Staffing Agency Contracts: A Primer
A staffing agency contract is a legal agreement between a staffing agency or recruitment firm and the client company searching for qualified workers. The general purpose of a staffing agency contract is to specify the terms and conditions by which the staffing agency will provide staff to meet the client company’s business needs. A staffing agency contract will provide much needed certainty to both parties with regard to the nature and scope of the services, expectations of performance, standards, fees and payment obligations, and assurance that the parties’ respective rights and obligations are legally enforceable. A staffing agency contract will be specific to the services the staffing agency will provide. For instance, a staffing agency contract may meet the needs of a particular client searching for general laborers to fill entry-level jobs. A staffing agency contract likely will be more detailed and offer greater protections to the staffing agency when an executive search firm is engaged to fill C-level positions such as CEO, CFO, CTO, etc . As with any business transaction involving multiple parties with competing interests, a staffing agency contract is of paramount importance to the staffing agency and client company. In addition to the general business terms which appear in any agreed-upon contract, the terms and conditions contained in a staffing agency contract will differ depending on a number of factors such as:
The staffing agency contract will have a significant impact on potential liability to third parties such as employees, independent contractors, and payroll tax agencies. A poorly written staffing agency contract can result in unexpected and costly litigation when the parties’ expectations and intentions are not sufficiently addressed. A well-drafted staffing agency contract will set forth the parties’ intent and agreement with regard to advertising, hiring, training, performance expectations, discipline, termination, and workplace safety. When entering into a staffing agency contract, it is critical that the terms and conditions clearly define the respective rights and obligations of each party so that both the staffing agency and its client are on notice of their legal obligations.
What’s in a Staffing Agency Contract Template?
Most staffing agencies will have a standard contract template that they use when hiring a new client. When they start working with a new individual or business, the contract acts as a kind of agreement between both parties that sets rules and expectations for all sides involved. Details about the client’s obligation to pay for staff when they are in service, or what happens if a client cancels a contract by requesting that a member of staff no longer work with them, are just a couple of areas that are addressed in a staffing agency contract template.
In any contract, the client will have their obligations to the staffing agency clearly laid out in plain English. The same is true for the staffing agency; in return for the resources that are committed to finding the client staff and co-ordinating the service, the staffing agency has their own obligations. They are tasked with vetting the employees they provide while ensuring that their terms of employment are appropriate and fair.
Aside from clarifying the obligations of each party, a staffing agency contract template will also detail the terms of the service. This might include:
Length of Service
While most staffing contracts will have a duration in mind for the service, they should also include clauses that will help to cover the client and the staffing agency should the contract be cut short or postponed. In some cases, a change of management at the client business will mean that they need to employ their own staff, or they might be transferring to another location.
Who Handles Payment?
When it comes to the billing aspect of staffing agency contracts, it should be made clear who is responsible for how much and when. In the case that the client owes the staffing agency money for work carried out by a member of staff they can contest the amount owed at any point, but will also be expected to pay a percentage of this amount. A contract template will ensure that the client understands their responsibilities for payment.
Advantages of a Contract Template
Effective staffing agency contract templates come with various advantages. First, having a pre-designed staffing agency contract can save time and lower costs for businesses. When you need to create a new agreement with an employer or an employee, there’s no time wasted drafting the document from scratch.
Second, a contract can help your staffing agency stay in compliance with the law. Employment laws and regulations are constantly changing. An effective contract template is updated to reflect those changes, ensuring that it complies with local, state and federal laws.
Finally, a great contract template ensures consistency across the board. When both parties use the same template to create their individual agreements, you can ensure all employment agreements contain the key points your clients and employees need to understand.
Custom Contract Template Tips
Customization tips for contract templates
Every business has unique circumstances tailored to their industry and clientele. The staffing agency should modify some sections of their contract template to reflect these business needs. For example, Section 1 (Engagement of Temporary Personnel) should be tailored to describe the specific nature of the services that may be performed by the temporary personnel being supplied by the staffing agency. If, for example, the staffing agency only provides clerical personnel, there is no need to include in Section 1 a description of the services that the temporary personnel may provide in, for example, the construction industry.
The staffing agency should also pay attention to the particular needs of its clients when preparing its contract template. For instance, if the staffing agency’s clients are typically located in the real estate industry, the staffing agency might want to include a Section 4 (Fees) that better reflects industry practice for fees charged for real estate personnel.
The staffing agency should also consider its template contract in light of the agencies with which it primarily works. Most staffing agencies will have one or two dominant clients who cause it to need to provide additional services or protections. For example, Section 3 (Personnel Policies) could be tailored to include a requirement that the temporary personnel may be required to sign a non-compete or other corporate policies. Section 7 (Termination) could be tailored to provide the ability to terminate with a shorter notice period if it is deemed by the staffing agency that the client failed to comply with a corporate policy. Section 8 (Employee Tax Treatment) could be tailored to limit the temporary personnel’s ability to contract with the staffing agency’s predominant client directly. There are multiple opportunities for tailoring the contract template to suit the particular needs of the staffing agency and its primary clients.
Legal Aspects of a Staffing Agency Contract
The employment relationship being created is subject to a number of legal considerations, including the following:
Employment Laws
The staffing agency agreement is subject to a variety of employment laws. These include:
• Minimum wage laws;
• Payment of overtime;
• Unemployment compensation requirements;
• Workers’ compensation insurance coverage;
• Restrictions on discrimination and harassment;
• Work hour restrictions for minors;
• Laws requiring breaks and time off for minor children;
• Laws regarding hours of work for employees who work in other states;
• Laws prohibiting drug or alcohol use on the job;
• Laws prohibiting employers from making false references to job applicants.
Liability Issues
The staffing agency will probably be liable to the "client" (a temporary assignment user) for any liability that results from negligence in the making of the assignment.
So , for example, if the staffing agency does not comply with applicable minimum wage laws, and this results in liability, the staffing agency would probably be held liable for unpaid wages, damages, and attorney’s fees.
Additionally, the staffing agency may agree that the client is responsible for product liability or premises liability that might arise from a temporary employee’s actions. This is a very important issue that needs to be reviewed.
Insurance Coverage
The staffing agency agreement should include indemnifications from the client for any liability that may arise from its temporary employees’ acts or omissions. This would include claims from your customers and employees, as well as claims from the temporary employee who is injured at the client’s worksite. Note that the staffing agency may be limited in its ability to indemnify the client for such liability claims, depending on its insurance coverage.
Traps for the Unwary You Should Avoid
One of the most common mistakes staffing agencies make with an existing contract template is not updating it sufficiently to address current legal requirements. Let’s say you have a template contract. Every time you use it with a new client you just fill in the blanks and send it off. Unfortunately, you’re probably also sending a lot of language that has changed since your template was drafted and that may no longer be accurate. You might not even realize the language has changed.
Another common mistake is using a template "as-is." If you obtain a template from a former attorney or from a friend who is also in the staffing industry, you’re running a high risk of errors. Never use a template without first reviewing it and customising it for your company’s particular policies and procedures. Always start with a template and revise it from scratch.
One specific area to consider when using contract templates is anti-discrimination language. Anti-discrimination laws change often and employers often have a mistaken belief that their policy language will "cover" them when, in fact, it cannot.
Other common mistakes include:
Using contract templates isn’t inherently bad for your staffing agency. However, if you use them, work with an experienced attorney to create them and update them frequently. The last thing you want is for a contract to be a double-edged sword that you think is protecting you but is, in fact, exposing you.
Contract Template Review and Renewal
It’s not enough to simply set up a staffing agency contract template for your staffing agency. You need to be diligent about reviewing and updating your templates. This is really the only way you can ensure that your contracts remain effective over time. You have to make sure that your contracts are compliant with changes in the law and also with relevant industry practices. Again, there is nothing that will sink your staffing agency faster than failing to stay in compliance with state and federal laws.
For example , there have been a number of changes to classification law recently. If you don’t regularly review your staffing agency contract templates and update them to address these changes, you could potentially get into real trouble with both your clients and authorities.
You can conduct contract template reviews with your employment lawyers as a part of your regular legal services. The best way to ensure that you do this frequently is to make it part of your client or partner service agreement. This allows you to keep a certain amount of time reserved on your employment lawyers calendars to revisit contract templates and discuss compliance issues.