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Three Legal Trends Affecting Staffing Firms

As we enter the New Year, it is important to reflect upon developments in the law and related issues that will continue to impact staffing firms in the near future. This note identifies three legal trends that staffing firms should be aware of in planning for 2016.

  1. The War for Talent and Restrictive Covenants

Competition for top talent among staffing firms is fierce, and recruiters and other internal employees continue to “shop” in search of the best possible employment positions based on factors such as location, salary, benefits, and other perks of the job. When making a move from one staffing firm to a competitor, recruiters and sales personnel often attempt to take confidential and proprietary information with them, which may include client and candidate lists and job orders.

Given the prevalence of this scenario, it is of utmost importance for staffing firms to have in place effective and enforceable non-solicitation and confidentiality agreements and practices to prevent the dissemination of the staffing firm’s proprietary information and trade secrets. As with other contracts, non-solicitation and confidentiality agreements and other restrictive covenants must be supported by consideration to be enforceable. One way to ensure there is adequate consideration is to have employees sign such agreements or enter into an employment agreement containing such restrictive covenants before or at the time they commence employment. Having employees enter into such agreements as consideration for employment is generally sufficient. However, the continuation of “at-will” employment may or may not be adequate depending on the applicable state law.

Moreover, staffing firms hiring talent should take reasonable steps to ensure that new employees do not engage in activities that breach their contractual and other legally enforceable obligations to their former employers. A former employer may be able to assert claims against a new employer who has knowledge of its new employee’s continuing obligations under a confidentiality agreement with the former employer. Staffing firms should condition their offers of employment to new employees on a promise by such employees to abide by their existing contractual and legally enforceable obligations, if any.

  1. The Use of Arbitration Agreements in Connection with Wage and Hour Lawsuits

There has been a continuous wave of wage and hour lawsuits, including actions for payment of overtime compensation, filed against staffing firms and their clients, particularly due to difficulties in classifying exempt and non-exempt employees. For instance, professionals, such as doctors and lawyers, are generally recognized as exempt from entitlement to time and one-half pay for hours worked over 40 in a given workweek. However, the issue may not be as simple as whether the temporary employee is in fact a licensed professional, but instead may turn on the nature of the work that the professional has been hired to perform. For example, temporary attorneys who perform document review may argue that such work is so basic and routine that the attorneys are not engaged in the practice of law or performing “legal work,” and thus are entitled to overtime compensation.

While staffing firms should be cognizant of the potential need to pay temporary professionals overtime pending more guidance and clarification on the issue, there are steps staffing firms can take now to limit their potential exposure. The use of arbitration agreements can be an effective and lawful tool to help staffing firms and other employers defend against plaintiff class and collective action lawsuits. An arbitration agreement – an agreement mandating that temporary employees and candidates resolve their employment disputes by way of binding arbitration – can provide for a valid waiver of a temporary employee’s right to bring a dispute on a class or collective representative action basis. Requiring employees to sign lawful, well-drafted arbitration agreements as a condition of employment may help to limit a staffing firm’s susceptibility to such costly class and collective actions.

Employers should be aware that the National Labor Relations Board (NLRB) has taken a position on the issue – consistently finding that class and collective action waivers violate employees’ rights under the National Labor Relations Act to engage in concerted activity despite the Fifth Circuit’s rejection of such NLRB decisions. The NLRB believes that employees who enter into such agreements containing these waivers may reasonably believe that they waived or limited their rights to pursue NLRB charges altogether. Regardless of the NLRB’s rulings, the federal circuit courts of appeals that have reviewed the issue have upheld the validity of class and collective action waivers in arbitration agreements.

As an aside, there are other potential benefits to staffing firms that enter into arbitration agreements with their employees. Arbitration proceedings are generally held in private and the parties may agree to keep confidential the proceedings and the terms of the final resolution or outcome, which may be important to staffing firms that wish to avoid potential negative publicity or the revealing of certain private information, such as client identities or candidate lists. Additionally, arbitration typically provides for more expedited and flexible proceedings when compared to litigation in the court system.

  1. The NLRB’s Scrutiny of Employer Confidentiality Agreements

The National Labor Relations Board continues to sharply scrutinize employer confidentiality policies – including those in employee handbooks – containing restrictions on employees’ rights to discuss the terms and conditions of their employment. The issue regarding the lawfulness of confidentiality policies is whether such provisions could be reasonably construed by employees to prohibit the exercise of their rights under the National Labor Relations Act, such as the right to discuss their wages, working hours and working conditions, among other things.

Accordingly, provisions that require employees to keep company information confidential should be limited in scope and narrowly defined to prevent the disclosure of trade secrets and other nonpublic proprietary business information as opposed to all company information that employees may have gained access to during their employment. In addition to confidentiality policies, the NLRB is also concerned about non-disparagement provisions that purport to prohibit employees from saying absolutely anything negative about their employer. Employers should review their confidentiality and non-disparagement policies, including those contained in employee handbooks, to ensure they are not overbroad.

Staffing firms are urged to carefully consider these trends and how they may affect their operations and practices. Now is a good time to revise employee policies to safeguard against the employment law risks associated with these trends.

For more information on the topic discussed, contact:

Joel A Klarreich | 212-508-6747 | JAK@thsh.com |: @staffing_lawyer

Andrew W. Singer | 212-508-6723 | singer@thsh.com |: @employer_lawyer

Stacey A. Usiak | 212-702-3158 | usiak@thsh.com |: @law4employers

Jason B. Klimpl | 212-508-7529 | klimpl@thsh.com |: @HR_Attorney

*Special thanks to Andrew Yacyshyn for his contributions to this article.


Employment Notes, a newsletter produced by Tannenbaum Helpern Syracuse & Hirschtritt LLP’s Employment Law Department, provides insights on recent employment case law, legislation and other legal developments impacting employer policies, human resource strategies and related best practices. To subscribe to the newsletter, email marketing@thsh.com.

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