The majority of these non-standard contracts are clear on each party's responsibilities and there aren't any onerous terms imposed onto the agency. However, this isn’t always the case, and as these usually push the responsibility of liability back to the recruiter, it is important that agencies are aware of their obligations.
What can agencies do to protect themselves from contracts which push unreasonable levels of liability onto the agency? How can they recognise what is acceptable and what isn't, when the contract may include terminology and insurance language which is not familiar?
We have outlined some of the main considerations which could help you avoid the acceptance of certain contractual liabilities, which may have a serious impact on your insurance. This isn't an exhaustive list, but it covers the most common requirements you are likely to come across.
Uncapped indemnity
Ensure that contracts contain acceptable capped indemnity limits or at least not more than your insurance coverage. If possible, link the indemnity to the contract value with a maximum payable. (Please note you will have to accept uncapped liability for Death & Injury and other indemnities which cannot be capped in Law).
Undefined losses
Try to remove indemnity for undefined losses such as loss of profit/loss of reputation etc., all of which can be difficult to evidence in the event of a claim.
Indemnity for contractor or temporary worker negligence
Many recruiter policy wordings do not include full vicarious liability (indirect liability for the actions of another person). Contractor/temporary workers’ errors and omissions may not be covered, unless the agency has made an error in the placement of the worker. Check your policy coverage with your broker to ensure you can accept such liability.
Legal jurisdiction of the contract
If the contract stipulates a legal jurisdiction outside of the UK, check your policy will deal with a claim in a court outside of the UK. This is especially important if the legal jurisdiction of the contract is USA/Canada as these countries are typically excluded unless added by agreement with your insurers.
Employment breaches
If the contract requires the agency to reimburse the client for claims brought by temporary workers alleging breaches of employment rights, you should attempt to have such clauses removed or at the very least, ask for the contract to be amended to not exclude their own liability, whether fully or partial for such claims.
Subrogation waivers
Such clauses restrict insurers’ rights of recovery from the client. Almost all insurers will have clauses which specifically state that the policyholder must not contractually waive insurer’s rights of recovery and to do so could invalidate the policy.
Additional insured
Most policies do not allow an unrelated party to be noted as an “additional insured” to your insurance policies.
Indemnity to parties outside of the influence of the contract
Wherever possible indemnity should be limited to the contracting parties. It is quite common in non-standard contracts to see the indemnity extended to include unrelated third parties such as affiliates, associated companies and suppliers of the end client.
Confidentiality & IPR requirements
It is unlikely that you will be able to remove these clauses from the contract. It is recommended that such clauses are back to back with the contractor, or that your standard contractor agreements contain strong indemnity clauses in the event of their breaches.
Fines & penalties
A recruitment agency policy will typically exclude cover for contractual fines & penalties, an example being the failure to meet timeframes or the performance/quality of works.
Warranties
There may be a requirement to put right work, it is recommended you ensure that the warranty period is a short as possible, ideally no more than 30 days.
Definition of the agency in contracts
It is increasingly common for clients to provide a contract which is based upon a consultancy agreement or stipulates that the services supplied by the agency are based on a statement of works/purchase order. Such contracts may warrant the agency to accept responsibility for the performance of the works and impose onerous terms. It is recommended that you check with your insurers that cover is in place for signing such contracts, especially if your policy does not extend to provide vicarious liability.
We would always recommend that any non-standard contracts and terms of business are reviewed by your insurer or broker to help ensure that there are no hidden risks where the responsibility of the recruitment business exceeds what their current insurance policies may indemnify them for.
Gallagher have a long-standing relationship with APSCo spanning decades, with a wealth of experience and a dedicated insurance scheme for recruitment agencies. We have the knowledge and capabilities to support the industry with their requirements, from insurance placement to risk management.
