Staffing agencies connect employers in need of extra help with competent local workers. Staffing agencies frequently face legal issues as a result of their intermediate role between the client and the workforce. Staffing firms must be aware of rules that are enforced by multiple government bodies in a variety of career categories. They must also follow regulations governing employee benefits, classification, and taxation.

Any licensed person or organization engaged in the business of seeking openings or employment for applicants is referred to as an employment agency. State entities that offer free employment services are also considered employment agencies. Some statutes require that an applicant for a license to run an employment agency have at least one year of experience with an employment agency or equivalent experience in the bureau’s judgment.

Thus, an employment service that just provides job information and makes no contact with prospective employers on behalf of individual candidates is not an employment agency under the Employment Agency Act. The agency charges a fee for bringing the company and the prospective employee together.

However, labour union organizations and temporary service contractors are not permitted to be part of an employment agency.

The operation of private employment agencies and the control of the relations between an employment agency and its clients are generally regulated by statutes. Statutes regulating private employment agencies do not apply to personnel consultants retained and paid exclusively by employers, with no fee charged to the job seeker.

An agency generally performs services including matching applicant qualifications to jobs, offering interviews and resume-writing advice, and arranging interviews. The services rendered by the agency are completed at the time of referral of a qualified person who is hired by the employer and who actually begins work. This is why the agency fee is ordinarily deemed earned at the time the employee is hired.

Compliance with Labor Laws

Some staffing companies may encounter problems if they preclude workers from receiving overtime pay. An agency that does not pay workers overtime pay or incorrectly classifies them as exempt employees may be a violation of the Fair Labor Standards Act.

Compliance with Federal Laws

A staffing agency is expected to comply with various statutes and other laws that pertain to hiring workers in a similar manner to private businesses. The staffing agency is not permitted to discriminate based on workers’ gender, age or race. It must also comply with the Americans with Disabilities Act. The staffing agency is also required to comply with all OSHA standards that are related to the job. The staffing agency is the company from whom the employee will request unemployment compensation and must comply with all laws related to unemployment.

Contracts

Staffing agencies must use several types of contracts to conduct their work. Disputes may arise over contracts. The staffing agency must make an agreement with the employing company which often includes a clause regarding the amount of hours a worker must work for the employer before the employer is able to hire the employee directly.

Read Also: What Questions do Staffing Agencies Ask?

Some employers bypass these clauses. The staffing agency may also confront problems if an agent of the staffing company misrepresents a potential employee in violation of the terms of the contract. The staffing agency must also prepare enforceable contracts regarding employment and nondisclosure agreements.

In order to establish entitlement to recover employment agency fees, courts require a request by an employer to an agency for referrals; that the agency, in response to the request, made suitable referrals; that the employer hires an applicant sent by the Agency; and that there is an agreement as to fee arrangements.

Some agencies offer services including resume preparation and the publishing of job opportunities.  In such cases, courts may or may not consider such agencies within the meaning of the regulatory statutes.

The purpose of regulating agencies is to protect prospective employees from fraud or incompetence of employment agencies and an agency’s failure to comply with the licensing requirement generally renders the contract unenforceable.

The Fourteenth Amendment to the United States Constitution protects the right to engage in the business of an employment agency.  However, a state is free to impose reasonable restrictions upon private employment agencies in the interest of the public at large.  Thus, state governments can fix a cap on the placement fee charged by employment agencies.  The burden of proving the unconstitutionality of an employment agency statute is on the party challenging the statute.

In determining the validity of a statute passed pursuant to police power, courts generally apply a two-prong test.  First, the court will inquire whether the challenged statute tends to promote the health, peace, morals, education, good order, and welfare of the people.  Secondly, the court will analyze whether the requirements imposed by the challenged statute bear a reasonable and substantial relation to accomplishing the purpose of the enactment.  The court will inquire whether the statute fulfills the legitimate object of the legislation.  

In this case, courts generally analyze if the rates set by the statutes are reasonable, and not unnecessarily prohibitory and confiscatory.  In this analysis, there is a strong presumption for validating the constitutionality of the statute.  The due process only demands that the law shall not be unreasonable, arbitrary, or capricious.  Thus, courts have held that licensing requirements that treat employment agencies differently from newspapers or other publishers of generic job lists did not violate the right to equal protection of the laws.

The Law does not prohibit the delegation of the power to regulate fees to a state administrative agency.  However, this has to be done after providing sufficient guidelines and adequate procedural safeguards to control arbitrary administrative action and avoid any abuse of discretionary power.  The local agency should conform to the metes and bounds of the power delegated and cannot impose additional, unmandated requirements.

An employment agency applying for a license is required to furnish to the Department of Labor an affidavit stating that he/she has “never been a party to any fraud, has no jail or prison record, belongs to no subversive societies, and is of good moral character, is of business integrity, and is financially responsible.  The application is required to be accompanied by such evidence of the applicant’s business reputation for integrity and such evidence of the applicant’s financial responsibility as the department may by regulation require.”

Prior to granting the license, the government will generally inquire into the qualifications or character of the applicant to assess the solvency and moral character of the employment agency.  Also, those agencies which receive their fees from employers rather than employees are least monitored and are not subjected to licensing requirements because the chances of harm to the public interest caused by such agencies is minimal.  

The license of an employment agency may be suspended for unprofessional conduct.  Out-of-state agencies that conduct business within a particular state are usually regulated by the state statute and such a regulation will not be perceived as an unconstitutional interference with interstate commerce.

The foregoing statutes stipulate that the licensed agencies shall maintain accurate records, post a bond, establish contract forms and fee schedules, and limit the area within a state where an employment agency is licensed to do business.  The invoices sent to any employer shall bear the employment agency’s name.

Statutes may contain a provision to the effect that an applicant sent to a prospective employer for a job interview must have been personally interviewed by the employment agency.  Moreover, the employment agency must have communicated with at least one former employer of the applicant if the applicant is to work in a private family or is to be employed in a fiduciary capacity.

An agency’s failure to secure the necessary license and to file the appropriate fee schedule renders a contract with an employer void.  Failure to comply with licensing requirements also prevents an agency from maintaining tort and contract claims against another agency.

What is the Meaning of Staffing Agency?

A staffing agency acts as an intermediary between job seekers and companies looking for new workers. A good staffing firm has a system in place to match skill sets and experiences with the requirements of the jobs available. This creates a suitable match between the open job positions and qualified candidates.

Often, people confuse staffing with recruiting, but they’re two different things.

Staffing agencies are involved from the time workers are recruited to the time they leave. The recruitment process is a part of staffing, but staffing also includes employee orientation, training, retention, and termination. Recruitment refers only to the initial steps of hiring a candidate.

As you probably know, the hiring process is time-consuming. Depending on your industry, you could spend an average of 33 to 49 days to hire a new worker. Working with a staffing agency to find the most qualified candidates for your company can be a smart business move. It frees up your time and human resources.

If you’re considering using a staffing agency, the process usually looks like this:

1. Define your recruitment needs. For example, is hiring a full-time staffing agency practical for your business, or is an on-demand staffing platform more suited for you?
2. Vet the agency you choose. Once you select a staffing agency or platform, look through its reviews to ensure it’s a reliable firm and a good fit for your needs. You’ll also want to interview, at a minimum, the person you’ll be working with. Then, possibly visit the location or have at least a video call to get a feel for the staffing agency.
3. Contact the agency. Provide details about how many candidates you need, what skills you’re looking for, and what pay range you’re offering. Discuss your timeline for hiring the new candidates. Be prepared with a detailed account of what you need and express this clearly to help the agency find the best match.
4. Review the job description. The agency will write a job description based on your requirements and advertise it to potential candidates. Ensure that the agency understands your needs and that the job description is accurate.
5. Wait. Once candidates begin applying for the job, the staffing agency will review their qualifications and experiences and conduct one or more interviews to filter out the most suitable candidates for your business.
6. Make the final decision. The agency will send you a list of the candidates they found suitable, and you can choose to interview them again before hiring.
7. Oversee the onboarding process. Once you’ve decided on the candidates to hire, the agency takes care of all the required paperwork for employee onboarding.

Companies hire through staffing agencies for several reasons, including:

• Better budgeting controls. One of the primary reasons companies turn to staffing agencies is to hire additional workers who can help with an increased workload. Staffing agencies help you hire quickly in these scenarios, saving you the money you’d otherwise have to pay existing staff to work overtime. These agencies also help you save on screening and testing costs (incurred while conducting background checks, drug tests, etc) by taking care of the entire process themselves.
• Extensive network. Staffing agencies often have an extensive network of available candidates looking for a job, so the scouting process can be much more efficient than if your company itself advertised the job vacancy.
• Access to expertise. Staffing agencies have experience in scouting top talent. So outsourcing the process might give you better results.
• Time. Staffing companies take care of the entire recruitment process from screening to training and onboarding of new employees. This allows your management team to save time and invest it in other important activities.

However, if you don’t think hiring a staffing agency is the right choice for your company, there are alternate ways to hire, such as posting a job on a remote talent platform like Upwork.

Whether you need employees to fill a temporary or more permanent position, a staffing agency can help you find qualified job candidates. However, if you need help with more specialized projects, need a more economical solution, or want more control over the hiring process, Upwork can be a great option.