Indemnity Provisions in Staffing Contracts

Indemnity issues in the context of staffing contracts can be summed up in three little words: 

DON’T DO IT!!!

Every one repeat after me – “DON’T DO IT!”  And again -- “DON’T DO IT!”  Excellent!!!  Now let me explain why.

    Most staffing clients will present a staffing company with the same written agreement that it provides to all of their other contractors.  In effect they are asking the staffing company to sign the same kind of contract that they would ask their roofing company or their tech company or their waste management company to sign. These contracts almost always contain a series of indemnity provisions that requires the contractor to indemnify the client for any liability related to the work being performed by the contractor.  This makes sense because it is the contractor who controls the work and the outcome.  But staffing clients tend to forget one little detail – staffing companies don’t control the work – the client does!

    What is the job of the staffing company?  To recruit and place qualified temporary employees that meet the high standards of training and experience expected by their clients.  But when a medical staffing company places an ICU nurse at a hospital, they certainly aren’t going to tell him when to administer medicines or how to run a Code Blue.  When a labor hall sends a crew out to a construction site, they’re not going to tell them where to dig the ditches to install the plumbing.  When a skilled labor company sends a welder out to a manufacturing plant, they aren’t going to tell him which boiler to patch.  This is the job of the client.

    Nevertheless, staffing clients still insist on having the staffing company assume responsibility for work over which it has no knowledge, control, or financial interest.  Staffing clients will commonly ask to be included as an additional insured on the staffing company’s commercial general liability policy.  They will also quite often ask to be included on the staffing company’s automobile liability policy for their own vehicles.  When your company is presented one of these contracts – DON’T DO IT!!!

    A staffing company should have its own master service contract specifically designed for the services it provides, namely, the recruitment and placement of qualified temporary employees.  The American Staffing Association has put out some general form contracts designed for the staffing industry.  These are a good starting point, but every staffing company is unique and every staffing client is unique and a contract that addresses the specific indemnity needs for each client is the best way to go.

    If your company has been faced with confusing or conflicting demands for indemnity from one of your clients I would like to hear about it so that I can address it in the future.  The following related issues will be addressed in up-coming blog posts:

“How To Get The Client To Sign YOUR Contract”

and

"Is Your Insurance Broker Your Guardian Angel?  Why Not?"

Can’t We All Just Get Along?  --  The Skinny on Non-Competes

About once a month I get a phone call from a staffing client, let’s call them Extremely Reasonable Staffing Agency (ERSA), who is up in arms because their top recruiter or their Sales Manager (we’ll call him, Murphy) has flown the coop and perched at the nearest competitors office. 

“They are going to steal all of our clients unless we get a restraining order!!!!” 

At that point we pause to examine our options. 

Plan A:  Aforementioned, phone answering attorney, proceeds to burn the midnight oil, drafting a law suit against Murphy, documenting all of the trade secrets and client accounts he has been given access to.  Then Mr. Attorney proceeds to formulate legal arguments on why the non-compete agreement Murphy signed when he went to work for ERSA should be enforced by Judge Ratchett, who hates those things anyway.  Then Mr. Attorney moves on to draft affidavits and coordinate meetings with ERSA and the paralegal the next morning so that it can all be signed in front of a notary.  The morning dash to the courthouse results in a long wait in the lawyers lounge for Judge Ratchett to read ERSA’s application; and/or coming back at 2:00 p.m. because the case in front of us took three-and-a-half hours and the Judge wants to eat some lunch.  Perhaps Judge Ratchett is in a good mood after lunch and we get an ex parte temporary restraining (TRO) order signed.  Upon that victory, the order must be walked down to the court clerk so that we can get expedited citations issued.  Mr. Attorney then, refreshed by afternoon coffee, hires the best process server to serve Murphy (at his highest emergency rate).  Over the next several days, Mr. Attorney attends several other hearings during which Murphy’s attorney (he had to hire one since he was served, usually paid for by his new employer) asks Judge Ratchett to dissolve the TRO.  The action culminates by spending hours preparing for the evidentiary Temporary Injunction hearing that Judge Rachett set for hearing fourteen days later.

OR…………

Plan B:  I pick up the phone and have the following conversation with the Owner of Shifty Staffing Company (we’ll just call him Dale):

Me:      Hi, Dale, this is Mr. Attorney, David Anderson.  I represent ERSA.  I’m calling because I understand you recently hired one of their Sales Managers, Murphy, who is under a non-compete.

Dale:  *stammer, stutter, murmur* Uh, yeah.  What do you want?

Me:      Well, rather than spend the upwards of $15,000.00 in legal fees it would take to get a Temporary Injunction against Murphy and sue your company for tortious interference with a contract, we’d like to see if we can work something out.

Dale:   What do you have in mind?

Me:      Don’t call on our clients.

Dale:   Come again?

Me:      Dale, just don’t call our clients during the duration of the non-compete.  Look, there is plenty of business out there for people who are willing to go get it. We think people like Murphy should be able to work for a living.  We just don’t want you using Murphy to steal the clients we helped him develop.  We want you to honor his agreement not to compete with us, at least to that extent.  What do you say, Dale?

I have had this conversation numerous times.  It has saved tens of thousands of dollars in unnecessary legal fees and spared folks the seemingly endless aggravation that comes with litigation.  With few exceptions, these phone calls dealt with lower level and mid-management employees who were subject to the non-compete.  While there are certain times when you have to pull the trigger with both barrels (usually involving long-tenured upper level employees), most of the time you are better off just getting along.  Giving Dale the chance to do the right thing up front just makes sense.  Sometimes Dale will surprise you.

One other thing.  I have never made that phone call to a staffing agency who is a member of the Texas Association of Staffing who did not step up and honor the non-compete agreement.  TAS members know how to get along.  We need to get the rest of the staffing companies in Texas to follow suit.