Indirect Labor Acquisition: A Contractual Checklist

Jason D’Cruz

By: Jason D’Cruz, Partner at Morris, Manning & Martin, LLP and Tali Hershkovitz, Associate at Morris Manning & Martin, LLP

Carefully drafted contracts help limit a company’s legal exposure when using contingent workers. The following checklist includes various types of provisions for end customers (also known as service recipients) to consider including in agreements with staffing companies, payroll providers, IC compliance management companies, and other contingent labor service providers (each a “Provider”):

(1) Legal Compliance

- Include a broad obligation that the Provider will comply with all applicable laws and regulations;

- Include general non-discrimination provisions, as well as the obligation that the Provider will comply with any affirmative-action and OFCCP obligations;

- Include an obligation that the Provider will properly classify workers as exempt or non-exempt under the Fair Labor Standards Act and applicable state law;

- Include an obligation that the Provider will withhold and remit all required payroll and other taxes from workers’ paychecks;

- Include an obligation that the Provider will appropriately classify, and treat as such, workers who are employees and workers who are independent contractors of the Provider; and

- Include an obligation that the Provider will ensure that necessary documentation is secured and maintained demonstrating that workers are authorized to work in the U.S.

(2) Insurance

- Require that the end customer be named as an additional insured on the Provider’s insurance policy or policies (workers’ compensation, general liability, employment practices, automobile, etc.) prior to any work assignments beginning;

- Require insurance to be maintained for the duration of the relationship;

- Set appropriate insurance limits; and

- Require written notice to the end customer of cancellation of Provider’s insurance policy or policies.

(3) Indemnification

- Include a provision requiring the Provider to indemnify, defend, and hold harmless the end customer for any wrongful acts, omissions, breaches or wrongdoing committed by Provider;

- Include specific indemnification language pertaining to the misclassification of workers supplied by the Provider; and

- Require the Provider to pay for any judgments or settlements, along with attorneys’ fees for the end customer’s choice of attorney(s).

(4) Working Relationship

- Require that the Provider conduct background/drug tests according to the end customer’s guidelines;

- Include an obligation that the Provider will offer benefits to workers, and make sure you understand and are comfortable with the quality and types of benefits to be offered. Also include contractual language locking in the Provider to offer certain types and/or levels of benefits;

- Include an agreement that each party will make its own employment decisions; and

- Require Provider to provide materials and other supplies.

(5) Other General Contractual Provisions

- Restrictive covenants, particularly an agreement to protect the end customer’s confidential information and/or trade secrets;

- Cooperation clause which requires the Provider to cooperate with the end customer on any potential claims;

- Choice of law and forum provisions of the end customer’s choice;

- Determine the scope and term of services with the Provider; and

- Include specifically defined termination provisions.

Legal Disclaimer – The contents of this article are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem.