Tip of the Month: Hold Harmless Agreements...Who Benefits?

Often times we have clients that ask us to agree to indemnification agreements or what use to be referred to as "hold harmless" agreements.

These type of agreements typically require one party (the supplier) to assume liability for a bad outcome even if the responsibility is not theirs.  The end result is that the party that caused the liability may not be the one that pays for it.

It is understandable why the client company would want such a sweet deal. It reduces risk on their part but is it fair?

Consider the risk your supplier is already taking when it puts its employees to work at your facility. The biggest is the safety and well being of that individual to make it back home every day in one piece...i.e. workers compensation. In a situation where the temp is severely injured because of a negligent act of the client the supplier is on the hook for the workers compensation claim and potentially the cost of defending the client and paying damages for an event it did not cause....it  it agreed to an indemnification clause.

So why would a temp supplier agree to such a clause? Often times it is because of the pressure exerted by the client. It becomes a "we'll take our business elsewhere" situation. Most of the time our client contact is not even aware of the risks that their legal experts are asking us to take.

We recently had to walk away from working with a long time customer that committed to a VMS (Vendor Management System) to manage all of its contingent labor usage. The VMS contract contained an indemnification clause that had the potential to put our entire company at risk.

From our perspective a fair agreement is one that allocate risks to the responsible party. And if the circumstances were reversed, would the asking party agree to the same agreement it is asking of the supplier.

Under certain circumstances a temp supplier that agrees to an indemnification clause could be voiding its insurance coverage. And without being a legal expert it appears that these type of agreements may not be legal in certain states.

When you think about it, how responsible is a company that goes out of its way to shift responsibility to others for its bad behavior? And what purpose does it serve to put your supplier out of business anyway?