managemnet company strategy managemanet A More Ethical Approach to Employing Contractors

A More Ethical Approach to Employing Contractors

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On Thursday, November 3rd, 2022, thousands of Twitter workers didn’t know if they would have a job in the morning. Those who were directly hired at Twitter woke up to an email with either a new assignment or a severance package. But contract workers like Melissa Ingle got nothing.

Ingle was contracted to work on political misinformation at Twitter, working to ensure that the midterm elections wouldn’t be influenced by bots and hoaxes. She and her fellow contract workers rushed to check their inboxes for their decision emails — but they never got one.

Melissa then tried to focus on her work in the week to come, tackling misinformation in the days leading up to the 2022 midterm elections, all the while wondering if that day would be her last at the company. On Saturday, November 12th, while Ingle was at the mall with her daughter and a friend, she received a notification that said “One or more of your access tokens have been revoked.” She tried opening her work email and Slack, only to get a notice that said “No such user exists.” That was the way Melissa was fired. No meeting to discuss it, not even an email — she was just deleted.

Melissa’s experience isn’t unique. In California alone, estimates suggest nearly 2 million people are working as contract workers — often doing the same work as their directly hired counterparts with less pay, worse benefits, and fewer protections.

For companies, the practice of outsourcing labor to third parties has become attractive: they get a pre-screened, flexible workforce and the ability to offload the responsibilities of legal employment to someone else. That compelling opportunity has spread far beyond tech to industries from healthcare and logistics. Gusto, a human resources services company, has found that the number of employers on its platform using contract workers has increased by 28% since the start of the pandemic, with a ratio of contract workers to employees at the average company being nearly 1-to-5.

Unfortunately, this workforce model comes at a cost, to both workers and companies. Our research shows that contract workers — who are more likely to be Black, Indigenous, Latinx, women, and nonbinary — are often doing the same work as their directly employed peers while making less money, receiving fewer benefits, and experiencing significant job precarity. This dynamic not only opens up contract workers to harm — it also opens up companies to some big risks. What was originally considered a system to reduce a company’s ongoing financial responsibilities, contracting out has become a legal, financial, and reputational liability. Increasingly, courts and regulatory bodies are finding that when worker harm exists, employers are liable for that harm — whether they are the direct employer or not.

There is a way for employers to contract out responsibility without exposing workers to harm — and themselves to increased liability. By implementing responsible contracting standards that ensure workers have basic protections and pathways to opportunity, employers can mitigate their risk. Implementing these standards can also work towards diversity, equity, and inclusion commitments, by unlocking this pool of qualified, diverse talent.

As part of our research at TechEquity Collaborative, we created the Responsible Contracting Standard to act as a blueprint for companies to implement clear, high-road contracting practices that benefit workers and companies alike.

The Harms and Risks of Contract Work

In 1996, long-serving “temporary” contract workers sued Microsoft for the benefits they would have received if classified as direct employees. The workers argued that performing the same job functions and working for the same managers as direct employees entitled them to the same compensation. Microsoft settled the lawsuit in 2000, and the case has informed how tech companies navigate the separation between contract and direct employment ever since.

Companies have set up (often flimsy) firewalls and processes to avoid classifying contract workers as employees — requiring them to use a different colored badge to enter the building, barring them from using internal systems, excluding them from all-staff events like annual holiday parties, and more. Meanwhile, many contract workers’ performance management and daily responsibilities are directly controlled by the tech company. At the same time, after the Microsoft lawsuit, many companies structured their contracts as ever-revolving doors: workers start on an initial contract, frequently for a six-month term, and their managers extend their jobs in repeated, shorter increments. These contracts can be canceled or not renewed at any time, leaving the workers in a constant state of precarity. Many of these workers stay in this pattern of short-term non-guaranteed contract extensions for up to two years, when they are made to take a break lest the companies run up against the standards laid out in the Microsoft settlement for qualifying as direct employees. Once they’ve been away from the company for up to six months, many of them are hired back to start the process over, exposing the farce that they are “temporary” employees.

Not only are the contracts themselves disjointed, but so are the jobs they’re performing. Contract workers are often stuck in the middle of a dual management structure: their day-to-day work is overseen by a manager at the parent company while the operational aspects of their employment — processing pay, managing benefits, and handling workplace complaints — are the purview of the staffing agency that hired them. Keeping contract workers at arm’s length — whether it be the lack of access to company human resources, internal tools, and information, or career development — creates leaky communication pipelines, power imbalances, and the potential for worker harm.

Unfortunately, the precarity of contract work (and the risk it creates for companies) is compounded by racial and gender inequities. In the tech industry, we found that contract and temp workers are more likely to be Black, Indigenous, Latinx, women, and nonbinary than those in the directly employed workforce. Research examining temp work in blue-collar jobs in Illinois found that Black and Latinx workers comprise 85% of blue-collar temp assignments in Chicago but only account for 40% of the population.

All of these potential harms, compounded by race and gender inequities, create a potential legal liability. If a worker experiences harm — whether that’s wage and hour violations, harassment, discrimination, or a hostile work environment — and decides to pursue remedies for that harm, companies aren’t necessarily off the hook, even when they argue that they aren’t the worker’s legal employer. Courts and regulatory agencies have increasingly found the companies to be joint employers alongside the staffing agencies and thus liable for any violation or harm inflicted on the contract worker. There have been several high-profile instances of this dynamic in the tech sector in the last five years.

  • In 2021, Meta agreed to pay $52 million to content moderators who were hired through a third-party staffing agency to review disturbing content ranging from child pornography to suicide and bestiality — without adequate health and safety measures in place.
  • In a class-action lawsuit against Riot Games, a judge ruled that contract workers should be included in a 2021 $100M settlement for experiencing workplace gender discrimination and harassment.
  • Activision Blizzard paid an $18 million settlement for subjecting female workers, including direct employees and contract workers, to sexual harassment and pregnancy discrimination.

Companies that do not adopt high-road contracting practices create a race to the bottom, degrading job quality and career mobility. Enacting high-road practices, and requiring them of any vendor your company works with, helps mitigate the potential for worker harm in the first place which helps reduce future liability and risk.

The Way Forward: Responsible Contracting Standards

Simply put, the best way to avoid liability for worker harm is to reduce the potential for harm in the first place. The Responsible Contracting Standard offers six clear avenues companies can pursue to reduce worker harm, mitigate corporate risk, and close the equity gap for contract workers at your workplace.

Family-Sustaining Pay

This one is pretty straightforward — all workers should be paid family-sustaining wages and benefits. By being explicit about how much you expect contract workers to be paid by contracting agencies, you can make sure contract workers receive family-sustaining pay — often without needing to raise your contract budget at all. Other best practices include requiring staffing agencies to provide family-sustaining benefits, predictable schedules, clear communication on contract renewals, and more.

Equal Pay for Equal Work

All available research shows that contract workers are often paid less for doing the same job as full-time employees. You can ensure equal pay for equal work by providing transparent and responsive systems for raises and promotions, requiring staffing agencies to report on pay data, comparing pay rates with your full-time workforce, and implementing equitable hiring practices.

Workplace Safety Protocols and Worker Voice

Contract workers routinely face the choice between speaking up about problems in the workplace and having their contracts canceled. Creating clear channels for reporting problems and including contract workers in company-wide communication streams can contribute positively to workplace morale for your direct employees and contract workers alike.

Equitable Procurement

One reason contract workers may experience pay disparities compared to the full-time workforce is that staffing agencies are taking a larger cut of the contract than you bargained for. Often, companies think they are hiring contract workers at the same rate as other employees on their team, not realizing that staffing agencies take a significant cut of the wages. Requiring staffing agencies to disclose their “markup” fee or pay rates for workers can help bring transparency to the process and help your company avoid inequitable pay structures — without having to increase your overall costs.

Pathways to Direct Employment

Contract workers of color, especially Black workers, are more likely to have experienced structural barriers to building wealth. One way to address occupational segregation is to provide meaningful pathways from contract positions into full-time roles at your company. Some best practices include allowing workers to share their experience working for your company on their resume, granting access to internal job boards, ending non-compete agreements for contract workers, and providing professional development training. Through forging real opportunities for career mobility, your company can tap into a pre-qualified, diverse pool of talent that not only advances equity but also lowers recruitment costs.


Demonstrate your company’s values and commitments to shareholders, workers, and the public by being transparent with your responsible contracting. Measuring the adoption of these practices amongst vendors, auditing the standard’s implementation, and checking in with workers directly to learn more about their experience — all help ensure that your written policies are correctly applied by the staffing agencies you employ.

• • •

Responsible contracting isn’t solely about risk mitigation. Beyond “doing the right thing” as an inherent business value, responsible contracting is an investment that attracts and cultivates talent, lifts employee morale, generates returns, and bolsters your brand. An upfront investment will help your company actualize commitments to inclusion — and reap the benefits.

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