take certain steps to minimize that risk and limit exposure.

Some basic steps include:

  • Ensure the agreement requires the staffing agency to comply with all federal, state, and local laws, specifically including labor and employment laws and the FLSA, and that it specifies that it is the agency’s obligation (not the company’s) to comply with these laws with respect to its workers;
  • Although not legally conclusive, ensure the agreement establishes that the staffing agency and its workers are independent contractors and not employees of the company, and that the agency is solely in control of its workers;
  • Ensure that there are indemnification and defense provisions that cover claims arising under the FLSA and other labor and employment laws;
  • Be mindful of the timing required in the agreement to tender a request for defense or indemnification so that in the event of a potential lawsuit, your company’s rights are not inadvertently waived; and
  • Ensure your company’s practices in reality accord with what is stated in the contract, particularly vis-à-vis the level of control your employees are exerting over the staffing agency’s employees.  And to the extent you have employees performing similar work as the staffing agency’s employees, ensure there are other meaningful distinctions beyond the level of oversight, such as requiring different duties or skill levels for employees than the staffing agency workers.  Cf. Parrish v. Premier Directional Drilling, L.P., No. 5:16–CV–417–DAE, 2017 WL 5900101, at *3-10 (W.D. Tex. Nov. 27, 2017) (denying summary judgment to oilfield services company, and granting summary judgment to plaintiff drilling consultants, in FLSA independent contractor misclassification case where plaintiffs “were treated the same, and supervised in the same manner, with no appreciable differences other than how they were compensated,” as the service company’s own drilling consultant employees).

Consult legal counsel when drafting these types of provisions.  These and potentially other steps to discuss with counsel should help your company be in the strongest possible position should the staffing agency’s workers, or a federal or state agency, bring claims under the FLSA or other employment laws.