Indemnification Issues for Staffing Firms

During contract negotiations with new or existing clients, staffing firms often overlook an important provision: the indemnification/defense/hold harmless clause (hereinafter collectively “indemnification clause”). An indemnification clause allocates the risk of loss for events that may occur in the future. Although this clause can be an afterthought during contract negotiations, when a claim is brought, the first question asked is whether the contract requires the staffing firm to indemnify the client.

Here are some of the questions that a staffing firm should ask when reviewing a proposed indemnification provision:

  • When does the indemnification obligation arise?

An indemnification obligation may be triggered by various events. For example, some contracts require a staffing firm to indemnify its client when a demand is made or a claim is filed. Others impose this obligation only when a judgment is entered against the client.

  • What type of conduct triggers the indemnification obligation?

Clients of staffing firm generally benefit from broad and ambiguous language in indemnification provisions. Accordingly, they want the indemnification clause to contain language such as “any and all” and “including but not limited to.” In contrast, staffing firms generally benefit from narrow and specific language in the indemnification clause. They attempt to limit their liability by using phrases such as “directly related” and “intentional.”

  • What is the staffing firm’s obligation?

A staffing firm’s obligations under this clause frequently include some combination of indemnification, defense, and holding the client harmless. An “indemnification” provision requires the staffing firm to pay the client’s expenses, which could include its attorney’s fees and any damages resulting from the claim. A “defense” provision requires the staffing firm to provide the client’s defense to a claim, which typically allows the staffing firm to control strategic decisions. A “hold harmless” provision prohibits the staffing firm from filing a claim or otherwise seeking damages from the client. Clients often seek to impose all three of these obligations on staffing firms. Less often, clients require the staffing firm to carry insurance covering certain claims against the client.

  • Does the indemnification clause impose any contingencies?

Indemnification clauses may include contingencies that the client must satisfy to trigger the staffing firm’s obligation. For example, one common contingency is that the client must provide the staffing firm with notice or cooperate with the defense of a claim. These contingencies are important safeguards for staffing firms.

  • Is the indemnification provision negotiable?

During contract negotiations, clients and prospective clients often present the indemnification provision in the form of a “take it or leave it” ultimatum. Staffing firms, however, should review the issues outlined above and be prepared to negotiate this term if necessary. For example, at a minimum, staffing firms should seek to limit the scope of any such clause to expenses resulting from the service they provide. This limitation prevents staffing firms from being obligated to indemnify clients for expenses resulting from the actions of the clients’ own employees.

In conclusion, the indemnification provision is often an afterthought during contract negotiations. Staffing firms should carefully review any proposed indemnification clause, however, and be prepared to negotiate this term if necessary.

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