LEGISLATIVE UPDATES

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NAPS Legal Update – Feb 2011

LEGAL / LEGISLATIVE UPDATE

Contract Trumps Custom in Fee Collection Case

Many of you may have run into a situation something like this: You sign a contract with a client entitling you to a fee if the client hires one of your candidates for the position specified in the contract. Such a candidate is hired, and you receive your fee. Some period of time later, you discover that a second candidate, also referred by you in connection with the initial job order, was also hired by your client, for a different position. Are you entitled to a second fee?

You are not, according to a recent 4-1 decision of the Appellate Division of the New York Supreme Court in the case of Koren Rogers, Associates Inc. v. Standard Microsystems Corporation.

In this case, the recruiter signed a contract with its client to fill the position of “Director, Corporate Accounting.” The recruiter referred three candidates, one of which was hired, and the client paid the agreed-upon fee.

Twenty-two months later, the client hired a second candidate originally referred by the recruiter for a position of “Senior Director, Corporate Accounting and Assistant Controller.” The court found that this position was entirely different from the original position, which was still occupied by the recruiter’s candidate.

The court found that, under its contract, the recruiter was not entitled to a fee for placement of the second candidate. “The contract here is clear and unambiguous, and the intention of the parties can be gathered from the instrument itself. The contract provided for a placement for the specific position of Director, Corporate Accounting, and did not provide that plaintiff would refer candidates for additional positions, or that defendant would be responsible for paying a fee for any referrals for different positions. Plaintiff performed under the contract by providing defendant with viable candidates, one of whom was hired for the specified position, and defendant, in turn, paid plaintiff the agreed upon fee. At that point the contract ended.”

The court had some advice for recruiters who want to get paid in such a situation. “Plaintiff could have included provisions in the contract prohibiting defendant from hiring candidates for other positions or requiring defendant to compensate plaintiff for such hiring, but it did not do so, and thus, is not entitled to anything more than it already was paid.”

Here are some lessons from this case:

1. Courts look at your contract language to determine the rights of the parties, not how the recruiting industry typically works
2. There are a number of cases other than this one that hold you are not entitled to a fee if the candidate is hired for a different position, unless the contract provides otherwise.
3. More and more clients are drafting contracts with recruiters, rather than using the recruiter’s standard agreement. Many of these contracts are drafted so as to apply only to specific positions, or positions for which you have received a job order. You should try very hard to avoid signing agreements with such provisions.
4. You may find the NAPS/ASA joint agreement, on NAPS’ web site at www.recruitinglife.com to be helpful.

Staffing Company Liable for Overtime as “Joint Employer”

In Beltre v. Lititz Healthcare Staffing Solutions LLC, a federal court decision by the Southern District of New York, the Court turned down a staffing company’s motion to dismiss a claim by its assigned employees that they were not paid overtime, as required by the Fair Labor Standards Act.

Lititz argued that, as a staffing company, it was not an employer of the employees it assigned to its clients, and whom it paid. The court found that this argument “strains credulity.” No doubt the court was influenced by the wording of the contract between Lititz and its client, which provided that “Lititz is each Staff’s…sole employer under this agreement, and is solely responsible for full compliance with, and satisfaction of, all tax, wage and hour, workers’ compensation, and other legal obligations relating to that employer-employee relationship.”

Even without the “smoking gun” evidence of the contract, it is almost certain that the court would have denied Lititz’ motion under the FLSA’s “economic realities” test, which will typically provide that a firm which hires, assigns and pays the workers is an employer.

As those of you who hold the CTS designation know, co-employment status for a staffing firm is unavoidable in most staffing company/client relationships, and may often be helpful to one or both parties. However, there is no reason any of you should sign a contract, or otherwise promote yourselves, as the “sole employer” of your temps.

Those with questions or comments can contact NAPS counsel Bob Style at rpstyle@sprynet.com.

EEOC Files Suit Against Employer Requiring Credit Checks

Several weeks ago, we reported that the Equal Employment Opportunity Commission had opined that inquiries concerning employees’ or prospective employees’ credit worthiness “should be avoided because they tend to impact more adversely on minorities or females. Exceptions exist if the employer can show that such information is essential to the particular job in question.”

Now, the EEOC has dropped the other shoe, filing suit against an employer which allegedly rejected job applicants based on their credit history, with a “significant disparate impact” upon African Americans. (Those wishing to learn more about the important subject of adverse impact discrimination may wish to consider becoming a CPC or CTS.)

According to the New York Times, “sending a sharp warning to employers nationwide, the Equal Employment Opportunity Commission sued the Kaplan Higher Education Corporation …, accusing it of discriminating against black job applicants through the way it uses credit histories in its hiring process.”

An EEOC spokeswoman stated that “credit histories were not required to show responsibility, they were compiled to show someone was not paying the bills, which is not always the same thing.” As an example, she cited someone who had been paying bills for years, but became unable to do so because of a job loss or family medical emergency.

Needless to say, Kaplan disagrees, stating that ‘the checks are job related, and a necessity to ensure that staff handling financial matters, including financial aid, are properly screened.”

The EEOC is seeking (1) a permanent injunction against the use by Kaplan of credit histories in employment and hiring decisions; (2) lost wages and benefits for anyone who was denied employment because of a credit check; and (3) an order compelling Kaplan to make employment offers to those individuals.

We cannot predict what the court’s decision might be, but we recommend that NAPS members only perform credit checks if they are certain that the information to be revealed is “essential to the job in question.”

Leading Technology Firms Agree Not to Restrict Their Solicitation of Competitors’ Employees

Many of you have run into a situation such as this: you feel you have the ideal candidate for a client, and the candidate is eager to move. However, your client tells you it must reject the candidate because it has agreed with the candidate’s current employer that the two companies would not poach employees from each other. You may now have a basis to convince your client that its agreement likely violates the anti-trust laws.

The United States Department of Justice had conducted a year-long investigation into the conduct of six technology giants – Apple, Google, Adobe, Pixar, Intel and Intuit. Many of these companies had entered into agreements with each other under which the companies would place certain employees on a “do not call” list, and agreed that they would not call any employee on the list for the purpose of soliciting employment. While the companies disagreed with the Justice Department’s position that this was an unlawful restraint of trade, they agreed to discontinue the practice.

The Justice Department stated that the agreements against cold-calling “diminished competition to the detriment of the affected employees who were likely deprived of competitively important information and access to better job opportunities.”

We have continuously advised  state and local associations, networks and other groups of staffing companies to rethink any policy they might have that restricts their members right to hire employees of other members. This case presents yet another reason for doing so.

Those wishing to learn more about this subject may wish to look at the article “Trade Associations and the Antitrust Laws” on NAPS’ web site at www.recruitinglife.com.

NLRB Proposes New Posting Regulations

Many employers and staffing company owners believe that the National Labor Relations Board only regulates unionized companies. In fact, it regulates most companies, unionized or not, who have an impact on interstate commerce.

The NLRB has proposed notice posting requirements which would apply to non-unionized companies. The proposed notice would inform employees of their right to act together to improve wages and working conditions, to form a union, to bargain collectively or to choose to do none of these.

The notice must be placed in a place where notices to employees are customarily posted. Employers that customarily communicate with employees electronically must also distribute the notice by email or posting the notice on the employer’s web site or intranet.

Public comments regarding the proposed regulations may be made until February 11, 2011.

Those with questions or comments can contact NAPS counsel Bob Style at rpstyle@sprynet.com.

NAPS Legal Update – Nov 2010

LEGAL UPDATE FOR GEORGIA NAPS MEMBERS

Voters Approve Significant Changes in Enforceability of Restrictive Covenants

On election day, Georgia’s voters approved significant changes, generally favorable to employers, to the state’s law regarding restrictive covenants in employment agreements. Georgia has historically been a very difficult state in which to obtain enforcement of such agreements. One major reason for this was that Georgia courts could not “blue pencil” such agreements, meaning that the court had to either find a covenant enforceable or not, it could not modify an unenforceable provision to make it enforceable. The constitutional amendment approved by the voters now permits such modifications.

The new law (“HB 173”) also describes which employees can be covered by such an agreement, and creates presumptions that certain time and geographical limits are enforceable. The law looks favorably upon covenants which restrict a former employee from dealing with the former employer’s customers.

Importantly, the law does not apply to existing contracts, but only applies to contracts entered into after the law’s effective date. NAPS members in Georgia may want to have their existing contracts reviewed to see whether it would be advantageous to modify them, either for existing or future employees.

Those with questions or comments can contact NAPS counsel Bob Style at rpstyle@sprynet.com.

GAPS Joins Sandy Springs Perimeter Chamber of Commerce

Membership to directly benefit from from the SSPC’s many programs, service offerings and events

February 19, 2010

Recap of state legislation in SSP Chambers legislative agenda and issues impacting the business community.

The General Assembly recessed yesterday for two- weeks to allow the House and Senate Appropriations committees to work on the FY 2010-11 state budget proposal. Thursday was Day 20 (the half-way point) of the 40-day regular legislative session.

State Budget
Comments by House Majority Leader Jerry Keen (R- St. Simons Island) reported in the AJC (2/19) highlight the economic conundrum resulting from the continued decline in state revenues: Keen indicated that a joint session of the House and Senate Appropriations committees this late in the legislative session is unprecedented in recent memory. He went on to say, We have a difficult, difficult budget task in front of us.

State revenue for January fell for the 14th consecutive month. The FY10-11 budget proposal submitted by the Governor anticipated that by July state revenues would have stabilize and that over the following months state revenue would see a small increase. The states budget year runs from July 1 to June 30.

Some recent legislative action of interest.

Energy
SB 402. Georgia Energy Freedom Act of 2010. Would permit the Governor to delay implementation of the requirements of any federal program to implement a cap and trade system or any other program to address greenhouse gas emissions or motor vehicle fuel economy until a comprehensive assessment of such program can be made and the Governor finds that the implementation will benefit the citizens of Georgia.

Businesses/Employers
SB 433. Prohibit Employers Requesting Credit Reports. Bill would prohibit employers from requesting credit reports on employees or prospective employees with certain exceptions: such report is required by law; is substantially related to the employee’s current or prospective job, or employer reasonably believes that the employee has engaged in specific activity that constitutes a violation of the law.
Status: Referred to Industry & Labor Cmte.

SB 408. Health Group Cooperatives. Bill would provide for small employer health group cooperatives.
Status: Referred to Industry & labor Cmte.

SB 237. Prohibit Gas/Petroleum Price Gouging. Bill would prohibited pricing practices during a state of emergency, so as to prohibit certain pricing practices during an abnormal market disruption significantly affecting the production, distribution, supply, sale, or availability of oil, gasoline, or other petroleum products.
Status: Passed Senate.

Taxation
HB 1029. Abolish State Income Tax for Corporations, provide for prior collection and prosecution.
Status: House Second Reader.

HB 998. Repeal Corporate Net Worth Tax relating to specific, business, and occupation taxes. To be effective Jan 1, 2011.
Status: House Second Reader 02/01

HB 1069 Tax Credits. (Rep. Wilkinson- Sandy Springs). Provide for tax credits for certain qualified equipment that reduces business or domestic energy or water usage.
Status: Ways & Means

HB 1204. Income Tax Credit for Job Creation. Provide for an additional income tax credit for job creation for a limited period of time (Jan 1, 2010 through Dec 31, 2011).

Education
HB 1097. Local Schools Opening Date. Bill provides that local boards of education shall adopt a school year calendar that in no event shall commence the first day of instruction of a school year prior to the third full week of August. For purposes of this paragraph, Sunday shall be considered the first day of the week.” Sponsors include SS Reps. Edward Lindsey and Joe Wilkerson.
Status: House Second Reader (2/8/)

GAPS Legal Update – July 2009

The U.S. Immigration and Customs Enforcement (ICE) issued notices of inspection for a Form I-9 audit to 652 businesses nationwide on July 1, 2009. The notices were “a direct result” of ICE’s new strategy to build criminal cases against businesses suspected of hiring undocumented immigrants before they raid workplaces.

In just one day, ICE issued more notices of inspection than the 503 similar notices it issued in all of 2008, and there is still more to come. “This nationwide effort is a first step in ICE’s long-term strategy to address and deter illegal employment,” said U.S. Department of Homeland Security (DHS) Assistant Secretary for ICE John Morton.

As part of its shift in strategy, it appears that ICE is going after employers instead of undocumented workers.

Who Was Targeted?
In its statement announcing the recent notices, ICE said that because of “the ongoing, law enforcement sensitive nature of these audits, the names and locations of the businesses will not be released at this time.” A document reporting the notifications of 650 of the charges by ICE regional offices as follows: Atlanta 26; Baltimore 13; Boston 20; Buffalo, N.Y., 13; Chicago 32; Dallas 20; Denver 20; Detroit 26; El Paso, Texas, 26; Honolulu 6; Houston 26; Los Angeles 45; Miami 39; New Orleans 26; New York 45; Newark, N.J., 20; Philadelphia 20; Phoenix 32; San Antonio 39; San Diego 39; San Juan, P.R., 13; San Francisco 26; Seattle 26; St. Paul, Minn., 13; Tampa, Fla., 26; and Washington, D.C., 13.

ICE stated that it decided to audit businesses “as a result of leads and information obtained through other investigative means.” Leads for audits sometimes come from unions. E-Verify also might be used to identify employers that might not be in compliance with immigration laws, as “DHS now is doing data mining from E-Verify,” The DHS has developed algorithms that supposedly indicate if an employer is not using E-Verify properly.

The DHS is said to be updating a memo of understanding with the Wage and Hour Division of the U.S. Department of Labor (DOL) in order for the DOL to “play a much stronger role in voluntarily identifying which employers” might be in violation of immigration laws.

What ICE Wants
When ICE conducts an I-9 audit, it might seek a wide variety of information, which might include:

Original I-9s. Forms I-9 must be retained for three years after the date of hire or one year after the date of termination, whichever period is longer.
A spreadsheet alphabetically listing all current and terminated employees with hire and termination dates in electronic form Word or Excel, non-PDF, including the names, Social Security numbers and dates of birth of each employee.
Copies of quarterly wage and hour reports and/or payroll data for all employees—current and terminated—covering the period of inspection, as well as quarterly tax statements.
Business information, including the employer identification number, taxpayer identification number, owner’s Social Security number, owner’s contact information (e.g., address, information, phone numbers and e-mail addresses), articles of incorporation (if applicable) and copies of business licenses.
Copies of Social Security no-match letters.
A copy of any I-9 policy.
The name and responsibility of those who complete I-9 forms.
The date the business was established, form of the business, where it is incorporated and its revenue.
The department or job titles of employees.
Quarterly unemployment insurance reports with the state or quarterly returns for Federal Income Contributions Act taxes.
ICE may also ask whether the company is a current or previous participant in E-Verify or the Social Security Number Verification Service.

The nationwide audits signal early in the Obama administration that enforcement of the Immigration and Reform Control Act and criminal law prohibitions on the employment of illegal immigrants are “not going away, and in fact they’re upping the ante.”

What you can do
Temporary staffing firms need to exhibit leadership in the field of immigration compliance. Immigration compliance is not overseen by any specific key person at firms and frequently is not being monitored for consistency. Designate a lead person to spearhead immigration compliance at the your firm and adopt an immigration compliance policy that incorporates recommended ICE best practices that make sense for your company and become thoroughly familiar with ICE’s I-9 handbook. Conduct annual immigration audits in cooperation with legal and provide annual training, keeping the big picture clearly in focus as enforcement strategies and laws change.

Periodically, NAPS provides legal updates to its members, below are excerpts from their most recent update.
Legal Update from NAPS
Court Awards $131,500 Fee for Employees Who Worked Three Weeks

Will a court imply a guarantee when the parties have put none in their agreement? Does the term “first year’s base salary” mean the anticipated annual salary or the amount actually earned by the placed employee?

In its June 25, 2009 decision in Asta, L.L.C. v. Telezygology, Inc., the United States District Court for the Northern District of Illinois answered both questions in a manner which is favorable to recruiting and staffing firms.

The case arose in the context of a conversion of temporary workers to the client’s payroll, rather than a more typical placement, but the decision would seem to be equally applicable in either context. The plaintiff assigned sales personnel to the defendant. The sales personnel were paid by the staffing company, and the client paid fees to the staffing company. The agreement between the parties contained the following provision:

“Should [client] decide to hire any of the sales personnel that [staffing company] refers to [client], [client] shall pay [staffing company] 50% of each hired sales person’s first year base salary due on the date the sales people are hired by [client].” The contract was silent as to whether the fee would have to be refunded in the event the employment period was a relatively brief one.

The staffing company assigned five salespersons to the client’s account. The client hired two of them, a couple of months later, at salaries of $133,000 and $130,000, respectively. Both employees were terminated after less than a month. The staffing firm sued for a fee of $131,500. The defendant argued it shouldn’t have to pay that much, because the employees never earned the salaries upon which the recruiting firm based its suit. The defendants also claimed that the interpretation of the contract urged by the staffing firm would give it a windfall, because the employees never actually earned the base salary.

Early in its opinion, the court indicated it did not look favorably upon the defense. “Obviously, an agreement to pay 50% of each hired person’s first year base salary might appear a bit steep, for the first year’s cost to the employer then becomes 150%. But that is what the parties agreed to, and, as sophisticated commercial parties, they were free to agree on any terms that were mutually acceptable.”

The Court explained why “first year’s base salary” did not mean how much the employees actually earned.

“The parties did not agree that that the defendant would be obligated to pay 50% of the “salary” the defendant paid to a person who it hired from [the staffing company]. Had that been the phrasing, the defendant’s argument might be persuasive. But the clause explicitly tied the amount [the client] must pay [the staffing company] not to the person’s salary but to the “first year’s base salary.”… It would be a tortured reading to hold that “first year’s base salary” means what the two earned in the three weeks they worked for [the client].”

The Court also noted that the fee was due on the date the employees were hired. If the fee were to be based on actual earnings, there would be no fee due immediately, because the employees had yet to earn anything. The Court also made it clear that it was not going to assume there was a guarantee when the parties did not insert one into their agreement. “Alternatively, the parties would have agreed that if the sales person did not last a year, there would have to be a pro rata repayment by [the staffing company]. No such provisions exist, and their absence further demonstrates the untenability of the defendant’s construction of the contract.”

The decision is a trial court decision, not binding upon other courts. It does demonstrate, however, that courts first look at contract language, not to general concepts of “fairness” or “custom.” Is your contract language clear?

Staffing Firm Pays $250,000 to Settle Discrimination Claims

Preferred Labor, a North Carolina based national staffing firm which did business under the name “Preferred People Staffing,” has agreed to pay $250,000 to settle sex discrimination claims, the Equal Employment Opportunity Commission announced on July 9, 2009.

According to the EEOC, Preferred restricted women to certain types of work, and accepted discriminatory job order from customers to send only male workers. As those of you who have earned the CPC or CTS designation know, acceptance of an unlawful job order is a violation of the Civil Rights Act, regardless of whether the staffing company fills it in a discriminatory manner.

The settlement was accomplished after Preferred sold its day labor business to another firm, but if it gets back into that business, Preferred will have to conduct anti-discrimination training for its employees and managers, and implement policies and procedures prohibiting unlawful employment practices.

For more information:
Contact: James Dyak, SPHR Phone: 770-857-0002
Email: jim@hrdracc.com