If business owners want to benefit from undocumented labor, there’s one loophole that often allows them to avoid prosecution: temporary staffing agencies, which are easy to start and operate in an industry with plenty of room to cut corners on all kinds of labor laws.

In Texas, temporary staffing firms are not required to be licensed, so no one is watching them for bad behavior.

Staffing industry leaders pride themselves as job creators and large-scale employers. According to the American Staffing Association, the industry accounts for nearly 1.5 million jobs each year in Texas and the average temporary staffing employee earns $40,600 annually in the state. Staffing firms offer on-site training and help workers transition from one industry to another.

But among staffing companies there’s disagreement about whether licensing and regulation would help or hurt the industry. Many acknowledge that the industry’s business model creates opportunity for inappropriate actions.

An April raid by U.S. Immigration and Customs Enforcement at an Allen technology company illustrates the issue. While federal officials arrested about 283 people for working in the U.S. illegally, it is unclear if the business — CVE Technology — and four of the staffing companies that provided its workers will face any repercussions.

The Allen raid was the largest such operation in a decade, and it demonstrated a new strategy of targeting the bosses who hire unauthorized workers, not just the workers themselves. In 2017, the then-deputy director of ICE called for “a 400% increase in work site operations."

"We're not just talking about arresting the aliens at these work sites,” Tom Homan said at the time. “We are also talking about employers who knowingly hire people who are unauthorized to work."

Yet as long as CVE and the staffing companies in Allen did not “knowingly” hire unauthorized workers — an easy-to-meet standard that protects business owners from punishment — bosses will likely avoid penalty.

Cutting corners

Tom Landry, president of Allegiance Staffing in Spring, near Houston, has worked in the staffing industry for 33 years and has held multiple positions in both state and national industry organizations.

Landry said that he sets a high bar for his own work but sees other staffing companies not do everything the right way.

Recently, for example, a client with whom he’d worked for 12 years said they no longer wanted to use the background and E-Verify immigration checks that Allegiance Staffing requires for temporary workers. Rather than adjust their agreement, Landry said he chose to drop the client.

Still, many other companies can and do regularly cut those corners, he said.

“There’s always somebody out there who you can do business with,” Landry said. “The government offers the option. You have to make the decision of who you’re going to be.”

Options for employers

Most of the time, staffing companies offer businesses an easy way to outsource payroll, hiring and other responsibilities — especially for short-term projects where temporary labor is necessary.

“Temporary employee assignments don’t necessarily mean a day or two days,” said Toby Malara, government affairs counsel for the American Staffing Association. “It could mean a year or more.”

Malara said that temporary workers are employed by the staffing companies, not the host business where they may physically work. Therefore, the staffing firm is responsible for following all state and federal labor laws.

But sometimes, thinly capitalized staffing companies operate outside the law — either unknowingly or with intent — without repercussions.

Malara calls them “fly-by-night staffing firms.” They pop up, provide cheap service without acting responsibly, and fold easily if punished for wrongdoing, he said.

“It’s easy to get away with that,” Malara said. “These are the companies that the states need to go after.”

For example, if a new employee is hired by a staffing company, federal law requires that company to verify that the person is authorized to work in the U.S.

Employers then have a choice: Use the I-9 form, which relies on identifying documents and work authorization documents, or use the E-Verify system, which allows immediate cross-checking with Department of Homeland Security databases to confirm that a worker’s documentation is legitimate.

Staffing firms are not required to be experts in document verification and could easily accept fraudulent documents from potential employees with the I-9 form. If they did not “knowingly” hire unauthorized workers, they can avoid punishment.

“If the staffing company has a brain in their heads, they’ll have I-9s and they’ll get off too,” Landry said. “They know what they’re doing.”

Landry, who is no relation to the former Dallas Cowboys football coach, said the choice between operating legitimately and cutting corners is a moral, not legal, one that staffing firms must make.

“There are options — that’s the problem,” he said. “It’s kind of a bad deal. It’s not right, but it’s legal.”

As an industry, he said, staffing companies talk a lot about how to distance the work of legitimate firms from that of “fly-by-night” operations.

“There’s a lot of stuff out there about the industry where you have the few bad operators and you don’t get the true picture of what the industry does,” Landry said. “As an industry, it’s difficult to call out somebody who’s not been breaking the law.”

Lack of state regulation

The problem is especially fraught in Texas, where no state agency is tasked specifically with tracking staffing companies or imposing sanctions against bad actors.

Landry said industry leaders have long debated the issue of licensing and regulation. On one hand, it could help eliminate some of those bad actors. On the other, it could add unnecessary barriers to the market.

“That football’s been going back and forth as long as I’ve been in the industry,” he said.

The Texas Department of Licensing and Regulation required staffing companies to be licensed through 2013, when a change in state law switched the name and definition of “staff leasing companies” to “professional employer organizations.”

Professional employer organizations operate similarly to staffing companies, but there are differences.

While a staffing company may provide temporary labor for a project or assignment, a professional employer organization might take over all of a business’ personnel and payroll requirements in a permanent workforce.

When the change was made in 2013, state lawmakers said it was to keep up with changing business models in the staffing and employment industry. It also let staffing companies off the hook from registering with the state.

"Business moves faster than the law does," said John Beck, director of market strategy for Harbor Compliance, a company that helps businesses achieve and maintain regulatory compliance in a number of industries, including staffing. "Some of the laws are antiquated."

According to Harbor Compliance, 34 states require licensing for professional employer organizations, 24 states require licensing for staffing companies, and 18 require licensing for both. For those 18 states, different state agencies sometimes have control over different kinds of companies.

In Illinois, for example, professional employer organizations register through the state’s insurance department, while staffing companies register through the labor department.

“Licensing is thought of as generally a good thing. It’s there to protect the public,” Beck said. “It’s there to elevate the industry.”

Call for enforcement

Malara, however, said he’d rather see enforcement of current laws rather than adding new regulations. Because staffing companies are ultimately responsible for labor law compliance, he said, more staffing-specific laws are unnecessary.

“More often than not, we can point to three or four laws that are already in place,” he said. “We stand for more enforcement. That’s the biggest problem we see.”