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Recruiters and agencies, be sure to cover your legal liability exposures

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Every business that provides services or advice to clients needs professional indemnity (PI), or professional liability, insurance to protect themselves legally, but if you run a recruitment or legal hire agency it's especially critical.thumbnail-recruiters and labour hire liability2Why? Because these industry sectors are particularly vulnerable to being held legally responsible for problems arising from providing professional services to their clients, whether that's in the form of job candidates, labour hire or even just advice. 

Regardless of whether these actions are unintentional, legally you are answerable for

  • your services falling short of the client's expectations
  • failing to meet expected standards
  • making errors or omissions

This is especially the case if the client sustains losses or damage as a result of services you have provided and brings a legal action against your business. 

Everybody makes mistakes occasionally. It could be a gap in due diligence checks or placing someone in a role they are not fully capable of performing, or a staff member inadvertently breaching a confidentiality agreement.

For recruitment and labour hire companies the added exposure is that you can also  be held responsible for the actions or negligence of candidates you act as an agent for. The legal term for this is vicarious liability. Legal claims can be based on vicarious liability years after the candidate in question is off your books, as in this $750,000 example.  

Risks include (but are not limited to)  

  • loss of documents, including digital records like applications and CVs
  • failure to ensure that adequate workplace health and safety procedures are in place at an employer’s premises
  • inappropriate or incorrect advice regarding recruitment, workplace policies and human resources
  • failure to act according to your contract, or in accordance with a client’s instructions
  • unethical behaviour
  • failure to check the accuracy of a candidate’s qualifications and references
  • actions (and inactions) of candidates.

PI protection

Professional indemnity insurance or professional liability insurance protects you against the financial consequences of 

  • mistakes you or your staff might make
  • allegations of negligence
  • claims of malpractice and professional misconduct.

You’re also protected against financial losses associated with liability claims, including

  • legal costs of investigating and defending a claim made against you or your business
  • amounts payable in relation to a claim.

Are you fully covered?

In some sectors there are regulatory requirements for PI cover that must be fulfilled before a business can trade. Alternatively, contractual agreements with clients may specify a minimum level of PI cover. These are legal obligations which must be met. Your PI insurance should also include extensions for vicarious liability and other exposures for your business operation.

To find out more about PI read our comprehensive guide or talk to one of our broking experts who can help ensure you have the cover that you need. 
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