Legal Minefields: Is Your Firm in the Crosshairs?

Do you believe your firm is at greater risk for employment or legal claims in recent years? According to a real-time poll, just over half of TechServe Alliance’s September 2024 webinar participants feared their firms were at increased risk.

During a recent TechServe webinar, CEO Mark Roberts and industry attorney Bill Josey discussed employment-related and other legal issues potentially impacting IT/engineering staffing firms and what firms can do to prevent or mitigate claims.  Josey, a staffing industry attorney with over two decades experience, including General Counsel for a billion-dollar IT staffing firm and publisher of Staffing Legal News, provided an overview of current trends and suggestions for follow-up discussions with participants’ own legal counsel.

Josey said, “My goal in this webinar and in my career in general has always been to help firms avoid liability in the first place. In order to do that, of course, you must have an understanding of the risk.”

While Congress has been mostly silent when it comes to new employment legislation, with the exception of the 2023 Pregnant Workers Fairness Act, federal agencies, states, and localities have been busy enacting new laws and regulations. Roberts and Josey discuss several areas of concern:

• salary transparency
• non-competes and trade secrets
• equal employment opportunity
• cybersecurity
• wage and hour
• background checks
• independent contractors
• paid leave

Salary Transparency

State and local salary transparency laws are expanding rapidly across the county, which will impact firms regardless of whether they have a physical presence in those jurisdictions.

Salary transparency legislation was first enacted in Colorado, and an avalanche of laws followed. Josey said, “[salary transparency laws are] being adopted all over the place, including localities, cities, counties.” He adds, “The difficult part is the way the world works today with the internet, you don’t know who’s reading your posts and what state they’re in.”

Josey advises that the only reasonable way to ensure compliance with the legal patchwork is to include a good faith representation of salary ranges (or basic hourly pay) and a description of benefits in all job postings. While not on the books in every jurisdiction, salary transparency laws have effectively become a national standard; including this information is especially important given the nature of remote recruiting and remote work. Josey warns, “You are playing with fire if you are not putting salary ranges in every one of your posts.”

Non-Competes and Trade Secrets

Numerous states–both liberal and conservative–have regulated or even banned non-competes for decades. Generally, the state where the employee works or lives is the controlling jurisdiction.

This past year the Federal Trade Commission adopted a federal regulation to ban most non-competes nationally. Several lawsuits were filed by employers, with one federal court ruling supporting the FTC’s action, while another blocked the rule from taking effect nationally as scheduled on September 4, 2024. Appeals are expected and the issue may reach the Supreme Court. For now, the federal regulation banning non-competes is not in effect.

At the state level, employers should be aware of the several types of non-competes or restrictive covenants and which ones are legal or effective.  Josey pointed out that non-solicit and client non-dealing terms are effective and less likely to be challenged than geographic non-compete terms. provided they are narrowly drafted.

Trade secret and confidentiality covenants are also important to protect staffing firms from unfair competition. Josey advises, “Companies should take reasonable steps to protect the confidentiality of that data. And that includes, of course, a secure database.” He adds, “It also includes a well-written confidentiality agreement that defines your client and candidate lists as trade secrets and confidential.”

Title VII/EEO

Discrimination lawsuits filed under Title VII of the Civil Rights Act of 1964 are on the uptick and bolstered by two recent Supreme Court cases lowering the bar employee claims. These rulings substantially changed longstanding Title VII interpretation: In one case, the Court ruled that requests for religious accommodations must be granted unless there would be “substantial” increased costs to the employer. In another, the Court held employees only need to show that the employer’s action caused them “some” disadvantage, replacing the materially significant disadvantage standard.

Staffing firms must also recognize that a client and staffing firm are considered co-employers in the context of employment discrimination. If a client is accused of discriminating against a staffing firm employee, the staffing firm can expect to be sued as well.

Josey advises that firms take steps to comply with legal requirements, but also prepare for the possibility of incurring court costs and legal fees to defend against a lawsuit. “Obviously you can be a compliant firm as best you can. But if all else fails, hopefully you have employment practices liability insurance.”

Cybersecurity

Cybersecurity and data breaches pose major legal risks, especially for staffing firms handling sensitive personal data.

Josey explains, “Many tech staffing firms, whether they know it or not, are doing work for the federal government either as a subcontractor, as a sub-subcontractor, or on a project for a state that’s federally funded. And when that happens, you are subject to claims under what’s called a False Claims Act” for misrepresenting your cybersecurity controls. Regardless of the client, comprehensive employee training on phishing and security best practices is essential due to growing threats from hackers and resulting costs for ransomware attacks, legal fees, and settlement awards or judgements.

Josey explains, “Ninety-five percent of all hacks and ransomware attacks occur because one of your employees clicked the wrong link. . .. Periodically hit your employees with fake phishing attacks and see who clicks on it because that’s the best training ever.”

Wage and Hour

The new overtime rule, which has been upheld by federal courts, impacts recruiters, account managers, and administrative staff. The base salary requirement for the so-call “white collar” overtime exemptions increased to $43,888/year in July, 2024, and goes up in January 2025 to $58,000/year.

The new federal overtime rule did not change the “computer professional exemption” as outlined in the Department of Labor’s fact sheet. However, state laws on who qualifies for the exemption and the minimum hourly pay rates may vary; companies must review and comply with state laws that may be stricter.

Josey cautioned, “The computer professional exemption is narrower than many people think—just because they’re messing around with computers, just because they’re supervising people messing around with computers, doesn’t mean they’re exempt.

Background Checks

Background checks are now one of the most highly regulated areas in employment law. Josey urges staffing firms to retain the services of a full-service background check company that deals directly with the candidates to avoid potential legal exposure.

Independent Contractors

A federal regulation and various state laws establish requirements for a worker being classified as an independent contractor versus an employee. Josey provided general criteria for using/not using independent contractors. He advised not using them rarely, if at all in California.

Josey said, “Don’t deal with first timers, deal with people who have a real IC company and that’s what they do for a living. The higher the skillset, the more likely it is you’ll be okay.”

Paid Leave

Paid leave laws are proliferating, with varied requirements across states and localities. In some cases, like Chicago, employees may be covered by three laws – state, county, and city.  

Given the complexities and rapidly changing legal requirements, Josey suggests that even if your company policies aren’t compliant, you still have a chance to avoid liability. Josey advises, “If somebody asks for leave, before saying “no, it doesn’t fit our policy,” check the law where the worker is located. Because even if your policy’s wrong, if you give them the legally required leave, nobody’s coming after you.”

To assist its members with legal compliance, TechServe provides at no cost “Compliance HR” by Littler Mendelson, one of the premier employment law firms in the world. Compliance HR tracks paid leave and other employment laws across all jurisdictions.

For more information on these topics, view the full webinar or review Staffing Legal News, published by speaker Bill Josey.