Staffing agencies face a myriad of contractual pitfalls that can lead to legal and insurance coverage headaches, causing unnecessary financial stress to your business. Here, we’ll focus on problematic indemnification language that staffing agencies should be aware of and provide insights on how to avoid them.

Indemnification Clauses tend to be overbroad and place a disproportionate amount of liability on the agency. In a staffing relationship, both parties should assume liability for their own actions, however, that’s not the way most contracts are written. In some instances, the indemnification language unfairly shifts liabilities to your agency. This may cause your insurance policies to unnecessarily respond to a claim or even worse Some of the most problematic language is discussed below.

  • Indemnification for your employee’s injuries should never be agreed to in a contract. If one of your employees is injured at a customer site and the customer contributed to the accident, for example disabling machine guarding, hitting your employee with a forklift, etc., that injured employee may decide to pursue a civil action against your customer. If you’ve indemnified your customer for employee injuries, the customer has the right to tender that civil suit to you for defense and indemnity. Depending on how your insurance program is structured and the circumstances of the injury and tender, you may not have coverage on your policies for this tender. If you have a loss sensitive workers’ compensation (WC) policy, and the claim is covered by your employer’s liability (EL) policy under the WC, the EL claim is subject to a separate deductible – even though you’ve already paid that WC claim subject to your policy deductible.

If your policies are not structured properly, you may not have coverage for the defense and indemnity of your customer that was agreed to in your contract with them and you will be legally held responsible at your expense.

  • Indemnification for all employment-related suits should also not be accepted. Many contracts state that you will indemnify the customer for any and all employment actions, whether that’s a civil suit, OSHA complaint or other governmental entity action. However, in many cases, the customer’s actions or inactions caused the action to be brought. Examples can include your employee being harassed by a customer’s employee, unsafe working conditions, failure to give proper breaks, etc.

If you’ve indemnified your customer for these actions, your insurance policies may need to respond to the customer’s tender of the action, or worse, you may have no coverage depending on how your policies are structured and the circumstances of the claim.

  • Avoid contracts that allow customer’s control over defense counsel and/or approved claim settlements. Your insurance carriers will never allow either, so it’s important to ensure that your contracts do not contain such language.

Staffing agencies must navigate a complex web of contractual obligations to maintain successful and ethical operations. By identifying and addressing these common contractual pitfalls, agencies can build strong, sustainable relationships with clients and candidates while avoiding legal and operational challenges. Regularly reviewing and updating contracts, consulting with legal experts, and prioritizing clear communication are essential steps to prevent these pitfalls from hindering your agency’s growth and success in the competitive staffing industry.

If you have any questions regarding common contractual pitfalls, please contact an MMA advisor.

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