Many of our clients (client) in need of short-term help will enter into agreements with Temporary Employers or Staffing Companies (Temp Company). This simplifies the recruitment process and allows employers to adjust their staffing levels as their business fluctuates.
In most circumstances the staffing company will ask their client to sign their contract. Not surprisingly, these contracts are written to favor the drafting party. When entering into such agreements it is prudent to review the contract and consider appropriate risk transfer techniques to protect the business utilizing the temporary employees.
Items to consider:
- Workers’ Compensation (WC) Insurance: Generally, the Temp Company is required to provide the Workers’ Compensation Insurance. This should be clearly spelled out in the contract. To avoid any confusion the Client should ask the Temp Company to name them as an Alternate Employer on their Workers’ Compensation Policy (Form #WC000301A). This provides the Client with Workers’ Compensation coverage as if they were also the employer, making it clear that the Client is protected by the exclusive remedy laws that exist in each state.
- General Liability (GL) Insurance: The Client should require the Temp Company to have General Liability Insurance. The Client should also ask to be named as an Additional Insured on that policy. While this is desirable, in many circumstances the temp employee will be working under the direction of the Client and the Temp Company may resist providing Additional Insured status to the Client and ask the Client to name the Temp Company as an Additional Insured on the Client’s policy. If the Client is supervising and directing the temp employee, in most cases this is acceptable.
- Waiver of Subrogation Agreement: The Client should ensure that there is a Waiver of Subrogation agreement in the contract for all required insurance policies. This is especially important if the Client can’t get named as an Alternate Employer on the Workers’ Compensation policy of the Temp Company. For example, let’s assume the Temp Company’s Workers’ Compensation insurer pays a loss for one of the Temp Company’s employees. The Insurance Company believes that the Client was partially or solely at fault, the Insurance Company could bring a subrogation action against the Client to recover some or all of the damages they have paid. With a Waiver of Subrogation endorsement in the contract, the Insurance Company will be precluded from bringing a subrogation action.
- Hold Harmless and Indemnity Agreement: The Client can require the Temp Company to hold them harmless and indemnify them from any and all liability arising out of the temp employee excepting the Client’s sole negligence. This way if a temp employee were to bring a suit against the Client alleging faulty supervision or an unsafe work environment, the Client could tender it back to the Temp Company because the Temp Company has agreed to indemnify and hold them harmless. This will generally be covered under the Temp Company’s General Liability policy since the standard GL policy includes broad contractual coverage. At a minimum any indemnity should be reciprocal where each party agreeds to indemnify the other from damages caused by their respective negligence. The Client should avoid a unilateral indemnity in favor of the Temp Company.
Utilizing Temporary Employers or Staffing Companies can help an employer manage short and long-term labor challenges. Like any arrangement this creates risk management challenges and it is important that they be understood and managed correctly.