When times are very busy or very slow, the use of a temporary worker provided by a staffing service may be attractive to a business that does not want to employ someone full time, or that simply cannot find someone to do the work. In either case, consider the potential risks should the worker be injured or cause property damage and/or bodily injury to a third party.
Recently, a client asked us to review a contract that they had signed with a national staffing company that was to provide them with a temporary worker. They asked us whether or not it was wise to proceed. To provide the answer, the following items were reviewed:
- The Staffing Company Contract (other staffing company contracts may differ)
- Massachusetts Law Chapter 149
- The client’s Insurance Policies
- General Liability (GL)
- Commercial Auto
- Workers Compensation (WC),
- Employment Practices Liability Insurance (EPLI)
in Section Five of the contract, it stated that our client (OC) agreed to provide GL coverage for the staffing company and its workers (bodily injury or property damage.) This means OC’s GL policy was to cover the actions of the temporary worker while in the employment of OC. Would it? Section II of a standard GL policy defines who is an “insured.” Specifically, section II 2. (2)a states “employees” are considered “insureds.” However the GL policy then defines “employee.” Section V 5 of the GL contract states “employees” include a “Leased Worker” but not a “Temporary Worker.” The “Leased Worker” definition also states that a “Leased Worker” does not include “Temporary Workers.” The definition of “Temporary Worker” in the policy is “a person who is furnished to you to substitute for a permanent employee on leave or to meet seasonal or short term workload conditions.” This does not bode well for OC being covered for the workers actions.
In contrast is Chapter 149: Section 148B of Massachusetts General Law which states that “For the purpose of this chapter and chapter 151, an individual performing any service, except as authorized under this chapter, shall be considered to be an employee under those chapters unless (1) the individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and (2) the service is performed outside the usual course of the business of the employer; and, (3) the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed. So under Massachusetts law, the worker is an employee. Now you have a situation where the insurance policy says one thing, Massachusetts’s law says another, creating an insurance coverage vacuum for a business that uses temporary workers.
What if the temporary worker caused a fire that burned a customer’s building to the ground? The assumption is that the GL insurer would deny the claim on the basis that the worker was not an employee, and simply another contractor on site. At the same time, the staffing company would cite the provision in the contract where OC would be responsible for the worker’s actions. The end result is that OC would be left standing in between Massachusetts law, the contract, and the insurance policy trying to determine if they had insurance coverage.
In Section Seven of the contract, (Limitation of Services) it stated that the worker could not operate a motor vehicle. Auto policies in general state that the policy will defend as an “insured” anyone driving the vehicle with your permission. If a temporary worker was involved in an accident with OC’s vehicle or their own during business hours, the auto coverage clause in the contract would present a problem.
As for Workers Compensation (WC), Section Two in the staffing contract stated that the staffing company would provide WC coverage for the worker’s injuries and lost wages. However, if the worker was injured and the staffing company’s WC carrier paid for the loss, their insurance carrier would most likely subrogate against OC for reimbursement. The problem here is that the contract did not include a waiver of this right for OC. As a result, the staffing company’s workers compensation carrier would then probably file suit against OC’s GL policy, which of course would be subject to the problems already outlined above.
The contract made no mention of employment related issues (sexual harassment, etc). OC does not carry Employment Practices Liability Insurance(EPL), which already presents an unaddressed risk exposure. EPL policies are not standardized, so the specific terms & conditions for the particular insurer would dictate what would be covered or not covered. The policy would need to be endorsed to have 3rd party coverage if temporary workers were not considered to be employees under the policy terms & conditions. In any case, this is another potential problem born out of the engagement with the staffing firm.
The staffing contract also had OC name the staffing company as an Additional Insured, and required OC to indemnify, hold harmless and agree to defend the staffing company. In addition, the contract required the owner of OC initial each and every paragraph. The sole purpose of this contract was to protect the staffing company to the highest degree, at the expense of OC.
The lure of temporary staffing is quick and qualified help, and the perception of no strings attached staffing arrangements. However, the above review shows there are in fact many strings attached, some of which may form a proverbial noose. In the case of an injury to a temporary worker, or property damage/bodily injury to a third party caused by the temporary worker, a business could be left unprotected in a very difficult situation. When utilizing the services of a temporary staffing service, employers should consider long-term engagements (one year or more) that satisfy the definition of a leased worker under the standard general liability policy, or ensure that the staffing firm retains the liability for their employees. In any case, any business utilizing the services of a staffing firm should have all contracts reviewed by an attorney to identify legal pitfalls. Furthermore, the contracts should also be reviewed by their insurance agent to ensure compatibility with general liability and workers compensation insuring agreements.
Christopher F. Hawthorne CPCU, CRIS, CIC, LIA
IMPORTANT NOTICE: The information presented here is for informational purposes only and should not be relied on as legal advice. No one should act or refrain from acting on the basis of the information provided but should instead seek the appropriate legal advice on the particular facts and circumstances at issue from a properly licensed attorney.