FROM MAY 2015'S RECRUITER MAGAZINE

Hirers are increasingly insisting that recruiters sign contracts holding them responsible for damage, injury or theft by temps, so recruiters need to ensure their insurance is appropriate and watertight to protect their income, warns Colin Cottell.

Checking the fine print of terms of business with a client can seem a long way from the pursuit of the bottom line for recruitment agencies. However, if a temporary worker supplied by a recruitment agency damages a client’s property while on an assignment, it is exactly that lack of attention to detail that could come back to haunt them and threaten the agency’s finances and even its survival. 

Insurance experts specialising in the staffing sector are warning of an increasing trend for recruiters to sign contracts with clients that do just that, however. 

Peter Stoll, director of the recruitment division at insurance brokers Jelf Manson, says recruiters are at risk because hirers are increasingly rejecting the standard Recruitment & Employment Confederation (REC) model terms and conditions (T&Cs) under which “the recruiter accepts no responsibility for the negligent acts, errors or omissions of the workers supplied”. 

In place of these standard contracts, Stoll says more and more recruiters are being pushed into signing clients’ own non-standard contracts: “Hirers say: ‘Look, I don’t like your terms and conditions, these are ours, sign up to them or you don’t do any business with us’.” 

In agreeing to sign up to such terms, Stoll explains, recruiters typically agree to indemnify the hirer against any costs they incur as a result of a claim made against the hirer. It may seem incongruous and even unfair that a staffing company perhaps hundreds of miles way is held responsible for the actions of a worker just because it supplied that worker but, according to insurers, that is exactly the legal position. 

“Legally, they are the contracting party with the client, and the client makes them responsible… If the hirer is sued, they want to pass it straight back down the line,” says Guy Cliffin, independent insurance expert specialising in the staffing sector.

Signing up to these terms is understandable, says Cliffin. “Agencies are under pressure from their sales people — ‘Look, we have won a great new contract, why don’t you sign it now and we can make loads of money?’” Cliffin and other insurance experts warn that such an approach can backfire on recruiters, potentially exposing their business to significant financial risk. 

“The danger is that the recruiter accepts the terms and conditions without referring them up the line, creating a situation where the recruiter becomes responsible,” says Stoll. “If they start supplying under hirers’ terms, you could find that the policy is inadequate and therefore they are exposed to potentially very large claims that could damage the business. Sometimes, they could be refused because recruiters are signing more onerous terms.” 

Faced with this situation, Cliffin says it is vital that recruiters check that their insurance is “watertight to pick up those liabilities”. 

A further complication, says Stoll, is that “some insurance policies have T&Cs that say all business must be done using the REC model T&Cs unless agreed with the policy underwriter, so there is an obligation to tell us that you are accepting the hirer’s T&Cs”. 

Tom Hadley, director of policy at the REC, adds: “Any financial incentive for agreeing to these [non-standard] terms could be outweighed by the potential for losses further down the line. If recruiters accept liability for damage or theft by temp workers while they are on the client’s property, the agency will need to ensure that it has adequate insurance in place to reduce its exposure.”

Cliffin says potential claims against an agency can be huge, citing a figure of £10m or more to meet fines imposed by the Information Commissioner’s Office (ICO). Under a standard indemnity clause, a bank fined by the ICO could attempt to pass responsibility to the agency should an IT contractor supplied by the agency lose customer data, for example.

The trend for pushing recruiters into signing these non-standard contracts has been rising over the past four years, says Stoll. “It is being driven by hirers wanting to keep their own insurance costs more under control and trying to make recruiters more responsible for the actions of the workers supplied,” he says.

Stoll says that smaller agencies are particularly susceptible to this pressure. “They don’t have the wherewithal, the legal training or the background to negotiate with end clients,” he says. In contrast, “bigger recruiters have got a little bit more say because many have legal teams that negotiate contracts and try to get more onerous T&Cs removed”, he adds.

Another consequence, warns Stoll, is that the more business is done under the hirers’ terms, the higher the recruiter’s insurance premiums. This, in turn, eats into their margins. “The recruiter has to decide: ‘Are we making enough of a margin, or are we just buying turnover? Do we genuinely have the guts to walk away?’,” he says. 

Stoll adds that premiums are likely to be particularly high where recruiters are supplying manual workers to sectors such as oil & gas and construction, where recruiters are generally responsible for the workers’ insurance.

Recruiters should increasingly expect battles with hirers over insurance, says Cliffin. 

At the same time as some hirers are pushing for agencies to have unlimited liability for claims made against employers, “agencies want to limit their exposure to any claim, usually to £5m, through a limitation of loss indemnity clause [which caps the amount paid]”, he says by way of example. “The client is saying: ‘If we get fined £20m, we want to come after you for £20m’. Recruiters are exposing their balance sheets.” 

Cyber insurance, which covers data loss, for example, is another area of growing contention, says Cliffin, with more and more hirers insisting that agencies have it. This is “ridiculous” and unnecessary, says Cliffin, who argues that end users already have the option to pass the financial liability on to the agency through a standard indemnity clause. 

Claims arising from employment-type disputes, for example, where an agency worker is discriminated against and brings an action against the client, who says ‘fine, any legal cost we incur we will pass back to the agency’, are also on the rise, he says. “This is totally unreasonable, but it is what clients are insisting on. If they want the business, they will sign up to it,” says Cliffin. 

Faced with growing pressure to sign contracts containing more and more onerous conditions, Rob Adams, development director at Dallas Kirkland Recruitinsure, which is part of Pen Underwriting, urges recruiters to “push back and insist on the use of your standard terms — as that will afford you the best protection”.

Adams explains: “In any claim, what needs to be established is who had direction, control and supervision when the accident occurred. This is normally clear cut where an agency is supplying labour under their standard terms of business, which makes the hirer fully aware of what their responsibilities are for directing, controlling and supervising temporary workers. Those words [direction, control and supervision] are fairly powerful in this market.” Some contracts also specify that the hirer is responsible for health & safety, adds Stoll.

Stoll says that recruiters in some sectors are being asked to sign contracts that are even more onerous than the non-standard ones. For example, in the IT sector in many cases, “the hirer is not only expecting the recruiter to deliver people but also an end product or a project deliverable”. 

Stoll says this could lead to a claim for breach of contract. “Recruiters can find themselves with the wrong type of insurance, or insurance that doesn’t go far enough to cover the additional risk of this consultancy-type activity,” he warns.

Hirers are exercising their influence in other ways too. “Some require that contractors, particularly those who work through their own personal service companies [PSCs], have their own separate insurance,” says Stoll. Indeed, he says this can be a condition for getting the client’s business. 

“The risk to the recruiter is whether they bother to check that the individual has the right policy, indemnity and exclusions, and paid the premium. If they rely on the PSC buying their own cover, and don’t check, they could find themselves having to deal with a claim from the hirer,” says Stoll. 

“We always warn our recruitment clients ‘your name is on the contract to supply that worker’,” Stoll continues. “And therefore in the first instance the hirer is going to come after you, and you are either going to have to deal with the claim or be very confident that your contract worker has bought the appropriate cover.”

Cliffin adds that not only are clients insisting that contractors are insured separately but also that they are auditing their agencies. “They are saying ‘of your list of 35 contractors, we want evidence that you know they are insured’.” This is a particular feature of the pharmaceutical market and it is spreading into IT, says Cliffin. “Clients want to make sure there is insurance behind the person at the end of the chain who made the mistake.”

Key advice

Push back against clients who ask you to sign non-standard contracts and insist on standard terms and conditions, engaging the help of your insurance broker if necessary

If you are asked to sign non-standard terms, always check with your insurance broker to ensure that you have insurance cover that will meet any legal liability