If a company hires an agent to recruit, supply, screen and pay an employee, and the employee harms someone in the course of that employment, which “employer” should be responsible? At common law, a borrowed servant became the sole responsibility of his or her temporary master who thereafter assumed vicarious liability for all acts of the servant undertaken in the course of his or her employment. Today, as staffing agencies enjoy ever increasing popularity in white collar and other service industries that fall beyond the protection of workers compensation laws, these erstwhile simple questions of who retained control over the borrowed servant, or “special employee,” have been complicated by plaintiffs’ attorneys who may now see two deep pockets for every injury.

The black letter rules are still as simple as they were 100 years ago: the employer who directs and retains control over the offending employee should bear liability. However, there is an increasing trend to rely wholly on staffing agencies to not only refer, but to also recruit, screen and actually pay employees. In what could rise to a principal-agent relationship between the hiring company and staffing agency, the plaintiffs’ bar has found fertile ground to sow seeds of fact to keep as many defendants in the case as long as possible.

A few simple steps can be taken to protect companies seeking to outsource human resources.

First, standardize your contracts to place affirmative duties on the staffing agency. At a minimum, the agency should agree to defend and indemnify the company for any and all acts of the special employee and the acts or omissions of the staffing agency in properly screening the employee.

Second, require the staffing agency to name the company as an additional insured under the appropriate policies, enumerate the required limits and demand the right to endorse those policies before the job starts. These policies may include CGL, automobile liability, employers’ liability and workers compensation to name a few. It is important to remember that where workers compensation benefits apply, both the company and the staffing agency can be protected by the exclusivity of the statutory remedy.

Third, require the staffing agency to conduct background investigations on all candidates and certify, preferably by boilerplate referral form, that no adverse information was revealed. It is important to note that if the company requires the results of the background investigation be furnished, it may be creating a duty to inspect them. In some cases, a better precautionary measure is to simply run a background check for sensitive positions -- the standard for negligence is as low as “should have known”.

Finally, because “control” over employees remains a central factor in liability analysis, particularly where workers compensation laws are at issue, it is important not to overly complicate the contract. For example, a non-standardized contract that delineates which employer has control over which aspects of the employee’s job, training or work-site could actually create questions of facts regarding control that a clever attorney could use to preclude dismissal. A simple rule is that if it doesn’t need to be in the contract, don’t put it there. Not only will these clauses aid in clarifying liability for courts and attorneys, they will also discourage third-party actions between staffing agencies and companies by imposing additional contractual liability on the staffing agency that tries pass the buck. Whether you are sued by an injured plaintiff or your former business partner, the high costs of litigation are the same.

Please contact Matt for assistance or to discuss this issue - (212)699-4538 or Matthew Bryant.