We regularly field questions from clients that reveal the challenges of this day and age. Most recently: punishing and expensive litigations brought by contingent talent, compliance with opaque state regulations and an increasing number of clients that simply don’t pay their bills.

Given that litigation is costly, both financially and timewise, here are three approaches to help mitigate that risk.

Mass Arbitration Waivers

Arbitration is an attractive alternative to litigation as it’s generally more confidential and streamlined than a court proceeding. Arbitration agreements can also mitigate substantial risk. For instance, the US Supreme Court has upheld class action and collective action waivers in arbitration agreements, protecting employers against disruptive mass litigation.

At the same time, courts are increasingly allowing employers to require arbitration as a condition of employment or continued employment. The California Supreme Court, for example, recently held that employees’ individual Private Attorneys General Act claims may be compelled to arbitration. It also held that employers can defeat employees’ “aggrieved employee” status before the case proceeds on a non-individual basis.

In response, the plaintiffs’ bar has begun filing dozens, hundreds, even thousands of individual arbitrations against employers, demanding the employer pay astronomical arbitration fees. To mitigate this risk, employers are adding “mass arbitration waivers” to arbitration agreements, which allow them to obtain a court order permitting litigation of the individual actions in court whenever a threshold number of similar cases are filed in arbitration. (The validity of these waivers is the subject of continued scrutiny in courts.)

We strongly recommend adopting an arbitration agreement with a class waiver, as well as regular reviews to ensure it remains compliant with current case law.

Compliance Audit

Staffing companies should ensure they have a process to comply with local, state, and federal laws. Some hot areas to watch out for:

• Alternative workweek schedules. Operating under a client’s alternative workweek schedule may lead to unpaid wages because the schedule is usually specific to the client and not the staffing company. In other words, they’re usually granted based on a voting procedure, among other things, that the staffing company’s employees are usually not part of and which cannot be imputed to them.
• Minimum wage. Some states and cities may have local minimum wages that are higher than the federal minimum wage. The staffing company should cross-reference both to prevent claims for unpaid minimum wage.
• Job posts. Several states have enacted laws that include requirements for what wages and benefits that must be included in job posts. Make sure job posts include all required components and note that this may also apply to jobs that can be performed remotely.
• Cell phone reimbursements. Some states require employers to reimburse employees for expenses incurred to perform their jobs. If employees must use their cell phones to submit timecards, for example, they are likely incurring expenses that must be compensated.
• Training time. Under the Fair Labor Standards Act, time spent completing required job training is considered hours worked and should be compensated at least at the applicable minimum wage.

Operational Agreement Review

Many staffing companies are finding that clients are failing to pay invoices in a timely manner. Left unchecked, this may result in a significant accrual of accounts receivable and may cause financial distress. Indeed, the financial viability and/or liquidity of a staffing company depends on timely client payments. We recommend:

• Confirming that terms have not lapsed.
• Delivering formal requests for payment and/or termination.
• Exploring legal action in the form of demand letters, dispute notices or complaints.
• Preserving the business relationship in the form of forbearance agreements that include an acknowledgment as well as an express reservation of all your rights and remedies.
• Considering the impact of a client’s future bankruptcy filing by strategically planning for any future preference action by a client that could impact the retention of client payments.

Failing to formally dispute unpaid invoices can have serious economic and legal consequences. Speaking with an attorney early in the process can help you make sound business decisions that balance these considerations.