Most employers recognize that there are situations in which they might be liable to their employees. For example, employees may bring claims against an employer for wrongful termination. If an employee is injured on the job, he or she may have a claim arising from such injuries. Employers often have a blind spot, however, when it comes to leased or temporary workers.
Employers commonly fail to recognize that they may be liable to leased or temporary workers in certain situations. Employers may also be unaware that their insurance policies might specifically exclude such workers from the scope of coverage. As a result, employers sometimes find themselves with no choice but to come out of pocket to resolve claims brought by leased or temporary workers.
There are specific steps an employer can take to protect itself from liability to leased or temporary workers. First, an employer should make sure that its written agreement with the leasing or staffing agency that is providing the leased or temporary workers includes an indemnification provision. Such a provision requires the leasing or staffing agency to indemnify the employer and hold it harmless for any claims brought by a leased or temporary worker.
Employers must also address the issue of insurance. Most commercial general liability (“CGL”) insurance policies contain an exclusion for bodily injuries to an employee of the insured company arising out of and in the course of employment. The term “employee” as used in the exclusion in the CGL policy typically includes leased or temporary workers. That means that your CGL insurance policy would not provide liability insurance coverage if your company is sued by a leased or temporary worker who was injured on the job.
To avoid this situation, an employer can request that the leasing or staffing agency include an Alternate Employer Endorsement on a Workers’ Compensation and Employer’s Liability Policy where your company is specifically scheduled as an alternate employer that is covered by the policy. An employer can also contact its own insurance broker about purchasing certain endorsements that can extend coverage for leased or temporary workers. One option is adding an endorsement to your company’s CGL policy which is typically known as Coverage for Injury to Leased Workers, which means that for purposes of the CGL policy, the term “employee” does include a leased or temporary worker and the exclusion would not apply to bar liability coverage.
The same precautions should be taken with respect to employment practices liability insurance (“EPLI”). EPLI typically provides coverage for claims asserted against an employer by an employee for, among other things, wrongful termination, discrimination, harassment and wage and hour violations. As in the case of CGL, employers may request to be named an additional insured on the EPLI policy of the leasing or staffing agency from which they hire leased or temporary employees. An employer can also speak to its own insurance broker about whether its EPLI policy covers leased or temporary workers, or if such coverage can be added through the purchase of a rider.
What happens if a temporary or leased employee sues an employer but none of the recommended precautions have been taken? There are still defenses the employer may assert in a lawsuit.
In New York, workers’ compensation benefits are the exclusive remedy for an injured employee. This means that, if an employee injured in the course of employment receives workers’ compensation benefits, the injured employee cannot sue his or her employer for damages. Under the New York Workers’ Compensation Law, a person may be deemed to have more than one employer — a general employer and a special employer. A “special employee” is a person who is transferred for a limited time to the service of another. Principal factors for determining a special employment status include who has the right to control the employee’s work, who is responsible for the payment of wages and the furnishing of equipment, who has the right to discharge the employee and whether the work being performed is in furtherance of the special employer’s or the general employer’s business. The most significant factor is who controls and directs the manner, details, and ultimate result of the employee’s work. Therefore, the receipt of workers’ compensation benefits from a general employer (e.g., a leasing or staffing company) precludes an employee from commencing a negligence action against a company who qualifies as a special employer of that injured leased or temporary worker.
With regard to claims of wrongful termination, discrimination and harassment, the law recognizes the “joint employer” doctrine, pursuant to which it is possible that a staffing or leasing agency and the company using the agency’s services might both be considered employers of the leased or temporary worker. The United States Department of Labor recently enacted regulations governing the determination of who qualifies as a joint employer, which will be the subject of a separate blog post in the near future.
In sum, it is important for employers to anticipate their potential exposure to liability when utilizing leased or temporary workers. By taking the time to consult attorneys and insurance professionals, an employer can greatly reduce that exposure.