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IT Staffing: A Unique Set of Risks

Monday, March 24, 2014/Categories: business-liability-insurance

IT staffing firms know the importance of pre-screening job applicants and conducting thorough background and reference checks. But even staffing firms that screen with care can end up facing a lawsuit. All it takes is for one temporary or permanent placement to make a mistake on the job. And that, of course, is something that the staffing agency can’t control.

Luckily, the one thing that an IT staffing firm can control is its own legal vulnerability, by protecting itself with professional liability insurance coverage.

How can staffing liability insurance protect my staffing company?

Suppose an IT staffing firm places an IT professional with a financial services company to create a secure backup system for all customer financial information. But during the course of the switch to the new system, somehow, several thousand customers’ critical financial information is lost. The company must spend a lot of time and money to recreate that lost data and appease its customers, and sues the staffing company to cover its costs.

While the staffing agency did conduct a background check on the individual it placed, it apparently wasn’t thorough enough. It isn’t long before the client company’s attorneys discover that the IT contractor placed at the company had previously been fired twice due to incompetence, and no one at the staffing firm had caught it.

The client’s attorneys have no problem convincing the court that the staffing firm should have conducted a more thorough background check. The staffing services firm is ordered to pay for several hundred thousand dollars in damages and defense costs, as well as the compensation the client paid for the temporary employee’s work.

Such a large settlement could easily put a small staffing company out of business – unless that company has permanent or temporary staffing professional liability insurance. Also known as errors and omissions insurance or E&O insurance, professional liability insurance pays legal costs and court-awarded settlements if your company is found negligent in providing its professional services. Even if your company isn’t found to be at fault, this type of insurance pays for the often-massive legal costs incurred when defending yourself against a client’s allegations that your firm made errors and omissions in screening, qualifying, or placing an employee.

What are some other risk scenarios in IT staffing?

In addition to claims that the technology staffing agency’s placement wasn’t properly qualified, staffing services companies often face the same liability risks that an IT contractor would face. Potential shortcomings that could leave IT contractors and IT staffing companies exposed to legal action include:

  • Programming errors
  • Corruption or loss of data
  • Errors causing system downtime
  • Delays in completing the contract
  • Breaches of contract
  • Disputes over fees and project costs
  • Software or project design errors
  • Negligent oversell, as when the software does not deliver the promised benefits
  • Network security services failure
  • Contractor theft of code, trade secrets, or intellectual property
  • Invasion of privacy or identity theft
  • Malicious intentional acts, such as hacking
  • Sexual harassment of client’s employee
  • Discriminatory conduct on client’s site

Not all of these exposures are covered by professional liability insurance policies, so it is wise for IT staffing companies to consult with an IT insurance specialist to ensure they’re fully protected. Learn more about specific IT staffing agency risks and liabilities on the TechInsurance Small Business Learning Center & Blog. To talk to a qualified insurance expert for the IT industry, contact TechInsurance at (800) 668-7020 or [email protected].

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