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4 Things to Watch Out for in Client Terms When Supplying Contractors

on Monday, 13 February 2017.

We are regularly asked to advise on the terms of business provided by hirers for the supply of contractors (temporary workers and independent contractors) by staffing businesses.

Whilst they come in different shapes and sizes, there are some common issues which regularly crop up that staffing businesses should watch out for.

1. Responsibility for work and conduct on site

Hirer terms normally make the staffing business responsible for the contractor's work, deliverables and conduct on site at the hirer's business.

Whilst the relevant contractual clauses can be drafted in a number of different ways, they often appear as warranties under which the staffing business is required to give assurances that the contractor's work will be of satisfactory quality, their deliverables will be free from defects and they will comply with the hirer's policies and procedures.

As the staffing business is not physically on site supervising the contractor's work, deliverables and conduct, it should not accept these responsibilities, as they are outside its control.

 

Further, it is likely that these obligations would not be covered by the staffing business' standard insurance because they fall outside its core function of introducing, supplying and pay-rolling contractors.

2. Transfer fees

It is very common for the transfer fee provisions in hirer terms to be unclear or to be non-compliant with the Conduct of Employment Agencies and Employment Businesses Regulations 2003 which renders them unenforceable.

If they are unenforceable, there is nothing to stop the hirer taking the contractors on as permanent staff (temp-to-perm transfers) or via another agency (temp-to-temp transfers) without paying the staffing business the transfer fee.

The transfer fee provisions are a fundamental part of the commercial deal so it is worth investing time reviewing and negotiating these to make sure they are both commercially acceptable and legally enforceable.

3. Indemnities

Hirer terms often contain very wide indemnities which make the staffing business liable for AWR claims, employment claims and tax claims among others.

It is important to consider each of these indemnities carefully before agreeing to them. For example, whilst a broad AWR indemnity may appear acceptable, it is important that it does not make the staffing business liable for the hirer's own AWR breaches (e.g. failures by the hirer to give the temporary worker access to collective facilities or amenities or access to employment opportunities as required by AWR). Similarly, it is important to make sure broad employment claims indemnities do not make the staffing business liable for the acts of the hirer (e.g. if the hirer's own staff discriminate against the contractor).

4. Liability caps

Hirer terms will often completely exclude the hirer's liability for any breach of the contract between the hirer and the staffing business and will be silent on the staffing business's liability which means the staffing business's liability is uncapped.

If the staffing business accepts such an unbalanced position, it is opening itself up to risk. For example, the hirer may rely on the exclusions to avoid paying a disputed transfer fee. Similarly, the staffing business could be on the hook for a very large claim if something inadvertently goes wrong (which may, depending on the nature of the claim, fall outside the scope of its insurance cover).

What should you do?

The commercial terms agreed by the hirer and staffing business are a fundamental part of the relationship between the parties and it is worth investing time to make sure they strike the right balance between commercial benefit and legal risk.

A well-drafted and balanced contract provides both parties with legal and commercial certainty and significantly reduces the risk of disputes arising in the future.

For more information or advice, please contact Chris Mooney on 020 7665 0916.

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