Yes, a staffing agency can be sued and can incur penalties when an employee gets hurt on third party company environment. In the United States, the staffing agency is seen as the employer and is mandated by law to cover their workers with liability and insurance. The employee recruited by a staffing agency, if injured while working on an assignment, can file a liability and insurance claim naming the staffing agency as the employer.
Most often, this sort of liability and insurance claim are not filed against the assigned place of business where the injury occurred. This place of employment where the temporary employee was sent to work is referred to as a third party. But if the injury was caused by the negligence of that third party, then they too can be sued and the employee will still have a liability and insurance claim and also a third party claim.
Workers’ compensation is one area in which both the staffing agency and the client company have a “joint employer” relationship under several employment laws. It simply means that both the agency and the client company have a responsibility to provide employee protection. When an organization hires a temporary worker who is employed by a staffing agency, that agency is normally covered by the workers’ compensation benefits it has on its employees.
However, note that the client company may not be covered. The worker is not the client company’s employee but an employee of the staffing agency, but the client company as the third party company may still have the liability of the individual for working at the client’s location under the client’s direction. A client company can be sued by the injured party under the company’s general liability policy.
Nonetheless, it is always recommended that staffing agencies and client companies work with legal counsel for advice on how to limit their liability and also to ensure they have the appropriate liability insurance necessary to safeguard their organizations. Limiting liability may include reviewing and requiring certain language in their contracts or requiring one or both parties to have additional riders on their workers’ compensation policies.
For instance, a good number of employers require staffing agency contracts to include language stating that the agency will take sole responsibility for workers’ compensation claims if a temporary worker is injured while working for a client business. A more aggressive approach seen in this age is requiring the staffing agency to add an alternative employer agreement rider on its workers’ compensation policy.
Indeed this rider is more expensive for the staffing agency, but it will let the client company share protection under the temporary agency’s workers’ compensation policy. Note that a good number of staffing agencies agree to such an arrangement in their contract with the client company, however, every party involved should not assume that the other is responsible for all temporary worker liability. It is advisable to check with the signed contracts and obtain legal advice on how to safeguard the companies from liability and insurance claims.
What is the Best Way to Safeguard a Staffing Agency from Liability and Insurance Claims?
The only way to safeguard a staffing agency from claims arising from employee injury is by seeking and purchasing adequate staffing agency insurance. Staffing agencies face different risks based on their business operations. Most states require agencies to carry workers’ compensation insurance for their onsite employees. Here are the most common types of staffing agency insurance policies.
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General Liability Insurance
General liability insurance safeguards staffing agencies by paying the costs associated with third-party claims of property damage, physical injury, and advertising injuries, such as defamation. If the business meets any of these accusations, general liability covers the injured party’s medical or repair bills or your legal fees if they decide to sue.
Note that standard general liability policies more or less cover claims whether they are caused by you or your employees’ actions. Temporary staffing agencies’ general liability coverage extends to the workers they place in other businesses because those workers are agency employees.
Commercial Property Insurance
Commercial property tends to pay for repairs to agency-owned property when it’s damaged by fire, theft, vandalism, or other covered perils. Policies cover your agency’s physical space, office equipment, furniture, and fixtures up to the coverage limit, minus your deductible.
Note that agency owners who rent can decide to go for commercial property insurance that covers only their offices’ contents. Staffing agencies more or less have minimal property exposures. This, coupled with their comparatively low risk for general liability lawsuits, means most agencies qualify for a business owner’s policy.
Workers’ Compensation Insurance
In the United States, most states mandate workers’ compensation insurance for staffing companies to cover employees’ medical bills and lost wages if they suffer work-related illnesses or injuries. Depending on state law, business owners are expected to acquire coverage or buy it from a state fund when they hire staff. Some states require coverage for even one employee.
Have it in mind that staffing agencies that place workers in permanent positions only have to get workers’ compensation for their in-house employees. Temporary staffing agencies require coverage for both in-house employees and workers they place with clients.
Commercial Crime Insurance
Crime insurance is known to protect against financial and property losses due to illegal activities such as forgery, computer fraud, and theft, whether they are committed by an outside actor or an employee. Most policies protect the funds and property of the policyholder, so temporary staffing agencies need an endorsement for items owned by clients. Situations that may trigger crime insurance include:
- A temporary worker accused of stealing inventory from a retail client
- Your bookkeeper committing check fraud
- A burglar stealing money from your agency
Note that commercial property policies more or less exclude coverage for stolen money or securities, and they also don’t cover employee dishonesty. This makes commercial crime insurance a crucial policy for any business, but most especially for temporary staffing agencies.
Professional Liability Insurance
Professional liability insurance, also known as errors and omissions insurance, safeguards your staffing agency in lawsuits over your professional services. For instance, if a client accuses you of sending an under qualified candidate who then makes errors that cost the client money, professional liability insurance pays for your legal fees.
Have it in mind that some insurers combine professional and general liability coverage in a single policy. This may indeed save money, but owners should review the coverage with an agent to ensure it is sufficient.
Cyber Liability Insurance
Cyber liability insurance protects costs associated with data breaches and cyber attacks, such as client notification, credit monitoring, and legal fees. Also, a good number of agencies have some cyber liability exposures because an employee can accidentally respond to a phishing email. Nonetheless, IT staffing agencies may have the greatest concern.
Commercial Auto Insurance
Note that staffing agencies with business-owned cars most likely need commercial auto insurance. In the United States, most states expect business owners to have at least a minimum amount of liability coverage in case they cause damage and injuries to other people, but owners can also purchase coverage that pays for their damages and injuries. They can also get hired and non-owned auto liability insurance for the vehicles they hire, rent or borrow for business.
Computers & Media Coverage
Computers and media coverage, also called electronic data processing coverage, strives to protect and pay to restore or replace lost digital data when your agency’s computers or network are damaged by certain perils, including theft, vandalism, and malware. Some policies also cover repairs to software and hardware. The commercial property provides limited coverage for these items.
Staffing agencies come in all sizes and serve almost every industry. It is indeed pertinent for an agency owner to identify their risks and partner with insurance professionals who understand the industry to ensure they get the coverage they need for their particular operations. Safety training helps keep your employees safe while also reducing workers’ comp claims and lowering the cost of your staffing insurance.