Department of Labor sends warning shot to clients of temp staffing agencies
In an increasingly outsourced economy, the administration says more companies should take responsibility for the workers they hire indirectly.
Job seekers DeAnn Morneau, from left, Keith Welsh and Crystal Griffin fill out applications for temporary or temp-to-hire positions during a 2011 job fair. (Ariana Lindquist/Bloomberg)
The Department of Labor thinks more companies should take responsibility for their contracted workforces, and it's just told them exactly how and when.
If there's one trend that's characterized the changing American workforce more than any other in recent decades, it's been the fracturing of the employment relationship, as companies focus on their "core competencies" and pay other businesses to do everything else.
Subcontracting, outsourcing, and the use of staffing agencies allows businesses to inexpensively scale up and scale down their labor needs, without the extra hassle and liability of adding payroll. But it also adds another layer between workers and the bosses who call the shots, shielding managers from responsibility when the labor provider doesn't follow the law.
Department of Labor' Wage and Hour Division director David Weil, a former business school professor, calls this trend "fissuring." He thinks lots of those client companies should really be considered "joint employers," together with the contractors that sign the checks, making them liable for violations. And Wednesday, his department issued detailed guidance drawing the categories in black and white, sending a message to employers that they had better fall on the right side.
"I think the majority of noncompliance that we see is people just not getting what the law is, and what their responsibilities are under it," Weil said in an interview. "We also find cases of people who are clearly playing games, and clearly trying to shift out responsibility, and often have structured things in a way that lead towards more noncompliance."
Weil's division has stepped up its proactive enforcement of situations where companies are functionally controlling the workers they order up from labor providers — and broadcasts its enforcement of egregious violations. Back in October, for example, investigators found that temp workers at a snack food producer in New Jersey were cheated out of overtime wages, and ordered the company to pay back wages, damages, and civil penalties.
That's the most typical form of joint employment — a "vertical" arrangement, with one company hiring another, as the guidance describes. But joint employment can also be "horizontal," when a worker might employed by two subsidiaries of the same company, but they never get overtime because their hours are tracked separately.
Weil says they've found similar problems in all kinds of industries, like agriculture, construction, and shipbuilding. Higher rates of wage theft at outsourced labor providers have been well documented, as are safety lapses that lead to sometimes fatal injuries. Another division of the Department of Labor, the Occupational Safety and Health Administration, has been running an initiative on temporary workers, often reminding clients of their joint responsibility.
The issue of joint employment is similar in nature to misclassification of employees as independent contractors, on which Weil's office issued similarguidance back in July. It's also related to the National Labor Relations Board's recent decision on the definition of joint employment for the purpose of union organizing, which is likely to have a bearing on the massive McDonald's case that's currently waiting for a hearing in New York.
The Obama administration's aggressive stance on joint employment has irritated some large industries, as well as the conservative politicians who see a connection between the disparate government efforts to make companies responsible for the people who work for them. On Tuesday, the House Education and Workforce Committee's Republican staff sent a letter to the Department of Labor detailing information from a Freedom of Information Act request showing that the office of the Solicitor of Labor had reached out to the NLRB's General Counsel several times on the issue of joint employment.
"This information clearly demonstrates that the Department and the NLRB coordinated on joint employer policies," the letter reads.
The franchise industry has been particularly irked by the administration's regulatory approach. Before having seen the Department of Labor's new guidance on joint employment, the International Franchise Association didn't like it. "This is just another example of regulatory fiat that raises even more questions for employers," said senior vice president Matt Haller. "The administration should consider going through formal rulemaking instead of just issuing a 'guidance' without even an outreach to targeted industries who may be impacted."
Weil says that this criticism is overblown, just like those levied after the labor department issued guidance on misclassification. "When things calmed down, people saw that one, we're very serious about this," he says. "And two, what we're asking is very clear and straightforward. We're not playing an elaborate gotcha game."
Not everyone is so disturbed by Weil's pursuit of bad actors. The staffing industry itself, for example, says that most of its clients recognize the joint employment relationship, with no adverse effects.
"This should not be of concern to staffing clients, as potential liability for temporary workers is the same as (and in some cases less than) liability for the client's internal employees, and can be mitigated and controlled by clients," American Staffing Association general counsel Stephen Dwyer wrote in an email. To avoid costly lawsuits, he says, clients should simply select labor providers with good compliance records.
And that's what more rigorous enforcement is likely to do, says Fiona Coombe, director of legal and regulatory research at Staffing Industry Analysts. "If there's a brighter light shone on the issue of joint employment, then clients will be more concerned about who their staffing partners are," she says.
At the same time, however, joint employment doesn't always solve the problem for temporary employees. Dave DeSario, who runs a group called theAlliance for the American Temporary Workforce, says that some staffing agencies and clients still point fingers at each other when something goes wrong. Without a union, it's difficult for temp workers to get the representation that would allow them to pursue a claim before an agency says it don't have any more work for them to do.
"Temp workers can't afford lawyers, and are in a poor position to defend themselves," DeSario says. "Joint employer complicates the employment situation, for sure, and when things are complicated, it's workers who have a harder time understanding it."
That's why DeSario also wants to see more transparency about the safety records of staffing agencies, and information about how many of those temp workers go on to find permanent jobs. He also wants direct hiring to become easier so that the incentive to bring on outsourced workers isn't as strong — making it so that workers don't have to contend with a fissured workplace at all.
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