Indirect Labor Acquisition: A Contractual Checklist

by Jason D’Cruz, Partner at Morris, Manning & Martin, LLP and

Tali Hershkovitz, Associate at Morris Manning & Martin, LLP


Carefully drafted contracts help limit a company’s legal exposure when using contingent workers.  The following checklist includes various types of provisions for end customers (also known as service recipients) to consider including in agreements with staffing companies, payroll providers, IC compliance management companies, and other contingent labor service providers (each a “Provider”):

(1) Legal Compliance

  • Include a broad obligation that the Provider will comply with all applicable laws and regulations;
  • Include general non-discrimination provisions, as well as the obligation that the Provider will comply with any affirmative-action and OFCCP obligations;
  • Include an obligation that the Provider will properly classify workers as exempt or non-exempt under the Fair Labor Standards Act and applicable state law;
  • Include an obligation that the Provider will withhold and remit all required payroll and other taxes from workers’ paychecks;
  • Include an obligation that the Provider will appropriately classify, and treat as such, workers who are employees and workers who are independent contractors of the Provider; and
  • Include an obligation that the Provider will ensure that necessary documentation is secured and maintained demonstrating that workers are authorized to work in the U.S.

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Staffing Firms and Payrolling Vendors Beware: You Can Be Held Liable for the Acts of Your Client Company under Title VII of the Civil Rights Act

by Jason D’Cruz, Partner at Morris, Manning & Martin, LLP and

Tali Hershkovitz, Associate at Morris Manning & Martin, LLP


Through application of the joint employer doctrine, payrolling vendors, staffing firms, and other human capital suppliers may be held liable for the actions of their client companies under Title VII of the Civil Rights Act of 1964 (“Title VII”).    This article summarizes the potential liability and provides guidance to minimize the risk.

Title VII and Joint Employment

Title VII prohibits employers from discrimination against “any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or national origin.”  The statute defines the term “employer” as “a person engaged in an industry affecting commerce who has fifteen or more employees for each working day in each of twenty or more calendar weeks in the current or preceding calendar year,” and the term “employee” as “an individual employed by an employer.”

While payrolling vendors and staffing firms are generally aware that Title VII applies to their own workers, these entities generally are not aware they also may face liability for claims brought by their workers who are assigned to perform services for client companies even if the alleged wrongdoing was committed by the client company.

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7 Common Sense Factors to Implement and Maintain a Successful Indirect Workforce Program

by Sheila Porcelli, National Sales Director at HireGenics, Inc.


Note from the Editor-in-Chief: Sheila Porcelli has been working with large customers since 2000 in various high-level capacities to help them define, develop, and deploy global indirect labor strategies and solutions.  Sheila’s experience includes in-depth knowledge of leading industry technology platforms, staffing sales, and payrolling expertise.  In addition, she has worked with customers across a wide range of industries, including pharmaceutical, financial, insurance, manufacturing and service.   


 Many factors and decision points are involved when an organization decides to implement an Indirect Workforce Management Program (“Program”).  Although various definitions of a Program exist, it is generally understood to mean a formalized process for acquisition of contingent labor utilizing a dedicated team of talent acquisition or procurement specialists supported by a vendor management technology platform and a defined supplier network.

To develop a successful Program, an organization needs to be thorough.  Following are 7 critical tasks:

  1. Assign a strong and experienced procurement professional to oversee implementation and launch.
  1. Secure executive sponsorship.
  1. Identify all of the potential internal stakeholders and bring them into the process.
  1. Design a communication plan which describes, in clear terms, the benefits of the Program and the internal process changes the Program will require.

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Recent Developments in Independent Contractor Compliance under California Law

by Jason D’Cruz, Partner at Morris, Manning & Martin, LLP and

Shama Barday, Associate at Morris Manning & Martin, LLP


California is known for its hostility towards classifying workers as independent contractors.  Two recent developments reinforced this reputation and increase the risks for businesses engaging independent contractors.

Lee v. Dynamex Operations West, Inc.

In April 2005, two plaintiffs filed suit against Dynamex, a same day transportation and logistics company, on behalf of a class of delivery drivers who were converted from employees to independent contractors.  The plaintiffs alleged that they were improperly classified as independent contractors because despite the change in their titles, they were still performing the same work for Dynamex without any change in the amount of control exercised over them by Dynamex.  The plaintiffs argued that the class members were “employees” as defined in the California Industrial Welfare Commission (the “IWC”) Wage Order No. 9, applicable to the transportation industry.[1]  Wage Order No. 9 (and every other Wage Order issued by the IWC) defines “employ” as to “engage, suffer, or permit to work” and “employee” as “any person employed by an employer.”

Dynamex argued against class certification stating that the common law test based on S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989), and traditionally applied by California courts, should govern the inquiry.  The focus of the Borello test is on the “right to control” the manner and means by which an individual performs his or her duties.  The test also allows consideration of secondary factors, including, among others: whether the work performed is part of the regular business of the employer; whether the employer supplies the instrumentalities, tools, and place of work; whether special skills are required; the individual’s opportunity for profit or loss depending on his or her managerial skill; and whether payment is made based on time or by the job.  According to Dynamex, because the Borello test requires an individualized assessment of factors, class certification should have been denied. Continue reading

Managing “Joint Employment” or “Co-Employment” Risk

by Mark Zisholtz, Vice President, Workforce Management and Compliance Solutions at HireGenics


Note from the Editor-in-Chief:  When we began planning the initial articles for this blog, I wanted to address a practical topic that would help procurement professionals and their supply chain partners better understand a risk area that tends to be mismanaged or misunderstood: the “joint employment” or, as it is commonly referred to in this industry, the “co-employment” of contingent workers (“joint employment” is a legal term that is widely used to describe most types of co-employment relationships and, for purposes of this article, it is sufficient to assume that “joint employment” and “co-employment” mean the same thing). 

All too often I hear procurement professionals mention “co-employment” and, in the same breath, point out that their supply chain partner was handling or mitigating this issue.  However, many of these supply chain partners are not doing enough, either because they do not truly understand the risk or the law, or they do not commit the resources to execute an effective management strategy.  Hence, end customers do not know how much risk they actually face.  Therefore, I decided to write this article, a primer on managing joint employment or co-employment risk, to launch this contingent workforce blog.   


Introduction

“Joint employment” means that a worker is employed by two or more employers at the same time.  Stated differently, if two independently operating entities jointly exercise enough of the attributes of an employer with respect to a particular worker, both of those entities will be considered joint employers of that worker for purposes of various employment laws.

In the indirect workforce industry, “joint employment” is an ongoing existential dilemma.  Workers who are employed as W-2 employees by a supply chain partner and assigned to perform services for an end customer are, in many cases, “jointly employed” by the supply chain partner, on the one hand, and the end customer, on the other hand (these workers shall, for purposes of this blog article, collectively be referred to as “On-Site W-2 Contingent Workers”)[1].  Neither the size of the supply chain partner, the status of the partner as a prime or sub, nor whether the partner provides services through an MSP or other outsourced workforce manager, matters for purposes of this analysis.  Yet, the end customer rarely wants to deal with the inevitable fallout of a joint employment determination because it undermines the very nature of a viable long term contingent workforce strategy.

If joint employment exists, then both joint employers are responsible for resulting liability under various employment laws, such as the Fair Labor Standards Act (covers wage and hour violations)(“FLSA”) and Title VII of the Civil Rights Act of 1964 (covers discrimination and retaliation on the basis of race, color, religion, sex, or national origin)(“Title VII”).[2]  By way of contrast and as a means to highlight the impact of a joint employment relationship, if an On-Site W-2 Contingent Worker were not deemed to be jointly employed by the end customer, those various employment laws, such as the FLSA and Title VII, would not apply to the end customer with respect to that worker.[3]

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