Risk Management: Challenges of Hiring Temporary Workers

One option available to businesses in need of additional employees whether short term or long term is to enter into an agreement with a staffing company.  This simplifies the recruitment process and allows an employer 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 employer. 

Items to consider:

  1. Workers Compensation (WC) Insurance: Generally, the Staffing 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 require the Staffing Company to name them as an Alternate Employer on the staffing companies Workers Compensation Policy (There is a standard endorsement to do this, 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.
  2. General Liability (GL) Insurance: The Client should require the Staffing 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 temporary or leased employee will be working under the direction of the Client and the Staffing Company may resist providing Additional Insured status to the Client.  They may ask the Client to name the Staffing Company as an Additional Insured on the Client’s policy. If the Client is supervising and directing the temporary or leased employee, in most cases this is acceptable.
  3. 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 Staffing Company. For example, let’s assume the Staffing Company’s Workers Compensation insurer pays a loss for one of the Staffing 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.
  4. Hold Harmless and Indemnity Agreement: The Client can require the Staffing Company to hold them harmless and indemnify them from any and all liability arising out of the work done by the temporary or leased employee.  This way if the temporary or leased 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 Staffing Company.  At a minimum any indemnity should be reciprocal where each party agrees to indemnify the other from damages caused by their respective negligence. The Client should avoid a unilateral indemnity in favor of the Staffing Company.

    Utilizing employees provided by a Staffing Company can help an employer manage short- and long-term labor challenges. Like any arrangement this creates risk management challenges and it important that they be understood and managed correctly.

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