Recruitment Agencies Contracts Guide

As a specialist broker for the recruitment industry, a common concern of our clients’ is their Terms of Business and understanding what they may be liable for when agreeing to a third parties employment contract.  Below is a brief guide designed to help assist you when reviewing any contracts that are looking to use, either as your own standard template for your own Terms of Business or where you are being asked to agree your clients contract terms.

Contract Terms

The contract terms agreed between two parties (The Hirer and The Employment Business) defines the services to be provided, the responsibilities of both parties, and the risk that they will both accept under the contract.

The contract terms agreed by a recruitment agency for the supply of a temporary worker can vary, but should reflect the activities defined by UK legislation, namely the Employment Agencies Act 1973 which states that an “Employment Business” is an organisation who provides a worker who will be under the day to day control of the hirer.

This is known as the “control” principle which states that a person who controls another will be responsible for them, as if they are an employee. This includes activities undertaken by the employee (vicarious liability) and their health and wellbeing. It also means that appropriate insurance needs to be arranged by the hirer (or in some circumstances the recruitment agency), namely Employers and Public Liability. This principle does not always apply where a self employed person has their own business, so long as they control when they work, how they work and take responsibility for the work undertaken.

We understand how employment has changed in the UK, and how recruitment consultants need to be flexible in what they do to accommodate the ever-growing demand. We can tailor insurance policies to fit your needs and comply with your clients’ contracts, the most common being:

• Supply of workers directly engaged by yourself
• Supply of temporary workers engaged as a PAYE worker
• Supply of temporary workers who are engaged as self employed or limited company contractors

A recruitment agency will have the option to supply workers either under their own Terms of Business or under a client’s contract, which is known as a non standard contract. Clarke Williams would always recommend that a copy of any non standard terms of business be sent to your insurer or broker to make sure that the recruitment business has not agreed to take more responsibility then what their current insurance may indemnify them for. It would also be recommended that legal advice be sought to make sure that the recruitment agency understands their responsibilities and is happy with the terms that they are agreeing to.

Contract disputes are increasingly becoming the most common circumstance giving rise to a claim under Professional Indemnity insurance, and as such it is important to have a clear outline of the roles and responsibilities for each party. Associations such as ARC and the REC, can provide terms of business agreements for standard contracts.

A recruitment agency should always strive to use their own terms of business as a matter of course, provided that the contract transfer responsibility to the hirer and clearly states their responsibilities in respect of direction, supervision and control, health and safety and liability insurance. A contract including clauses that cover these areas will ensure that the liabilities or each party are clear and suitable for the services being provided.

Should an agency supply temporary PAYE workers or those under a contract of employment, then responsibility should rest with the hirer and they will be required to hold adequate Public and Employers’ Liability Insurance.  However if the recruitment agency is supplying self employed or limited entity contractors then the responsibilities for these individuals can vary.

For instance should the contractor be deemed a business in their own right and control when they work, who they work for, how they work and take responsibility for the activities undertaken, then they should have their own liability and indemnity insurance in place to cover their services.

A recruitment agency that provides permanent or temporary employees on standard contracts will have a reduced risk of being found liable for a worker supplied, and as such this will be reflected in their insurance premium.

However a recruitment agency will still have certain obligations, for instance undertaking adequate checks on prospective workers, advising on health & safety, compliance of regulation such as the Workers Time Directive and providing appropriate training or PPE where required by the hirer.

We would always recommend that a recruitment agency hold the following insurances:

• Public Liability
• Employers Liability
• Professional Indemnity
• Legal Expenses
• Directors and Officers

Non Standard Agency Contracts

Over 90% of business use a recruitment or employment agency, and at any one time there are more than a £1,000,000 agency workers employed in temporary roles across various sectors such as construction, haulage or financial services. The industry has grown considerably in recent years and with that comes increased competition and added pressures. We understand that in order secure a contract a recruitment agency may need to accept non standard contracts.

The responsibilities in respect of direction, supervision and control, health and safety and liability insurance should be clearly stated. If they are not then the recruitment agency should consider if they are responsible for the employees supplied, the works undertaken and the liabilities.

Below is brief outline of clauses to review when signing a non standard contact:

• The Services – is the recruitment agency being engaged as an Employment Business or for a specific service or contract. If it is the latter the recruitment agency could be responsible for delivery of the project under contract, and as a result their current insurance arrangements may not provide adequate cover for the activities being undertaken.

• Act, Errors or Omissions – has the recruitment agency bene made responsible for acts of the workers supplied regardless of suitability. Vicarious Liability refers to a situation where someone, possibly an employer, is held responsible for the actions or omissions of another person. In the work place, many employers or recruitment agencies are unaware that they can be liable for a range of actions committed by their employees or placements during their employment. These can include harassment, violence acts, theft of company property or even breach of copyright. Vicarious Liability will generally be excluded from the Professional Indemnity, Public Liability and Employers Liability sections of an insurance policy but we have access to several specialist markets that can provide this cover within their wordings.

Depending on your clients’ contracts, you may also be required to cover the actions of any temporary placements. Typically, Vicarious Liability is required for contracts within construction, domiciliary care or medical industries, where the employment status of a placement can become complicated. If you think that you need this type of extension, insurers will most likely need to see a copy of your contracts to see what you are, and are not potentially liable for.

• Direction, Supervision and Control – Should the recruitment agency be made responsible for the Direction, Supervision and Control of the worker supplied they will be deemed to be the employer. This will most likely mean that they are “vicariously liable ” for the acts of the worker and their well being. It is also important to be aware that the recruitment agency will need to make their insurer aware of the activities undertaken by the workers under this type of control as their insurance policy will need to provide cover for the activities being undertaken.

• Limits of Indemnity – the contract will usually state what cover and limits the agency should hold with regards to Public Liability, Employers Liability and Professional Indemnity.

• Indemnity to principal clause – requires the agency to ensure that their insurance policy extends liability coverage to a principal if he is sued as a result of another person’s actions.

• Waiver of Subrogation – in the simplest of terms, is when an insured party agrees to have the insurer cover the losses incurred by a third party. The insurer then losses the right to recover those losses from the third party responsible for the loss for a paid claim. Not a popular clause with many insurers!

If you require assistance with the arrangement of your insurance speak to one of our advisors. Our account managers will arrange Professional Indemnity and Liability policies at a competitive price with comprehensive wordings, which are acceptable to your clients or Professional Body.

Here are a few of examples of specialist fields within the recruitment industry that we have helped provide business insurance for:

Driving agencies
With a shortage of HGV and LGV drivers, there is a constant demand for supply of professional drivers from logistics and haulage companies. Most contracts will usually state that the agency is required to hold Drivers Negligence Insurance, which covers the agency against any own vehicle damage sustained by the temporary drivers they supply. Our policies can be arranged for agencies providing 20 drivers to 200 plus at any one time. Generally, this cover is only available for agencies supplying LGV or HGV drivers, however we do have markets that can provide cover for freelance drivers. The limits available for this range from £5,000 to £15,000 and we can accommodate young or inexperienced drivers. If you have a driving desk and want to talk about your renewal, give us a call.

Domiciliary Care Agencies
With an aging population, the need for domiciliary carers and care homes is ever increasing. Unfortunately, it’s not uncommon to hear in the news of an individual providing incorrect care, which is why it’s important that your business is covered for any allegations of wrong doing by a temporary agency carer supplied to one of your clients. A Professional Indemnity and Liability insurance policy will cover any potential compensation to third parties, but, more importantly your legal costs in defending any action. Our insurance policies can be arranged to cover high contractual liability limits required by local authorities or private trusts, as well as the option to include cover for liability arising from the overseeing and taking of prescription and non-prescription drugs.

Industrial and Construction Agencies
Sometimes skilled labour can be hard to come by, especially when it may only be required for a specific contract or a limited amount of time. From the supply of construction workers to machine operators and baggage handlers, we’ve helped clients get the right cover for their agency. Employments agencies that supply labour in the industrial and construction industries can be exposed to more than they realise, especially when they may not consider recruitment to be that high risk! Depending on your contracts you may need to be covered for more than just vicarious liability, such as contractual liability, indemnity to principal, offshore activities or even the use of heat!

Medical and Nursing Agencies
Specialist agencies will almost certainly require some form of specialist cover. Clarke Williams has worked with recruiters in the medical sector, who provide locums, consultants and nurses giving us a unique understanding of the risks involved when placing staff within this industry. We can provide indemnity and liability insurance packages that can even be tailored to include full Medical Malpractice insurance or on a contingent basis for peace of mind. Medical Malpractice insurance is designed to provide cover for bodily injury, mental injury, illness, disease or death arising from incorrect treatment or misdiagnosis. It would normally be purchased by a private practice or independent consultants. However, we have helped recruitment agencies arrange the cover where there is an exposure.

Although Clarke Williams specialise in the recruitment industry we are not legal professionals, and we would always recommend that you consult your preferred legal professional for their opinion on any contract that you enter into. We do not accept any liability for any loss incurred, or suffered by you or your client as a result of you relying on our comments as legal advise.

This information was provided by Aqmen Underwriting Limited, one of Clarke Williams ltd specialist recruitment providers.