Responsible Contracting as Corporate Risk Mitigation

Recent multimillion-dollar settlements emphasize how risky it is for companies to operate without responsible contracting as a core business practice. Companies are learning the hard way that going through staffing agencies to hire contract workers does not, in fact, shield them from liability when workers are harmed. TechEquity created a Responsible Contracting Standard to help companies:

• Develop high-road contracting practices 
• Foster an inclusive workplace and tap into a diverse workforce 
• Meet employee demands for equity in the workplace 
• Be an industry leader and a great place to work 

Here are some of the myriad risks that companies expose themselves to without established responsible contracting standards.

Legal Risk 

A slew of class action settlements and regulatory agency investigations shine a light on the porous structure that many companies have put in place to separate direct employees from contract workers.  Many of the practices that companies put into place to keep staffing agency workers at a distance—whether it be the lack of access to company HR, internal resources, or employment benefits—create leaky communication pipelines, power imbalances, and the potential for worker harm.  That, in turn, creates legal risk.

Worker organizing, legal settlements, and state legislation are keeping the issue of third-party workers’ rights at the fore by demonstrating that workers must be protected from discrimination, harassment, and retaliation whether they are hired through third parties or not. In a landmark settlement, Meta agreed to pay $52 million to content moderators who were hired through a third-party staffing agency.  The settlement also called for using a third-party consultant to mediate workplace discrimination complaints, the creation of an anonymous whistleblower hotline, and wellness resources to mitigate the psychological duress of content moderation. Whether in the case of Meta or other recent cases, courts do find that there are many conditions in which companies are legally responsible for the people performing labor for them, no matter if they are employed directly by the company or through a third-party staffing agency. 

Our Responsible Contracting Standard provides a clear, actionable pathway to improve the conditions that often lead to these types of legal risks. The Standard is your guide to protocols that companies can use to proactively ensure a safe workplace for all employees.  

Financial Risk

Tech companies often cite the need for contract labor to quickly or temporarily scale their workforces up or down. While a primary motivation for using a third-party staffing agency is to trim headcount and free up operating costs, doing so results in opaque oversight that does just the opposite. We’re seeing this lack of fluency in responsible contracting play out in sizable legal fees for harming a contract workforce that is disproportionately comprised of people of color, women, and nonbinary workers. Ultimately, the artificial barrier companies think they’re establishing through using a third-party contracting agency does not hold up in court: 

• Tesla: Contract worker Owen Diaz was initially awarded a $137M settlement for being subjected to a racially hostile work environment without any response from Tesla. 
• Riot Games: In a class-action lawsuit, a judge ruled that contractors should be included in a $100M settlement for experiencing workplace gender discrimination and harassment.
• Nintendo: In spring 2022, Nintendo contract workers filed a complaint against Nintendo and contracting agency Aston Carter with the National Labor Relations Board for violating workers’ rights to protected activities, surveillance of workers, retaliation, and other unfair labor practices.

The flexibility and cost savings that lead companies to rely on staffing agencies may not stack up against protracted and costly legal battles. Workplace harm comes at a great financial cost to the company and the staffing agencies it hires. Proactively mitigating financial risk is good for workers and good for business.  

Reputational Risk 

Reputationally, tech companies have a lot to lose in terms of retaining their workforce and being able to recruit top talent in the future. Creating an opaque, two-tiered workforce has consequences for brand and reputation. According to a recent study by PayScale, employees are 50% more likely to leave their job within six months when employers are not transparent. For companies like Tesla, poor factory working conditions and harsh workplace culture have consequences. The S&P dropped Tesla from its Sustainability Index specifically because of claims against Tesla about the racial harassment that occurs at its Fremont, California factory. 

Companies that are perceived to treat workers unjustly, or hide the ball, experience the consequences of those actions—it makes it much harder to recruit the talent necessary to compete in the market. Utilizing responsible contracting standards helps ensure that tech companies can provide covetable employment opportunities for direct hires and staffing agency workers alike—and maintain their business edge in the process. 

Risks to Workplace Inclusion Efforts

Contract workers are more likely to be Black, Latinx, Indigenous, Asian, women, and nonbinary and also are more likely to make less money, receive fewer benefits, and experience career immobility. This creates a glass ceiling under which women, nonbinary workers, and people of color are disproportionately confined to a second-tier status—increasing reputational risk and simultaneously missing a massive pool of talent already adept at navigating and succeeding within your company. 

Contract workers are a group of diverse, qualified talent already familiar with a given company’s operations. Companies can hit their DEI commitments by creating conversion protocols that are programs and practices designed to shift contract workers into full-time roles. We view creating inroads to full-time employment as a win-win: companies tap into a pre-trained and diverse workforce, and workers benefit from the stability, benefits, and pay of direct-hire roles. 

Ultimately, companies can avoid risk by adopting standards that ensure their contracted workers have high-quality jobs and are protected. Check out our standard to learn how.

Take Action

Get ahead of the curve by adopting standards that are good for your business and workers alike.

If you want to learn how to proactively adopt responsible contracting standards, reach out to our Corporate Practice team at partnership@techequitycollaborative.org to explore the tools and guidance you need to get started.