Is a Staffing Agency Liable if an Employee Is Terminated?

Staffing agencies, client companies, and workers have a complex triangular relationship that can make determining liability after wrongful termination difficult. The answer to who is liable for the termination is sometimes cut and dried. However, staffing agencies can protect themselves against potential claims by carrying staffing employment practices liability insurance (EPLI).

The Role of Staffing Agencies and Staffing Employment Practices Liability Insurance

A staffing agency is a firm that matches companies with job candidates. Generally, companies look to staffing agencies for workers to fill temporary or project-based work rather than full-time positions. However, the relationship between specific agencies and their clients is entirely up to the contract between the two.

Once an employee is placed with a company, the staffing agency has limited control over the client company’s decisions. For instance, if the client company decides that the worker does not fit with the company for any reason, the agency cannot always protect the employee against termination. 

However, if the client company wrongfully terminates an employee, the worker could file a lawsuit against both businesses, resulting in a serious legal claim. With liability insurance, the agency has support in defending against such claims. Insurance can also help reduce the risks staffing agencies take.

Types of Liability in Employment Termination

If an employee files a claim against the staffing agency, it will typically be due to wrongful termination or discrimination claims. Wrongful termination can include firing an employee for whistleblowing or demanding their rights while with the client company. 

Discrimination claims, while similar, may allege that the client company discriminated against the employee due to age, sex, race, religion, and any other protected class. If the agency did nothing to protect its employees or upheld the client’s decision, it may also face a discrimination lawsuit.

Even if the staffing agency wants to fight claims of wrongful termination, it will need staffing employment practices liability insurance to help defend itself. The contractual agreement between the agency and the client; the nature of employment relationships, such as at-will employment; and the documentation and record-keeping practices may determine its liability. Staffing agencies should be encouraged to maintain detailed records of their clients, employees, and assignments.

The Role of Staffing Employment Practices Liability Insurance 

Having staffing agency insurance can help agencies mitigate risks. First, liability coverage will provide the company with a safety net when it faces lawsuits and other allegations. The liability insurance will help cover the defense costs and any settlements the company has to pay. 

Likewise, when a staffing agency chooses a liability policy, the insurance agency can help them determine how to mitigate their risks. For example, a liability policy that requires a clear contract between the agency and the client about appropriate termination habits can help reduce the risk of wrongful termination.

The Importance of Offering Staffing Employment Practices Liability Insurance

Staffing agencies carry liability risks that require the protection of a staffing EPLI policy. Employees can file lawsuits against their staffing agency along with the client. Contact us to learn how staffing agency insurance can help your clients.

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 are 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.