Author: Irwin Speizer

When San Francisco’s landmark health care initiative went into effect in January, requiring employer-paid coverage for workers in the city, Doug Slack wondered how his staffing company division could afford it.

The law, which is being closely watched around the nation, requires companies with 20 or more employees to provide health coverage at set rates for qualified workers or pay into a city health fund. For the temporary staffing industry, whose workers typically don’t enjoy company-paid health benefits, the law posed significant challenges. Slack, senior vice president of the northwest U.S. division of Adecco International, worried that the law would send his San Francisco operation into the red.

Under the new law, the global, Swiss-based staffing corporation would be required to contribute $1.76 per hour toward health coverage for its temporary workers in San Francisco who met certain requirements. The law is aimed mostly at lower-paid workers, which, in Adecco’s case, means mostly clerical and office temps. Those positions have much lower margins than professional contract workers. “At $1.76 per hour, it would have taken all of our profits away,” Slack says.

So Adecco did what staffing firms, restaurants and many other San Francisco businesses affected by the new law have done: It passed the buck. Adecco added an extra cost onto client bills to cover the new law, then nervously awaited the reaction.

“It has been a bit of an effort,” Slack says. “But with only a couple of exceptions, we have been able to have our clients view it as a cost of doing business in San Francisco.”

Adecco also managed to find an insurance company willing to provide a health plan for its temp workers who qualify for coverage under the city law.

“The nightmare for the staffing industry is that we do this with different plans and different states and different cities. Then it becomes an administrative nightmare.” —Doug Slack, senior vice president, northwest U.S. division, Adecco International

So far, so good. But staffing firms now are waiting to see if locally mandated health coverage that includes temporary workers will get traction elsewhere. What worries companies like Adecco is the idea of other cities adopting their own laws, creating a patchwork health coverage system that might vary dramatically from place to place.

“The nightmare for the staffing industry is that we do this with different plans and different states and different cities,” Slack says. “Then it becomes an administrative nightmare.”

Such a system would affect not just staffing firms but also client companies that make use of contingent labor in different locations across the country.

The San Francisco experience has focused additional attention on the role the nation’s contingent and temporary workforce plays in the issue of health coverage. While the industry as a whole tends to oppose mandated coverage for its workers, there is also growing support for some form of affordable health coverage that temp workers could carry from job to job and city to city. An affordable national plan or health coverage system might benefit not only temp workers but also staffing firms in their quest for qualified contingent workers.

“Some industry leaders believe that finding ways to extend affordable and portable health insurance coverage to temporary and contract workers would encourage more people to consider employment with a staffing firm and consider staying with a staffing firm for longer periods of time,” says Richard Wahlquist, president and CEO of the American Staffing Association.

In the meantime, staffing companies have gotten some relief from the San Francisco law. Under revised rules, temps must have worked 90 days to qualify for coverage under the law, and they must work an average minimum of 10 hours per week over a three-month period. That has reduced the number of temp workers who qualify for coverage in San Francisco.

The American Staffing Association is urging other cities and states considering San Francisco-like laws to include similar eligibility requirements.

Workforce Management, October 6, 2008, p. 36 — Subscribe Now!

Staffing management systems, which help plan, analyze and execute temporary and contingent staffing usage, are going global. Despite the messy bankruptcy of a company in the U.S. that raised concerns about managed service providers, the use of these software-driven systems to centralize and control contingent staff­ing continues to gain popularity with multinational corporations doing business from Europe to the Middle East to Asia.

“Typically, this has been a North American model,” says Stephen Holmes, a vice president of Kelly Services Inc. who heads the firm’s global contingent workforce outsourcing practice. “Now companies are looking to deploy this all over world. We just opened a Dubai operation for the Middle East. We opened an office in Brazil. The appetite continues to grow.”

Multinational staffing companies like Kelly, Manpower Inc. and Adecco International are leading the global charge and are seeing their managed services businesses prosper even as overall demand for contingent and temporary workers slows in the weakening economy. Those big staffing firms are also benefiting from their financial transparency as publicly traded companies, which provide client companies with a measure of extra comfort after the collapse of a major player in managed services.

Two acronyms define the business: MSP and VMS. Managed service providers oversee contingent staffing efforts for a client company. One of the primary tools to accomplish that is a vendor management system, a software program that centralizes the screening, evaluation and use of companies that provide temporary and contingent labor.

Ensemble Chimes Global, the largest provider of vendor management systems, collapsed in January after its parent company, Axium International of Los Angeles, abruptly filed for bankruptcy. Pending contracts and hundreds of millions of dollars in unpaid bills for contingent labor were thrown into disarray.

“Typically, this has been a North American model. Now companies are looking to deploy this all over the world. We just opened a Dubai operation for the Middle East. We opened an office in Brazil. The appetite continues to grow.” —Stephen Holmes, a vice president of Kelly Services Inc.

The Ensemble Chimes collapse prompted a broad re-evaluation of the managed services industry. Companies that use managed services responded by placing greater attention on the financial strength of managed service providers and vendor management system firms. Client companies have also pressed for tighter control over the flow of money from clients through managed systems to staffing companies, sometimes asking that payments be held in escrow accounts rather than in VMS company accounts.

Some corporate users of managed services are also looking to large staffing companies to play a bigger role as managed service providers. Rather than develop their own VMS systems, companies like Kelly are partnering with existing technology companies to provide that service as part of an overall MSP offering.

Manpower reports it now offers managed services in 80 countries. “We continue to see increasing demand for us to provide this service, and increasingly on a global basis,” says Jonas Prising, president for North America at Manpower Inc. “This is a U.S. export that does not exist as a solution in other parts of the world.”

The legacy of Ensemble Chimes is that corporations are being more selective in who they allow to run and participate in their managed services programs. That may make it more difficult for enterprising but undercapitalized small companies trying to sell new managed services systems or software from breaking in without a large, financially stable partner like a big staff­ing firm.

“Customers are being smarter and making sure that individual companies are healthy,” Holmes says. “If you are not financially healthy, you are probably not going to be in the mix.”

Workforce Management, October 20, 2008, p. 34 — Subscribe Now!

When the national economy tanks, temporary workers are usually the first to go. Job cutbacks hit quickly and sharply, and the rebound is typically long in coming. But the current economic downturn has been different.

Temporary and contingent jobs have been disappearing again, but for a longer time and at a much slower pace than in previous downturns. Temporary jobs have been stagnant or declining since at least early 2007, a period of contraction that analysts say is unprecedented. Yet the total number of lost jobs to date is still just a fraction of the number cut in previous, shorter setbacks.

The unusual situation has experts in the contingent staffing industry and company officials scratching their heads. They are trying to understand the forces at play and determine whether the staffing industry has managed to engineer a soft landing or if more serious job losses are still to come. Some of the largest global staffing companies are telling investors the outlook for temporary staffing is so unsettled that they are unable to predict how well—or how poorly —they will perform in the next few months.

Part of the uncertainty comes from the continuing disruptions in the national and global economies and the fact that contingent and temporary staffing has yet to undergo what many expected would be a steep drop earlier in the cycle. Indeed, the performance of the U.S. staffing industry has thus far been a tale of two sectors. Demand for skilled, professional workers in fields like health care and technology has remained strong even as cutbacks hit the commercial sector, populated by lower-skilled clerical and manufacturing workers.

“Even in a down economy, some staffing sectors and firms in some parts of the country continue to fare pretty well,” says Richard Wahlquist, president and CEO of the American Staffing Association in Alexandria, Virginia. “Generally, the commercial sector has borne the brunt of the downturn. Professional sectors have, for the most part, held up the best.”

Brief stints for pros
    The use of professional short-term contingent workers has been the fastest-growing sector in the contingent and temporary staffing industry over the past few years. The commercial sector, which once accounted for the bulk of temporary and contingent jobs in the U.S., has been overtaken by the professional side, which now accounts for more than half of the overall temporary job count.

Those professional temporary workers are more in demand partly because they are assigned to more important and integral corporate tasks and projects, so companies are less likely to immediately let them go. According to Jon Zion, president of Eastern U.S. operations for Robert Half International, which specializes in professional staffing, the reluctance to cut professional contingent workers has become more widespread in the past few years. Corporations were much more likely during the last recession, in 2001-02, to cancel ongoing projects that used temporary workers rather than let those projects run their course, Zion says.

“A lot of companies realized that when they stopped, it impeded their ability to grow when the downturn ended,” Zion says. This time around, companies are choosing to proceed with projects despite the slowing economy. “They have investments in strategic projects and they are bringing them to conclusion.”

The real test will come once the current round of strategic projects runs out. If the economy remains soft, companies may choose to delay additional projects that use professional contract workers, which could spell trouble for the staffing industry. “Companies have seen bad news long enough to think twice about starting new initiatives that the staffing industry supplies,” says Jonas Prising, president for North America at Manpower Inc., which is based in Milwaukee. “My best guess is that companies are probably going to slow down their use of professional skills.”

How much slower the professional staff­ing sector gets could be determined not just by the state of the economy but also by the availability of skilled labor, particularly in fields like engineering, technology and health care. The need to find the right skills to fill critical jobs could continue to bolster demand for certain types of professional temporary workers even if the economy worsens.

Tech workers are among those who are most in demand. During the last recession, which was tied to the end of the technology bubble, contingent tech workers were among the first to go. Not so this time around.

“In the current downturn, I have found it very interesting how information technology has prospered,” Zion says. “Maybe tomorrow is another day. But up until now it has been very good.”

Staffing firms hold steady
    The combined strength in professional staffing and the gradual decline in overall temporary staffing have proved to be a calming influence on staffing companies. While there has been belt tightening among staff­ing companies, there have not been widespread cutbacks and staffing office closures. Staffing companies say they are hoping to maintain their office networks so they are ready when the economy revs up again.

“Nobody is pushing any panic buttons,” says Steve Berchem, American Staffing Association vice president. “I’m not hearing alarm bells going off.”

But he adds, “That isn’t to say there hasn’t been an impact.”

One of the puzzling aspects of the current downturn is that while the number of lost temporary jobs has been modest, the total still represents the brunt of overall job losses in the economic slump. Staffing Industry Analysts, a research and consulting organization, has been closely tracking the temporary staffing sector and comparing the current situation with earlier economic downturns.

In a recent report on its findings, the Los Altos, California-based company noted that the U.S. shed 370,000 temporary jobs in 2001 as a result of the last economic slump. That total represented 22.7 percent of the total 1.6 million jobs lost in 2001. By comparison, the U.S. lost 189,000 temporary jobs from January to July 2008. But the latest staffing cuts represented 40.8 percent of the 463,000 total jobs lost in the U.S., an indication that the temporary sector has been hit with an even bigger share of overall job losses this time around.

“Talent that moves around is what is in demand. … We have clients that are coming to us to help get contingent labor from one place to another, to the extent that laws allow you to do that.” —Lance J. Richards, global practice leader for HR, Kelly Services Inc.

Andrew Steinerman, an equity analyst who covers staffing companies for JPMorgan, has been mulling the conflicting signs in the contingent labor force for months. In his most recent report in early September, he noted another worrisome sign. The U.S. typically shows an increase in temporary hiring in August compared with July. But Steinerman says temp jobs instead were showing declines in August. The downward trend was troubling, he says, and suggested a continuing decline in temporary staffing during the second half of 2008.

Barry Asin, chief analyst of Staffing Industry Analysts, says that while the outlook for the rest of the year is still too murky to predict, he says evidence of a recovery has yet to appear. As Asin points out, one of the reasons temporary staffing is so popular with U.S. corporations is because of its flexibility. Companies can use temporary help to expand or shrink staffing levels to respond to economic conditions without the complications of hiring and firing permanent employees.

The gradual rate of temporary job loss suggests that companies have been making much more strategic and careful use of contingent staffing than in the past. A more sophisticated and measured approach to temporary staffing can help companies avoid hiring too many temporary workers too quickly during an economic expansion, and the same principles can be used to gradually reduce temporary staffing when the economy starts to cool.

“After the last downturn, we didn’t have a big a ramp-up,” says William Grubbs, COO of Fort Lauderdale, Florida-based staffing firm Spherion Corp. “Our clients have been using temps a little bit more strategically and are managing their workforces better than in the past.”

During the 2001-2002 recession, the nation’s temporary workforce saw several months of double-digit drops before the sector started to recover; there has yet to be a double-digit loss in this down cycle. Steinerman notes that the U.S. has lost about 10 percent of its temporary workforce since the employment peak in December 2006. But that’s only about half as big a decline as occurred during the 2001-2002 slump.

International picture
    Earlier this year, some large multinational firms were able to offset temporary labor weak spots in the U.S. with gains in other global markets, including parts of Europe. Those revenues, combined with the continued strength in U.S. professional staffing, helped bolster the bottom lines of many global staffing companies at the start of 2008.

But soft spots have started popping up around the globe in temporary staffing, and global staff­ing corporations were reporting weakening profits this summer. The one bright spot is the continuing global demand for certain hard-to-find professional contract workers such as nurses and engineers. Global staffing companies that are able to locate the right workers and effectively move them across borders to fill crucial temporary jobs are finding a ready market.

“Talent that moves around is what is in demand,” says Lance J. Richards, global practice leader for human resources consulting at Troy, Michigan-based Kelly Services Inc. “We are seeing mobility from around the world. We have clients that are coming to us to help get contingent labor from one place to another, to the extent that laws allow you to do that.”

While staffing companies look for opportunities in areas such as health care, technology and international talent mobility, they are also keeping a close watch on trends in U.S. temporary staff­ing, look­ing for any sign of a turnaround.

“The silver lin­­ing is that at some point, we will reach rock bottom,” says Manpower’s Prising. “Since we have been in this for quite some time, you could argue that rock bottom can’t be that far away. Of course, that is just a hope and nothing else.”

Workforce Management, October 20, 2008, p. 33-37 — Subscribe Now!

In the recent past, a corporate employee relocating to Europe could expect to get household belongings shipped to the new location in about six weeks. But because of a shortage of shipping containers, it takes twice as long these days, and the process can sometimes drag on for up to six months.

    Coming home is no fun either. Containers of household belongings are high on the list of potentially suspicious cargo subject to search by U.S. Customs. Containers packed by household movers get opened, examined and then re­packed by dock workers, who are not known for their delicacy. Employees relocating to the U.S. have had their household goods mangled in the new era of heightened security.

    “If you saw some of these containers that were examined, the contents look like they have been put back in with a bulldozer,” says Boris Populoh, director of programs and education at the Household Goods Forwarders Association of America, based in Alexandria, Virginia.

    Populoh relates one recent case in which a household container was shipped with a few pieces of carefully crated and stowed rare art along with furnishings. The container was unpacked, inspected and repacked at a U.S. port. The loose art was then put at the bottom of the container, and chairs, tables and other furniture were tossed on top.

    While problems in shipping goods haven’t slowed down international relocations, which several surveys indicate are on the rise, the issues have caused headaches for employees moving out of and into the U.S. on assignments.

    “It is a logistical nightmare,” says Earl Lee, president of Prudential Relocation.

    The shipment of household goods out of the United States has run up against the weak U.S. dollar, which has made U.S. products more competitive worldwide. As a result, U.S. exports are rising. Empty containers that used to stack up at the Port of Long Beach in California waiting to return to China or elsewhere in Asia now are being snatched up by American manufacturers. Even farmers have started getting into the act, piling grain into containers for shipment overseas. The resulting shortage of containers is compounded by a shortage of space on ships.

    “If you can find a container, you are having trouble getting it onto a ship,” says Thomas Wei­mer, who directs global transportation for Prudential Relocation.

    When the dollar was high and international trade was mostly heading into the U.S., relocation companies had the luxury of ordering up a container and reserving space on a ship with no advance notice.

    “We used to refer to transportation on the international side as a limitless commodity,” says Greg Hoover, president and COO of Atlas Van Lines. “These days you have to book three to four months in advance. Some companies reserve space on speculation.”

    The tight shipping market, coupled with rising fuel prices, has doubled the cost of shipping household goods internationally, Populoh says.

    Getting goods back to the U.S. has its own challenges. Thanks to heightened security, house­hold goods shipped through U.S. ports are often searched. The first step is an X-ray of the packed container. Because household goods packed in containers can be difficult to positively identify, officials often require that the containers be opened so everything inside can be examined.

    “There is a much higher likelihood that a house­hold container will be pulled aside than other containers,” Populoh says. The situation affects not just returning Americans but also foreigners taking up job assignments in the United States. The situation has become bad enough for Populoh’s association to appeal to Congress for help—so far without much success.

    “What we have been trying to tell members of Congress is that this could directly affect the competitiveness of the U.S.” he says.

Workforce Management, August 11, 2008, p. 34 — Subscribe Now!

When Congress passed the Immigration Reform and Control Act of 1986, the measure was supposed to resolve the nation’s illegal immigration problem. It didn’t work.

    Twenty years later, lawmakers took another crack at the issue. But a deeply divided Congress was unable to reach agreement, and immigration reform died in 2007.

    By then, a new front in the immigration battle had opened. In June 2004, Kris Kobach, a law professor at the University of Missouri-Kansas City, authored a paper suggesting that states could help improve national security in the post-9/11 era by enforcing federal immigration laws. He argued that federal immigration law contained a clause that gave states some limited enforcement authority. Kobach spoke from experience: From 2001 to 2003, he had been an immigration specialist in the U.S. Attorney General’s Office and, after the terrorist attacks of 2001, was put in charge of efforts to tighten border security.

    As national immigration reform was collapsing, Arizona state Rep. Russell Pearce, a Republican from Mesa and an outspoken critic of U.S. immigration policy, decided to test how far his state could go in regulating illegal immigration itself. He settled on the workplace as the spot to focus enforcement efforts.

“When you start having different procedures in different states, it starts to open the door to all kids of discrimination complaints. We want one national system.” —Lynn Shotwell, executive director, American Council on International Personnel

    Pearce sponsored a bill to make Arizona employers confirm the legal status of all newly hired workers, relying partly on Kobach’s argument as the legal basis for the measure. The bill passed and Arizona’s new employer sanction law was signed in July 2007, mandating that all employers in the state use the federal E-Verify system, which had been set up as a voluntary program.

    A coalition of employer groups sued in federal court that same month to block the law. One of the key arguments was that states do not have the authority to enact immigration laws. The first round in Arizona federal court went to the state and an appeal was heard June 12 in federal court in San Francisco. A ruling may come later this summer.

    Meanwhile, other states and cities began enacting their own laws. The National Conference of State Legislatures found that 41 states enacted 170 immigration-related laws in 2007. In the first quarter of 2008, state legislatures considered more than 1,100 immigration-related bills.

    “We are really concerned about these state laws,” says Lynn Shotwell, executive director of the Washington-based American Council on International Personnel, which represents large multinational corporations. The hodgepodge of rules not only complicates the hiring process for large corporations, but also raises the potential of mistakes that can lead to legal problems, she says.
 

Workforce Management, June 23, 2008, p. 52 — Subscribe Now!

The bankruptcy of the largest provider of contingent staffing vendor management systems is prompting a broad reassessment of the field by large corporations using the software and by staffing companies that sometimes operate their own systems.

    The increased focus on the financial stability of companies supplying vendor management systems, or a VMS, may work against smaller, independent software enterprises in favor of larger, better capitalized companies—particularly large staffing companies that offer their own VMS products. The shift could tilt power back to staffing companies, which have complained about the increasing leverage of independent VMS firms that manage the assortment of contingent staffing services used by large employers to manage temporary and contract labor.

    “We know there are a lot of companies that are evaluating their VMS providers,” said Steve Whitehead, managing director of strategic accounts for staffing company Randstad North America in Atlanta. “Companies are second-guessing decisions, holding up broader implementation of some tools. There is a bit of a pause in the market.”

    Randstad, an international staffing company based in the Netherlands, offers its own VMS to customers.

    The catalyst for the new review of VMS providers is the recent collapse of Ensemble Chimes Global, the largest player in the VMS space. Ensemble Chimes was part of Axium International of Los Angeles, a company best known for providing payroll services to the movie industry.

    When Axium abruptly filed for bankruptcy and shut down in January amidst allegations of financial mismanagement, subsidiary Ensemble Chimes folded as well, leaving corporations and staffing companies around the country and the globe scrambling to deal with pending contracts and hundreds of millions in bills. Ensemble was sold out of bankruptcy on January 23, followed by the rest of the Axium business on January 31.

    “When the No. 1 player goes belly up, that creates a crisis of confidence,” said Jim Lanzalotto, vice president of strategy & marketing at Yoh, a technology staffing company based in Philadelphia. “Some of biggest corporations are saying, ‘We don’t know if we can trust this anymore.’ “

    Yoh offers its own VMS, and Lanzalotto figures his firm should have an advantage going forward because it is a division of Day & Zimmerman, the Philadelphia-based multinational corporation whose operations include architectural and project management services.

    “The pure VMS guys, they have no assets,” Lanzalotto says. “They have software, but no capitalization. If something goes wrong, there is nothing to fall back on.”

    While VMS providers are now under greater scrutiny, the underlying technology shows little sign of losing popularity. The reason: VMS systems tend to perform as billed, helping large corporations gain control of what had been a decentralized and haphazard system of using temporary and contract labor.

    The VMS concept revolved around adapting the techniques of centralized billing, purchasing and managing of vendors for basic needs like office supplies to the contingent labor field, with a goal of improving efficiency and saving money.

    Independent VMS providers like Ensemble Chimes snatched a major share of the market by offering not only the technology to manage staffing contracts and vendors, but also some independence from the staffing companies that provide the labor. But the Ensemble Chimes collapse is prompting a new look by corporations into their use of third-party VMS companies. Some staffing companies are suggesting that third-party VMS companies aren’t worth the risk.

    “We have told some of our clients that we are just not interested in dealing with some of these independent-type players without some way of making sure we don’t get caught again,” said Roy Krause, CEO of Spherion, a large, diversified staffing and recruiting company based in Fort Lauderdale, Florida. Spherion also offers a VMS.

    While Ensemble Chimes no longer exists, its software and technical expertise are now part of Beeline Consulting, the company that bought Ensemble Chimes out of bankruptcy. Based in Jacksonville, Florida, Beeline offers a range of VMS and managed services products and is a division of the much larger staffing and recruiting company MPS Group. Beeline hired about 50 Ensemble Chimes employees, mostly technology workers.

    David Cooper, principal in Beeline Consulting, said a significant number of Ensemble Chimes customers moved to Beeline after the deal, partly because abruptly changing VMS vendors is difficult and partly because Beeline can point to its financial backing from MPS Group.

    “My personal opinion is that the only ones who will be left in this space will be the staffing company-based VMS providers,” Cooper said.

    Cooper joined about 30 other representatives of staffing companies and VMS providers at a Dallas summit in January sponsored by the American Staffing Association. As a leader in the company that emerged as the successor to Ensemble Chimes, Cooper found himself peppered with questions from staffing companies.

    Some staffing company executives used the opportunity to vent long-held resentments toward VMS providers, complaining about lack of access to corporate hiring managers, loss of contracts to other vendors, and the impersonal nature of working through a computer program.

    “One of the suppliers said that if it wasn’t for the VMS providers, they could still be getting job orders on napkins like they used to.” Cooper said.

    Cooper says there is no going back to those days. “The VMS industry is not dying, and we don’t need to freak out,” he said.

    Richard Wahlquist, president and CEO of the American Staffing Association, said the Ensemble Chimes collapse and the summit helped focus attention on VMS issues that have worried staffing companies for several years.

    “The largest single concern over the introduction of VMS arrangements and the increase in the use of VMS arrangements is putting an intermediary between a staffing company supplier and the end user,” Wahlquist said. “I think the Chimes episode provided an opportunity for ASA to try to mount an education campaign with America’s largest companies to suggest that there are some very important principles when deciding whether to enter into one of these arrangements.”

    In February, the ASA released a VMS best practices white paper offering tips on evaluating and using VMS services with an emphasis on detecting potential financial problems. Wahlquist also sent a letter about the ASA conclusions to CFOs of 2,000 large corporations.

    A number of staffing companies have reported receiving calls from their corporate clients after the letter went out asking questions about their VMS services. That’s exactly what Wahlquist was hoping to stimulate.

    “This whole process only works well when suppliers—staffing firms—have the opportunity to have dialogue with human resources departments and with other company supervisors,” Wahlquist said. “If the process gets reduced to a pure play of filling orders through a software arrangement, it doesn’t work as well.”

    Wahlquist figures the Ensemble Chimes collapse, while disruptive, may ultimately prove to be a blessing for staffing companies by bringing them closer to their clients. He acknowledged that there is no turning back from the use of VMS systems. While Wahlquist expects a continuing emphasis on vetting VMS providers for financial stability, he doesn’t foresee a future when the only ones offering the service will be staffing companies.

    “I know there are some folks in this space who would like to imagine that will be the future,” Wahlquist says. “I’m not certain that we won’t continue to see a number of different VMS flavors.”

Julian S. Brown, president of development at legal staffing company Compliance Inc., in Arlington, Virginia, recently checked up on a job that called for five lawyers to work on a temporary assignment. Four of them, it turned out, were African-American.

    “That’s not rare,” Brown says. “It turns out that there are a higher percentage of minority attorneys who are temping. Typically, on one of our projects, we will have 30 percent who are African-American.”

    The rate of participation by African-American lawyers in temporary jobs at Compliance Inc. is the opposite of the situation at most large law firms in the U.S., where only a fraction of the jobs are held by African-Americans. Brown says Compliance Inc., which is owned by international staffing company Vedior, has made no special effort to recruit African-American lawyers. Rather, he believes the situation at Compliance is indicative of a broader trend in which African-American lawyers, for various reasons, opt to work for temporary staffing agencies instead of at law firms.

    “I would argue that it is not going well at law firms [for African-Americans], or else they are not getting opportunities at law firms,” Brown says.

    While some temporary staffing firms say they also have noticed higher participation by African-American lawyers than might be expected, others say they have either not noticed the trend or else haven’t studied the ethnic makeup of their contract workers. The American Staffing Association, which conducts research on the contingent labor workforce, says it does not collect statistics on participation by African-American lawyers.

    But Brown and other staffing professionals say that they are convinced that African-Americans and other minorities are clearly over-represented in the temporary legal staffing field.

    Nancy Molloy, president of legal staffing company Legend Global Search Inc. in New York, says that more than 40 percent of her contract lawyers are African-American and minorities overall account for more than 60 percent of her contingent workforce. While she hires some African-American attorneys for temporary placement straight out of college, many more arrive after leaving jobs at law firms.

    “There is a high turnover of African-American attorneys at law firms,” Molloy says. “I think what happens is, there is no mentoring. There is just a very small percentage of partners of color.”

    In its 2006 survey of the private law firm workforce, the National Association for Legal Career Professionals surveyed more than 1,500 law offices around the country. Of more than 60,000 partners at those firms, only 1.5 percent were African-American. Of about 60,000 associates at those firms, 4.5 percent were African-American.

    A separate study by NALP found that African-American lawyers leave jobs at law firms at a much higher rate than others. While the overall attrition rate for associates was 43 percent, it was 68 percent for African-American men and 64 percent for African-American women.

    “African-Americans don’t last as long at law firms,” Brown says. “In terms of going from associate to partner, there are very few who make it.”

    Leon Spencer, an African-American lawyer from South Carolina, says he stumbled upon contingent legal work after leaving a job a few years ago with a law firm in Columbia, South Carolina. He moved to Washington in hopes of landing a job with a nonprofit or public interest group. To make ends meet, he took a temporary assignment with Compliance Inc.

    “It was steady income and I could start paying down my student loans,” Spencer says. He never left. Today he is a staffing director at Compliance.

A new office that opened in August on the 16th floor of the Chrysler Building in midtown Manhattan has desks for up to 65 lawyers, complete with phones, computers and legal services software. Yet none of the desks will be occupied by full-time attorneys.

    The office is the newest for the temporary legal staffing operation of Kelly Services and joins a growing number of similar turnkey offices popping up around the country dedicated to short-term contract legal work. Kelly now has two contract legal service offices in New York City.

    Special Counsel, the legal staffing arm of MPS Group Inc., also has two offices in New York, each capable of housing 100 attorneys on temporary assignments. Hudson Legal, a division of Hudson Highland Group, offers turnkey legal staffing options in eight of the 12 cities it serves in the United States.

    Staffing companies say the demand for turnkey operations reflects the increasing burden put on corporate legal offices by the dramatic rise in the number and type of documents and electronic records that must be reviewed in civil lawsuits today. Faced with the need to screen thousands—sometimes millions—of documents and electronic files in a short period, corporate attorneys have turned increasingly to staffing companies for help, seeking not just short-term lawyers but someplace to house them as well.

    “There is a shift in the legal marketplace from just providing talent to providing staffing and space,” says Marc Zamsky, executive vice president of Hudson Legal. “A company might say, ‘Not only do we need 15 or 20 contractors for the next thee months, we need space to house them, we need the computers and technology.’ Our clients, whether they are corporations or law firms, are relying on us more and more for turnkey solutions.”

    The increased spending on legal-staffing contracts has begun to draw human resources departments and purchasing agents into the process. In some cases, corporations are striking longer-term contracts with staffing firms that establish set prices for contract legal services on an as-needed basis.

    Staffing companies offer a way to trim costs for corporations with rising legal bills. Outsourcing basic litigation tasks like categorizing documents and data and checking for specific content in e-mails or other communications can cut millions off legal expenses.

    Christopher Gallagher, regional vice president of Ajilon Legal, a division of international staffing company Adecco, says corporations with large legal bills defending complicated lawsuits can save $5 million to $10 million per year by using contract attorneys.

    The math is fairly straightforward. The billing rate for an associate at a large law firm runs about $275 to $300 per hour. Contract agencies pay their lawyers $35 to $50 an hour, plus time-and-a-half for overtime. Although most contract lawyers working for agencies put in 50 to 60 hours per week, their average hourly pay would still tend to be in the $40 to $60 per hour range. Contract agencies can thus charge three times what they pay their contract lawyers to cover overhead and profit and still save corporations a bundle in legal expenses.

    “It is relatively low pay compared to what a lawyer [in a large firm] would make,” says Julian S. Brown, president of development for Compliance Inc. of Arlington, Virginia, which is part of international staffing company Vedior. “But if they are working most weeks of the year, they will make decent money.”

    The cost-saving potential of contract legal service has made a strong impression on corporations, which typically hire outside law firms to handle complex lawsuits. Corporate legal departments, pressed to control spending, have begun farming out tasks to lawyers at staffing agencies or asking their outside counsels to use the agencies for routine work. Ajilon’s Gallagher says some corporations have established strict guidelines requiring the use of temporary contract lawyers for routine tasks.

    “In the past, it was a good ol’ boys club,” Gallagher says. “The outside counsel would just send bills to the corporation. Now corporations would rather use contract services to control costs.”

    Gallagher relates one case in which a Fortune 100 corporation established a rule for its outside legal counsels that document review jobs requiring more than three attorneys and four days had to be done with contract lawyers. The rules also set the rates that would be allowed for those outside legal services.

    Despite the lower level of pay and emphasis on saving money, legal staffing agencies have managed to find plenty of lawyers willing to take the jobs. Some of those lawyers are just starting their careers and are in need of work. Others are recently retired and are looking for supplemental income. Still others are in transition: between jobs, moving to a new city along with a transferred spouse, or making a lifestyle change.

    All that career movement provides a steady flow of staffing candidates. In the San Francisco Bay area, where Robert Half runs three legal staffing offices, the operation interviews more than 100 candidates each week. Hudson has about 1,800 contract lawyers working under its supervision each day.

    Charles Volkert, executive director of Robert Half Legal, says the types of law firms that are outsourcing work to agencies have changed. “It is no longer just the top 50 law firms using us. We are working with midsize and small law firms.”

    The rise in corporate caseloads and the explosion in the number and types of documents that are now under review in those cases are driving the legal staffing business. Corporations are turning increasingly to outside law firms to help handle those cases, and those outside law firms are, in turn, outsourcing some of the work to staffing agencies.

    In a survey of law firms published in June by Robert Half, 45 percent of corporate legal departments say they had increased their use of outside counsel during the past year. Of the type of work being sent to outside counsel, 66 percent cited litigation. Compliance and regulatory matters ranked second at 16 percent.

    The increasing demand for contract lawyers has provided a boost to the contingent staffing industry. In a report earlier this year, Staffing Industry Analysts, a California-based staffing industry research and consulting company, says temporary legal staffing is the fastest-growing segment of the contingent workforce in the U.S., increasing at an annual rate of 16.1 percent from 1997 to 2005. Two-thirds of the work done by staffing agency attorneys is in litigation or other work, while one-third involves merger and acquisition activity, according to the Staffing Industry Analysts report.

    Growth in the legal staffing business has spurred expansion by most of the major staffing agencies and spawned a host of smaller, independent contract legal staffing firms, particularly in large metro areas. Despite the competition, staffing agencies have been reporting solid growth in their legal services businesses. Ajilon’s Gallagher says his company’s revenue grew more than 30 percent last year.

    The type of litigation being outsourced to staffing agencies stems from an explosion in the types and amount of corporate records subject to discovery in civil lawsuits. Computers create immense storehouses of potential evidence in the form of e-mails, memos and other electronic files.

    Lawyers can use the rules of evidence to force corporations to sift through their vast files for certain documents or communications. And it’s not just the finished documents that are subject to discovery, but also the various early drafts and edited versions that might exist in computer files.

    That has led to a new line of computer software called electronic discovery, or e-discovery, which can help compile and sift through corporate records. But lawyers still need to review documents for relevance and status to determine which ones will be used as evidence.

    The review process is a time-consuming and repetitive task, usually with a short deadline that requires a team of lawyers. All of which makes it ideal for outsourcing to staffing companies that can supply lawyers on short notice for periods of a few weeks to several months.

    “When you get a request to review 2 million e-mails, that is a daunting task,” Volkert says. “That is one of the key components driving the business.”

Pinched by a tight labor market and demands for more effective talent recruitment, companies are increasingly turning to temporary agencies as a source of permanent hires.

Richard Wahlquist, president and CEO of the American Staffing Association, says the number of temporary workers retained as full-time employees in a process known as temp-to-hire is expected to grow by 15 percent this year, equaling the healthy rate of expansion seen last year.

“Temp-to-hire, according to our members, has been one of the fastest-growing segments of the business over the last two years,” Wahlquist says. “It is hot.”

Some staffing firms report that temp workers are now regularly being screened like potential permanent hires by human resources departments, with full job and education backgrounds requested. As the demand for temp-to-hire increases, staffing agencies are raising fees for temp-to-hire arrangements.

Express Personnel Services, an Oklahoma City-based staffing firm, has seen its temporary staffing business shift into an operation that serves primarily the temp-to-hire sector. Twenty years ago, temp-to-hire accounted for about 20 percent of the company’s temporary staffing business. Today, nearly three-fourths of its temporary recruiting is temp-to-hire, much of it in skilled fields like accounting. That experience mirrors the changes reported by the ASA; Wahlquist says 65 percent to 75 percent of temporary staffing today is temp-to-hire.

“Ten years ago, all we did was drug screening,” says Bill Stoller, co-founder of Express Personnel. “Today we do background checks, credit checks. We are doing so much more because of the eventual decision that the company wants somebody to be full time.”

Requests for more background information come from HR departments, which are turning to temp firms as a source of permanent hires in part because shrinking labor pools make it harder to find qualified candidates, particularly for critical skills like information technology. HR departments are also feeling pressure to fine-tune hiring to avoid mistakes that may require dismissal and new recruiting. By using temp-to-hire, companies can test-drive potential permanent hires without the costs associated with an immediate full-time hire.

Elissa Tucker, a senior consultant with Hewitt Associates, a human resources consulting firm, says temp-to-hire has become a fixture in hiring solutions. “Companies that are starting to feel the talent shortage are coming to us and saying, ‘We are having a crisis; help us come up with a solution,’ ” Tucker says. “Temp-to-hire is one option we might recommend.”

But she cautions that projections of an increasingly tight labor market could result in friction between temp agencies and their clients. “If the labor market gets really tight, there could be an issue between companies and staffing agencies, because they need to compete for the same talent,” Tucker says. “Staffing agencies want to hold on to employees for their own needs.”

Tucker says HR departments that use the temp-to-hire option need to carefully monitor contracts with staffing agencies to ensure that the terms of the transition are acceptable and that the fee for hiring a temp as a full-time worker is reasonable.

On the other side, Wahlquist says temp agencies need to prepare for more temp-to-hire requests with more focused recruitment efforts, particularly for sought-after jobs in tight labor markets. A temp agency that can’t supply talent on demand will quickly lose its usefulness to clients.

“There is a tension that exists between fulfilling increasing client demands for temp-to-hire assignments and maintaining a sufficient bench of talent to meet client staffing requests,” Wahlquist says. “If my business model is to make contract talent available, and I end up becoming a source for full-time employees, where do I get the talent to put on my bench?”

Finding qualified workers is among the top challenges faced by staffing agencies today. But according to a recent ASA survey, the No. 1 reason workers sign up with temp agencies is for help in finding permanent employment.

Wahlquist estimates that 30 percent to 40 percent of temp workers get asked to stay on full time after their assignments end. In most cases, the offer is made with the staffing firm’s participation and under the temp-to-hire clause in the staffing contract. But some companies may try to go around those contracts and hire temps without notifying the staffing firm or paying the temp-to-hire fees.

“We have heard reports of stealth hiring over years,” Wahlquist says. “What we advise staffing companies to do, as part of employee orientation, is to let employees know that they have an absolute obligation to inform the staffing firm of any requests made by a client to take a person on as a full-time employee. We also advise that staffing companies try to have the same sorts of conversations with clients—that if they want to hire staffing workers as full-time employees, here are the conditions.”

Tucker says that as temp-to-hire usage increases, companies need to do their homework before engaging staffing agencies. Ideally, she says, companies should look at temp-to-hire as part of a long-term workforce planning strategy. Such a strategy would include estimating talent needs up to five years into the future and determining where shortages might appear and which types of jobs might be best suited for temp-to-hire use, she says. Companies also need to carefully negotiate contracts with staffing agencies for temp-to-hire arrangements.

“Any company looking to use this as a strategy needs to go in upfront and try to have the best possible cost in the contract,” Tucker says. “In order for this to be a successful strategy, you want it to be cost-effective.”

That’s fine with staffing agencies, which are just as keen on protecting their own interests in temp-to-hire arrangements and want the details spelled out in advance.

“We need to get our return for recruiting people,” Stoller says. “We don’t want to come to the end of the process and feel we are not getting what we feel is a justified return out of recruiting these people. We are a little more upfront in discussing what fees are going to be—even more upfront than in the past.”

Stoller says fees for temp-to-hire are generally on the rise as labor supplies tighten and the competition for talent increases. He also notes that one reason for higher overall fees is that the skills in demand are also rising. That increases the level of screening and pay rates, as well as the temp-to-hire fees.

Wahlquist says that temp-to-hire clients now routinely request résumés from temp workers. Once those temps start working, their performance and progress is more closely monitored today by clients who want to see how well the temp workers fit and adapt during the term of the contract. If the temp passes the test, the company might then exercise the temp-to-hire clause and make an offer.

“The big thing that companies take into consideration in temp-to-hire is that they can eliminate the cost associated with bad hires or bad matches,” Wahlquist says. “If I guess wrong based on a good interview, now I have lost all the cost of recruiting, screening and employing a full-time employee, and I will face the separation costs of letting that bad employee go.”

By test-driving the worker in a temp-to-hire arrangement, the company gets a firsthand look at how a prospective employee performs in an arrangement where the temp agency is the employer of record.

But while the general trend in staffing is for increased temp-to-hire business, not all staffing firms are embracing the shift. Philadelphia-based Yoh Services, which specializes in higher-level temporary workers like engineers, computer programmers and health sciences researchers, has kept temp-to-hire at less than 5 percent of its overall business.

Jim Lanzalotto, vice president of strategy and marketing at Yoh, says his company has carved out a niche that focuses on providing highly skilled consultants for short-term projects. If a company wants to hire one of those consultants full time, Yoh would certainly oblige, he says. But the workers Yoh recruits tend to prefer roving, short-term assignments to permanent placements and might not adapt well to full-time employment.

“It is almost like a round peg in a square hole,” Lanzalotto says. “Some people want to work full time, but if someone is a consultant, let them continue to be a consultant. The biggest message here is that you want to be sure you have the right people doing the right things.”