How Can Staffing Agencies Minimize Lawsuits?

Staffing agencies assist companies in their short-term staffing needs. However, their clients should not assume they are able to avoid liability for workplace issues because they are using a staffing agency. In some scenarios, a client is even exposed to liability due to using a staffing agency. Working with an agency does not protect against employment liability, and, in some instances, the temporary worker may even try to hold the client liable as if it had been a direct hire of the temporary worker, under a “joint employer” theory. Joint employer liability can arise in many ways, including wage and hour disputes, harassment, discrimination, and retaliation. Determining joint employment is done by testing, which will vary by statute and jurisdiction. Various federal agencies use their own tests.

State laws also significantly vary, which adds to the complexity for multi-state employers. In New York, for instance, courts working to determine if a joint employer relationship exists for purposes of New York Human Rights Laws may first check if the putative employer has “immediate control” over the putative employee, which would be the temporary worker. Oftentimes a client could be liable for a temporary worker’s wages, even if they fulfilled their obligation of paying the staffing agency for that temporary worker’s wages. Staffing agencies and their clients should work together to limit risks.

Review the Contracts

The contract between the agency and the client is the grounds for the agency to defend and indemnify the client for losses, penalties, and attorney’s fees regarding the staffing agency’s employees, including wage-related claims.

These contracts must contain representations and warranties by the staffing agency, so the client is guaranteed the agency’s performance of duties to the employees, including the individuals that the agency sends to the client’s and that they comply with all the laws associated with the employee classification.

Exercise Due Diligence

It is the client’s responsibility to do their research before engaging services, including the location of their business operations, how many clients are being serviced through them, and how long the agency has been in business. The prospective clients should also ask for references and to speak with current clients. It is not just on your clients to determine the likelihood of litigation for their clients.

Require Proof of Insurance

Staffing agencies should request that their clients provide proof of workers’ compensation insurance coverage before committing to working with them. They should also consider requiring verification at frequent intervals.

Ideally, your clients will have secured Employment Practices Liability Insurance (EPLI), naming the client as an additional insured. While the client may decide they want to have some oversight of the staffing agency’s compliance with applicable law, this would be a double-edged sword. By becoming more involved in the daily practices, the client makes it more likely that it will be deemed a “joint employer” of the temporary workers that the agency brings on.

Your clients must be extra cautious. Agencies all too often become defendants in harassment and discrimination lawsuits for alleged wrongful conduct that take place on their client’s premises. There are many proactive protective measures that staffing agencies should enact, such as ensuring that their clients have compliant anti-discrimination and harassment policies and practices in place. It is also essential that they quickly address and correct any improper activity they become aware of. They can utilize attorneys for guidance in efforts to reduce legal exposure as well. Be sure to explain to your clients the importance of safeguarding their operations with staffing liability insurance.

About World Wide Specialty Programs

For the last 50 years, World Wide Specialty Programs has dedicated itself to providing the optimal products and solutions for the staffing industry. As the only insurance firm to be an ASA commercial liability partner, we are committed to that partnership and committed to using our knowledge of the industry to provide staffing firms with the best possible coverage. For more information about Staffing Professional Liability Insurance or any other coverage, we have available to protect your staffing business, give us a call at (877) 256-0468 to speak with one of our representatives.