Can a staffing agency be sued by a worker placed at a client site?
Yes, and it happens routinely. Federal agencies and most courts recognize that a staffing firm and its client can both be employers of the same worker for purposes of anti-discrimination law. The Equal Employment Opportunity Commission has long taken the position that a staffing firm can be liable for discrimination at a client site when it knew or should have known about the conduct and failed to take corrective action within its power.
What is within an agency's power is narrower than a client's, which is a real defense. An agency cannot discipline a client's supervisor. It can, however, investigate, raise the issue with the client, and remove the worker from the assignment while protecting their pay and placing them elsewhere. Agencies that document doing exactly that fare considerably better in these claims than agencies that treat the complaint as the client's problem.
- Both the agency and the client can be treated as employers of the same worker
- The agency's duty is to act on what it knows, using the authority it actually has
- Removing a complaining worker without pay protection can create a retaliation claim
- Written complaint intake and documented follow-up are the core defense
- Charges are usually filed against both parties, so both incur defense costs
What is co-employment and why does it create liability?
Co-employment is the shared employment relationship that exists when one company handles payroll, benefits, and administrative employment functions while another directs the day-to-day work. It is not a defect in the staffing model. It is the model. The liability follows because employment laws attach duties to whoever exercises control, and in a staffing arrangement control is genuinely split.
The exposures that flow from co-employment go beyond discrimination. Wage and hour claims over unpaid overtime, off-the-clock work, or misclassification can name the agency because the agency processed the payroll. Leave and accommodation claims under federal and state law can name the agency because it administers benefits. Joint employer determinations in labor matters can pull the agency into disputes about a client's workforce.
The practical management of co-employment risk sits in three places: the client service agreement, the worker handbook and acknowledgments, and the supervisory training you provide or require. Agencies that give clients written guidance on what they may and may not do with temporary workers, and get it acknowledged, are building the record that separates the two employers' conduct when a claim arrives.
What does EPLI cover for a staffing firm?
Employment practices liability covers claims by employees and applicants alleging discrimination, harassment, retaliation, wrongful termination, failure to promote, and related employment torts. It pays defense costs, which typically dominate the economics, and settlements or judgments. For a staffing firm, coverage needs to reach not only internal corporate staff but also the temporary and contract workers on assignment, and that is a specific policy question rather than an assumption.
Read the definition of employee. A form written for a standard business defines employee as someone employed by the named insured, which may or may not clearly encompass workers placed at client sites. Staffing-specific EPLI forms define the covered population to include temporary, leased, and contract workers on assignment. Buying a generic EPLI form and hoping it reaches your field population is one of the most consequential mistakes in this industry.
Also check third-party liability coverage, which responds to claims brought against you by non-employees such as a client's employees or customers alleging discrimination or harassment by your worker. And check whether wage and hour defense costs are included. Most EPLI forms exclude wage and hour liability entirely, though many offer a defense-costs-only sublimit, commonly $100,000 to $500,000. Given how frequently wage and hour claims arise in staffing, that sublimit is worth negotiating up.
- Confirm the definition of employee includes temporary and contract workers on assignment
- Third-party EPLI covers claims by client employees and customers against your workers
- Wage and hour is usually excluded, with defense-cost-only sublimits available
- Defense costs typically erode the limit, so limit selection should assume litigation
- Retention amounts for staffing firms are often $25,000 to $100,000, higher than standard EPLI
How do client contracts shift employment claims back to you?
Client service agreements almost always contain an indemnity clause, and in staffing that clause frequently requires the agency to indemnify the client for claims arising out of the agency's workers. Read broadly, that language can obligate the agency to fund the client's defense in a harassment claim where the client's own supervisor was the alleged harasser. That is not an insurable obligation under most EPLI forms, because contractual liability assumed beyond your own legal liability is commonly excluded.
The negotiating position is straightforward and reasonable. Indemnity should be mutual, each party indemnifying the other for its own negligent or wrongful acts. Carve out claims arising from the client's direction, supervision, or worksite conditions. Cap the indemnity at your insurance limits where possible. And align the insurance requirements in the contract with what your policy actually provides, since agreeing to carry coverage you do not have is a breach waiting to be discovered at the worst moment.
Certificates and additional insured status also need attention. Clients routinely request additional insured status on EPLI, which most carriers will not provide, since EPLI responds to the insured's own employment practices. Where a client insists, offer general liability additional insured status and a certificate evidencing EPLI, and explain why the market handles it that way. Most procurement teams accept the explanation once they hear it.
What else belongs on a staffing insurance program?
Workers compensation is the largest line by premium in most staffing programs, and classification accuracy drives everything. Placing a light clerical worker into a manufacturing class code, or vice versa, distorts the experience modification factor and the premium for years. Audit your class codes against actual job duties annually, not just at renewal, and confirm with clients what work is actually being performed rather than what the job order said.
Beyond that, general liability with a clear position on the employer's liability and cross-suits, professional liability for placement errors such as negligent hiring or failure to verify credentials, crime coverage including third-party employee dishonesty for workers who handle client funds or property, and cyber liability given the volume of applicant personal information on file all belong in the program. Background check practices deserve a separate look, since claims under fair credit reporting laws for defective disclosure forms have produced significant class actions in this industry, and coverage for them is not automatic.
Get a Coverage Review
The most valuable thirty minutes a staffing owner can spend is confirming that workers on assignment fall inside the definition of employee on their EPLI form. Grandbay Financial Services reviews staffing programs, reads client service agreements against policy language, and builds workers compensation and EPLI together. Schedule a review at calendly.com/grandbayfinancial.
This article is for general information and is not a substitute for policy language or professional advice.
Frequently Asked Questions
This article is for general information and is not a substitute for policy language or professional advice.