Staffing Firms, Federal Contractors Must Beware Pitfalls

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By Jay-Anne B. Casuga

Aug. 24 — Federal contractors, staffing firms and temp agencies must take heed of potential regulatory and liability pitfalls when they work together, especially now that joint employer liability and subcontractor status increasingly are in the legal limelight.

The Labor Department’s Office of Federal Contract Compliance Programs has been inquiring about staffing agency arrangements during its scheduled compliance reviews of federal contractors, David J. Goldstein, a management attorney with Littler Mendelson in Minneapolis, told Bloomberg BNA.

The OFCCP enforces several equal employment opportunity and affirmative action laws covering contractors.

“It’s happening a lot more often, in the last year or two in particular,” said Goldstein, who co-chairs Littler’s OFCCP practice group and government contractors industry group, explaining that the OFCCP is “really exploring how employees are hired and placed and used.”

Federal contractors subject to the OFCCP’s jurisdiction must collect certain hiring data, analyze it for adverse impact against protected classes of applicants, maintain records and conduct outreach and recruitment efforts.

Contractors that use staffing firms and temp agencies for hiring and placement can find themselves “on the hook” with the OFCCP if the firms fail to adhere to those obligations, Goldstein and another management attorney said.

Conversely, they said, staffing firms and temp agencies could themselves be subject to those same obligations for their own workforces if they are separately found to be federal subcontractors.

Furthermore, staffing firms and temp agencies that are federal subcontractors would be subject to other, non-OFCCP contractor obligations, such as the reporting requirements under the recently finalized rules implementing President Barack Obama’s Fair Pay and Safe Workplaces executive order.

Who Is an Employee?

Goldstein said the OFCCP’s interest in staffing firms and temp agencies aligns with how labor markets have changed in recent years, with the use of contingent workers and alternative staffing arrangements becoming more common.

Federal contractors generally don’t classify such workers as “employees” for the purposes of including them in their affirmative action plans, tracking them as part of applicant flow data or adding them to data analyzed for adverse impact.

But in 2013, the OFCCP updated its Federal Contract Compliance Manual and formally adopted a common law agency test to determine which individuals, including non-employee workers from staffing firms, would be considered a contractor’s “employee” for compliance purposes.

The agency further memorialized its position on employment relationships in a 2014 frequently-asked-questions document.

Cara Y. Crotty, a management attorney with Constangy, Brooks, Smith & Prophete in Columbia, S.C., and a former attorney-adviser in the DOL’s Office of Administrative Law Judges, told Bloomberg BNA that “the most important factor is generally the control over the worker.”

In a typical temporary worker scenario, the company where the individual works has significant control over and directs most aspects of the work, said Crotty, who also serves as general counsel to the National Industry Liaison Group, a non-profit federal contractor organization.

As such, the individual would be considered employed by both the staffing agency and the company, she said.

“However, I have not seen any instance where the OFCCP has made an argument that any individual who is not a W-2 employee of a contractor should be counted and included in an affirmative action plan,” Crotty said.

Joint Employment Liability?

Tests for joint employment liability generally are used to establish a relationship between a worker and a company alleged to have committed a wrongdoing, Crotty said.

“For example, if a staffing agency leases temporary workers to a contractor, and one of the workers alleges that they were sexually harassed by the contractor’s employee, the worker would often want to proceed with a claim against the contractor,” she said.

To do so, Crotty said, the staffing firm worker would need to establish that he or she is an employee of the contractor, which is a joint employer with the staffing agency.

Crotty said she is not aware of the OFCCP making the argument that a staffing firm or temp agency that is found to be a joint employer should be liable for a contractor’s discrimination or technical violations of OFCCP rules.

“However, this happens quite a bit in private litigation,” she said, explaining that the Equal Employment Opportunity Commission “will often pursue such a case.”

Crotty added that the OFCCP has never publicly stated which joint employment test it uses.

A Labor Department spokesman told Bloomberg BNA that “determining whether two independent entities are joint employers is a fact-intensive inquiry in which OFCCP is guided by relevant case law.”

“Courts typically consider factors such as whether the entities share the ability to hire, fire, supervise, direct, and discipline employees,” he said.

Temp-to-Perm Arrangements, OFCCP Requirements

Under OFCCP rules implementing Executive Order 11,246, Section 503 of the Rehabilitation Act and the Vietnam Era Veterans’ Readjustment Assistance Act, federal contractors must adhere to various data collection, analysis and record keeping related to hiring, as well as outreach and recruitment, based on race, sex, and veteran or disability status.

“All of these obligations belong to the contractor and can’t be easily delegated away to the staffing agency,” Goldstein said.

Under OFCCP rules at 41 C.F.R. § 60-3.1, the agency has taken the position that a contractor’s reliance on staffing firms doesn’t “relieve it of its responsibility to provide equal employment opportunity to all applicants” or of its obligations under the Uniform Guidelines on Employee Selection Procedures to “collect and maintain records.”

If a contractor enters into an agreement with a staffing firm or a temp agency that fails to fulfill those requirements, the contractor still will be “on the hook” for those failures, he said.

“This is where the joint employment issue becomes important” in the OFCCP context, Goldstein said.

Crotty said the issue “is especially significant in the temp to perm scenario when temporary workers are the sole source of employees for particular positions.”

Staffing Agencies as Subcontractors

Generally, if a staffing firm or temp agency provides employees that a contractor uses to perform a government contract, then they would likely be considered a subcontractor subject to the OFCCP’s jurisdiction so long as its agreement with the contractor meets the monetary thresholds that trigger obligations under EO 11,246, Section 503 or VEVRAA, Crotty said.

Goldstein provided an example of when subcontractor status might arise for a staffing firm: A transportation company enters into a contract to provide ambulance services for a Veterans Affairs hospital, and the transportation company enlists staffing agencies to provide the drivers.

The drivers would be providing a service that is necessary for the transportation company to perform its federal contract, and thus the staffing agency would be considered a federal subcontractor, Goldstein said.

This means the staffing firm or temp agency would themselves be subject to the same data collection, analysis, record keeping, outreach and recruitment requirements as those placed on federal contractors, but for their own workforces.

Additionally, Crotty observed that the preamble to the DOL’s final guidance for the Fair Pay and Safe Workplaces executive order states: “In situations where contractors use temporary workers employed by staffing agencies to perform work on Federal contracts, the contract with the staffing agency may be a covered subcontract.”

A staffing firm or temp agency that is classified as a subcontractor under that executive order would be expected by October 2017 to disclose directly to the DOL its violations of 14 federal labor and employment laws, and state law equivalents, when bidding on a contract.

Practical Advice for Staffing Firms, Contractors

Crotty and Goldstein both offered advice for contractors that utilize staffing firms and temp agencies.

Goldstein recommended that a contractor include more durable obligations in their agreements with staffing firms to make sure they are meeting the OFCCP obligations for which the contractor ultimately will be responsible.

This may include requiring the staffing firm to engage in outreach to protected classes of applicants, to list job openings with state employment delivery services or to invite applicants to voluntarily self-identify their race, sex, ethnicity, veteran status or disability status.

The contractor also could consider requiring the staffing firm to conduct its own adverse impact analyses, Goldstein said.

“The OFCCP doesn’t have jurisdiction over staffing agencies to enforce these obligations, unless they themselves are contractors, but do have the jurisdiction to make a contractor miserable if it doesn’t get the staffing agency to do these things for it,” he said.

Crotty gave similar advice.

“I generally recommend that contractors address these issues up front with their staffing agencies to ensure that the necessary records are collected and maintained and that there is no confusion regarding who has the responsibility for that,” she said, adding that the UGESP does specifically address “the need for employment agencies to maintain records on adverse impact.”

Turning to subcontractor status, Goldstein observed that it can be “remarkably hard to figure out if you’re a covered subcontractor.”

Both Crotty and Goldstein advised staffing firms and temp agencies to review all of their contractual agreements with employers carefully.

“If you see language in the agreement that says you are or may be subject to EO 11,246, or that references affirmative action, or that includes references to Federal Acquisition Regulation, all of those things would be hints that you may be doing business with a federal contractor,” Goldstein said. “You would want to do your due diligence and find out why those provisions are there.”

He added that many federal contractors place such language in all of their purchase orders and subcontracts. However, inclusion of that language “doesn’t necessarily mean you’re a covered federal subcontractor,” Goldstein said.

“But it’s a sign you need to be alert,” he said.

To contact the reporter on this story: Jay-Anne B. Casuga in Washington at jcasuga@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com

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