NAPS District One Legal Update

LEGAL UPDATE

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.

Health Care Reform Continues To Be A Priority For Congress

Last week, the Senate Health, Education, Labor and Pensions Committee discussed the Affordable Health Choices Act, Senator Kennedy's bill, which is one of several proposals being considered in the House and Senate. The bill provides that employers who do not provide health insurance to their employees must pay the government an annual fee of $750 for each full time employee and $375 for each part-timer.

Assuming that some kind of employer mandate is included in the final legislation, there are two ways the affect of this on many of you can be mitigated. First, as President Obama has suggested (and many in his party have expressed disagreement) there can be an exemption for small businesses, to enable them to continue to hire employees. Presumably, this would cover almost all firms who engage solely in direct hire. Second, the legislation should take into account the fact that temps often work relatively few hours. To require a contribution of $750 for a worker who works one day would be oppressive. A better solution would be to prorate the contribution based on the number of hours the employee works, as compared to the number of hours a full time employee who stays for one year would work.

Those of you with Senators or House members on committees considering health care reform may wish to express your views to your senator or Representative.

Does Supreme Court's "Affirmative Action" Decision Affect You?

The Supreme Court's recent decision in Ricci v. DeStefano has spawned much more than the usual punditry, but we believe that no one really knows where it will lead, and it should not substantially change your practices.

Those of you who are certified know the drill. If you administer a test, whether on your behalf or for a client, you must first determine whether the test has "adverse impact" upon a protected class. If it does, you can still use it if you can "validate" it via a process which can be accomplished in several ways.

Usually, cases involving employment testing arise when the employer continues to use a test which, it is claimed, has adverse impact upon a protected group. One or more of the groups members sues, claiming the employer cannot use the test, and the question then becomes whether the test is sufficiently job related to be valid, or whether there is a less discriminatory way in which the employer can obtain the information it needs.

In Ricci, the case did not arise in the usual fashion. The city of New Haven administered a test for firefighters seeking promotion. Whites performed significantly better than others on the test. Fearing litigation from the aggrieved minorities, and (at least according to the majority of the Court) without trying to validate the test, New Haven decided not to use the results. The white firefighters who passed the test sued, alleging that this act was discriminatory in violation of the Civil Rights Act, since the city's decision was based on their race.

In ruling for the white firefighters by a 5-4 majority, the Court conceded that New Haven was faced with a prima facie case of disparate impact liability. However, this was not enough to justify throwing out the test results. Rather, the Court said the City should have proceeded to, in effect, try to validate the test before throwing it out. The tests could only be disregarded, the Court said, if there was a "strong basis in evidence" for believing that the test was not job related and consistent with business necessity, or whether there was an equally valid, less discriminatory, alternative.

While we cannot say with certainty what the long term impact of Ricci will be on testing, affirmative action or the adverse impact theory, we see no reason for you at this time to change your testing procedures - first see whether the test has adverse impact; if so, see whether it is valid (See the CPC or CTS manual for more details).

Those of you who wish to get assistance in contacting their legislators should contact Joe Luman, NAPS legislative consultant, at jcluman1@verizon.net.

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