Suppose you have been reading The Emplawyerologist’s previous posts on issues arising out of co-employment (click here, here , here and here if you have not) and you are now concerned about protecting yourself. You have an idea and you think it just might be the most brilliant one you’ve had in a long time–perhaps ever. You will have contracts with any staffing agencies, contractors, parent or subsidiary companies, and in those contracts you will specify that you are not a co-employer, and that in any event the other company will assume all liability for any damage or costs that can be traced back to that company’s employees (this is also referred to as an indemnification, or “hold harmless” clause). Can you do that? Will it work? What will happen if you try it? You can find out after the jump!
Let’s start with your first idea. Your contracts will specify that you are not the employer or joint employer. Will that work? Probably not. Why is that? Courts generally look at the substance of your relationship with those employees rather than the name you give it. If you act like an employer to a staffing, contractor, parent or subsidiary company’s employees, a court would be likely to rule that you are a joint employer, regardless of what you call yourself or say in your contract. (You know, if it walks like a duck, and talks like a duck….). Bottom line: this type of contractual provision will not enable you to do an end-run around the co-employment principles discussed in the four previous posts.
What are indemnification clauses and how do they work? In general, an indemnification clause is a contractual provision in which one party (or both parties) agree to compensate the other (or each other) for losses that the other incurs and that arise out of the contract. Here is one example of an indemnification or “hold harmless” clause:
Contractor agrees to indemnify and hold harmless Owner of and from any and all claims, demands, losses, causes of action, damage, lawsuits, judgments, including attorneys’ fees and costs, arising out of or relating to the work of Contractor.
What does this mean in plain English? The staffing company, contractor or other company you are contracting with would be on the hook for any costs you incur as a result. Now, I can imagine that at least some of you are thinking, “That sounds great! Why am I imagining the horrible things mentioned in the last four Emplawyerologist posts? I’ll just put this clause in all my contracts!” Well, if you’ve been following this blog for a while, or you are in the field of Employment Law you know it’s not that simple. When is anything ever that simple?
The main problem with such a broadly worded clause is that it would appear to cover costs arising out of circumstances that could have been caused by your own negligence or even intentional misconduct. While that may not be a problem for you, the staffing company/contractor/parent/subsidiary company may not agree to such broad indemnification. (Would you agree to indemnify someone against their own misconduct, whether negligent or willful?) OK, you think. Even if you do manage to find someone willing to agree to such a clause, it may not be enforceable. There are a number of states that do not allow clauses that indemnify a party against their own misconduct (especially if the work involves construction and/or a public entity). Some states limit the prohibition to intentional misconduct. Even those that do allow for such provisions tend to frown upon them and construe them strictly. In other words, one must first check the laws of the state in which one is doing business, and even in those states where such provisions are theoretically enforceable, one may still have a hard time with enforcement.
Assuming that you find yourself in a State that is somewhat more receptive to clauses indemnifying a party against its own misconduct, are you then home-free? The fact that I am asking that question might itself be a hint that the answer is “No” or “Not necessarily”. What’s the problem now? In the context of federal anti-discrimination, family leave or wage and hour laws, the government agencies enforcing those laws often do not care what your contract says—and those laws support their not caring. Under those laws, you can be held both jointly and severally liable for any of the prohibited conduct. (Again, click here , here and here for a review.) At best indemnification might allow you to pursue a separate claim against the other party later. In other words the indemnification clause has bought you the right to bring a lawsuit–complete with all the attendant headaches and legal fees (which you may nor may not be able to recoup, even if your contract says you can be reimbursed for legal fees). Do you really win here? If you factor in the time and resources you have to expend in an effort to recoup your costs, many would answer “No”.
There is one possible exception: If you have another company’s employees on your premises who cause property damage and you require the other company to have general liability insurance that names you as an additional insured, then, depending on the wording of the insurance policy, and your contract with the other company, and, of course the specific facts, you may be able to get payment toward your costs from the insurance company. A proper discussion of that topic is beyond the scope of this post, however. As always, you should speak with competent local counsel before you come to any conclusions on this point..
So, how much protection will indemnification clauses provide against co-employment liability? The jury may still be out on this one. Companies using workers provided by staffing agencies, contractors, parent or subsidiary companies can still save themselves more liability, money — and grief– in the long run by paying attention to the potential pitfalls and using similar if not the same precautions they would (or should) use with respect to their own direct employees.
What about benefits? Can you end up being responsible for providing benefits to temps or to contractors’ employees? If yes, can you insulate yourself from such responsibilities? Join The Emplawyerologist next week and you will find out!
Disclaimer: This post’s contents are for informational purposes only, are not legal advice and do not create an attorney-client relationship. Always consult with competent local employment counsel on any issues discussed here.
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