Zack Zimmer is director of business development for Growth Staffing based in Tallahassee, FL. He’s relatively new to the position, having gotten promoted last year after 10 successful years on the company’s sales team. Zimmer feels comfortable leading the sales team now, but also remains cautious, especially as it pertains to legal contracts and client agreements. (He earned his ASA Certified Staffing Professional® credential shortly before his promotion, and he thinks it really helped show the company’s owners that he is a valuable and knowledgeable asset.)
After weathering a long request for proposals process, Zimmer has nearly landed a big government client. However, he knows that when a client is a government entity there is an added potential wrinkle: sovereign immunity. Sovereign immunity is a legal doctrine pursuant to which a government entity is immune from liability or prosecution, and some government entities have asserted that this doctrine applies to not just extending payment terms, but to avoiding paying invoices altogether.
Zimmer finds a relevant issue paper on the ASA website that provides valuable information specific to his situation. Here are some of the takeaways.
Studying a Past Case
Zimmer learns that in one case between a staffing firm and a city government entity in Florida, the city—which had an existing relationship with a staffing firm—advised the firm that, “pursuant to the department director’s approval,” the pay rate for certain assigned temporary workers would be increasing. In turn, the staffing firm increased the pay for these employees, as well as its bill rate, and proceeded to continue its relationship with the city for the next year.
The city fell behind on its payments to the staffing firm in the amount of almost $200,000 and, subsequently, became embroiled in an audit that revealed that it had improperly failed to seek or obtain the approval of the city commission for the increased pay and bill rates. The audit report noted a number of internal failures on the part of the city, but did not identify any wrongdoing by the staffing firm, which did what any business would do when met with the prospect of additional business—say “yes.” Rather than accept responsibility for its internal mistakes, though, the city refused to pay the staffing firm for the services that were provided.
In the ensuing litigation, the city argued that because the parties had not adhered to the codified prerequisites for municipal service contract approvals, the agreement to increase the employees’ salary and staffing firm’s bill rate was void from the start and the city, as a sovereign entity, could avoid payment—notwithstanding that the city itself had requested the increased pay and received the benefit of the temporary staffing services.
Further, the city cited a number of cases that seemingly supported its position on nonpayment. In recognizing and upholding the sovereign immunity defense, Florida courts noted that, when accepting orders, contracted companies and suppliers should be aware of requirements to comply with applicable laws and municipal codes. The courts reasoned that taxpayers should not suffer because of a municipality’s failure to properly enter into contracts.
It may seem unjust for a government entity to benefit from its own mismanagement at a staffing firm’s expense (the staffing firm is out of pocket for the salaries, taxes, and benefits it already provided to the temporary workers). But there are practical steps that staffing companies can take to protect themselves. Zimmer shares this information with his sales team and reaches out to Growth Staffing’s general counsel about his prospective new government client.
Protecting Your Firm’s Interests
- The ASA issue paper outlined several points on the issue of sovereign immunity, including this checklist of strategies. Before entering into or amending contracts with government entities, staffing companies should be sure to
- Document all the terms in writing.
- Be mindful of the terms of the contract—what is covered and what is not.
- Have the contract or amendment signed by the appropriate government official.
- Include a written representation that the official has the legal authority to bind the government.
- Include a written representation that the government entity has complied with all legal requirements applicable to the contract or amendment.
- Know what approvals are required to make changes to the contract or provide additional services or workers.
- Request proof that the county has gone through the required approval process if the county asks for an amendment to the contract (i.e., a pay rate change or additional services or workers not covered under the original contract).
- Include a waiver of sovereign immunity in the contract or amendment.
- Consider including a prevailing party legal fee provision, since the legal fees to proceed will be substantial.
In the absence of the foregoing and, if a staffing firm’s government client refuses to pay for services rendered, the staffing firm may still have recourse through an “estoppel” argument; that is, the firm might successfully argue that it relied on the government’s representations to its detriment and that the government should be estopped from shirking its payment obligation.
Such an argument may be successful, the issue paper notes, since many of the cases cited were pre-emptive rulings where the aggrieved parties were seeking future payments, rather than payments for services already rendered. There are also some additional legal arguments that, depending on the locale, may be useful. These include, but are not limited to, arguing that the municipality breached an “implied covenant to an express agreement” and/or alleging damages based on quantum meruit—a legal doctrine allowing for compensation for the reasonable value of services rendered.
In any event, staffing firms must be cautious when contracting with or supplying temporary services to a government entity, paying particular attention to ensure that applicable laws, codes, and protocol are being followed. Advance preparation and knowing and following the “rules” may save staffing companies hundreds of thousands of dollars in lost revenue and the substantial unrecoverable legal fees that accumulate when suing to try to receive the losses.
Diane J. Geller, Esq., is a partner in the law firm Fox Rothschild LLP. A former general counsel for a major public company in the staffing and funding industry, Geller is a seasoned practitioner who helps clients stay compliant with the everchanging federal and state regulations governing the workplace.
This material is not intended, and should not be relied on, as legal advice. ASA members should consult with their own counsel about the legal matters discussed here. Send your feedback on this article to email@example.com. Engage with ASA on social media—go to americanstaffing.net/social.