More and more recruiters are finding themselves forced to sign up to contracts for recruitment services that have been drafted by hirers, often including wide-reaching and sometimes onerous indemnities. With the AWR rights in force, the trend is likely to continue and indemnities are likely to become all the more risky. But not all recruiters are aware of what they are signing up to.
What is an indemnity?
An indemnity is a promise by one party to protect the other against loss. In practice there may have been no breach of contract or any fault by the liable party, and indeed the losses may have been caused by the actions of the party seeking the benefit of the indemnity.
The underlying principle is an obligation to restore the indemnified party to the position that they would have been in had no losses been incurred, so there is no punitive element. However, agreeing to indemnify does of course carry risk.
What to look out for:
“Currently, hirers are keen to request an indemnity for any losses that arise in connection with the AWR,” explains Will Morris of Lawspeed. “Whilst there is a lot that a recruiter can do to help minimise AWR risk, hirers may nevertheless trigger liability all by themselves. It may seem unfair that liability would be passed on to the recruiter in such cases, and so they may want to amend a contract that would have this effect. The day 1 rights must be provided by the hirer, so why should the agency give an indemnity?
“Similarly, sometimes an indemnity can relate to the services to be performed by the contractor or temp, rather than the recruitment services. Again this is undesirable for a recruiter, as it creates exposure to losses that are outside of their control. Recruiters may find that insurances do not provide cover for losses caused by a contractor or temp, making the risk all the more concerning.
“Scope is another key area. Whilst some recruiters may be happy to agree to indemnify a hirer in certain circumstances, it would be prudent to check the contract to ensure that it does not create unreasonably wide exposure. For example, if a recruiter’s failure to find an appropriate temp has caused losses on site, is it fair that the recruiter would be liable?”
For more information and assistance with a range of contractual issues, you can contact Lawspeed on 01273 236 236.