Business PitfallsBusiness owners are increasingly considering the use of outside vendors to meet workforce needs. This is especially true for temporary employees or flexible staffing solutions. But companies must carefully review any contractual terms apply to such workforce situations.

Employee Leasing Companies

We recently represented a company involved in a lawsuit against a staffing company called True Blue Inc. True Blue, through its subsidiary Labor Ready, solicited our client’s business to supply temporary employees. A benefit stressed by True Blue/Labor Ready’s local office was their expertise in screening and background investigation of individuals.

After a contract was entered reflecting these negotiations, True Blue provided leased several individuals for temporary staffing. That contract included a provision for criminal background and drug testing checks and something True Blue/Labor Ready described as a 20-point pre-employment screening.

Despite these screening programs, two employees leased to our client were involved in two separate criminal thefts. In one instance video surveillance recorded the True Blue/Labor Ready employee stealing a laptop. During the police investigation, it was discovered that the individuals’ backgrounds had been misrepresented with respect to criminal history and identity; one applicant presented false employment documentation for employment verification purposes, i.e., identity theft that True Blue failed to discover.

True Blue was immediately advised of these issues initially by my client’s president and general manager and then through legal counsel. But True Blue’s response included ignoring the situation, denying it had any obligation to conduct pre-employment screening or background checks, or blaming its client for improperly supervising the employees. True Blue/Labor Ready, however, did find time to continue to bill the client for the subject employees.

After no resolution could be reached, True Blue and its Labor Ready subsidiaries were sued in Oakland County Circuit Court. Incredibly, True Blue/Labor Ready counterclaimed for contractual indemnification. The story that True Blue/Labor Ready manufactured for their counterclaim was that after the parties entered the contract, a document captioned “work ticket” was provided contemporaneously or after the leased employees worked for the plaintiff. This, work ticket, the story goes, included an indemnification provision that insulated True Blue from its negligence, wrongdoing, or other liability arising out of leasing its employees.

This lawsuit was eventually submitted to mediation, where it eventually settled with the plaintiff receiving a cash payment.

Considerations for Using Temporary Staffing Companies

Temporary staffing agencies and more permanent employee leasing firms are increasingly being considered to augment existing staff. But the above example illustrates a few pitfalls that may arise in such relationships. Here are a few takeaways if your business is considering using a temporary staffing company:

  1. Carefully review the contract to make certain it reflects the parties’ agreement. Importantly, the contract should expressly address what is important for your business to be successful. Also, carefully consider how any subsequent terms or conditions buried in a “work ticket” or any other documentation may affect or alter the initial contract. On this point, be especially critical of any indemnification provision that may be found in the “fine print.” If the terms are inconsistent with a prior contract or are unacceptable, immediately document the problem and rejection of those terms.
  2. Employers must comply with a patchwork of laws and regulations concerning prescreening and background checks (See Addressing Legal Issues in the Hiring Process and Your Job Search). And any background investigation of job applicants will have limitations. In that regard, Defendants in the above-referenced lawsuit produced (just days before the mediation) documents showing that some measure of prescreening did take place. Defendants did not discover the identity theft situation and none of the prescreening results were shared with our client.
  3. Consider conducting due diligence about the business and litigation history of a staffing company or other vendor. At the mediation, True Blue’s assistant in-house counsel in addressing the enforceability of the indemnification provision referenced his company’s success at enforcing it in various courts throughout the country. That piece of information sheds potential light on the business practices and how issues are resolved.

For more information about using outside employee staffing companies, and complying with federal and Michigan employment laws, contact attorney Jason Shinn. Mr. Shinn frequently works with companies to address employment law issues involving leased employees and temporary staffing with an eye towards eliminating or minimizing legal risks.