This document discusses insurance issues related to "hired in" or contract labor. It explains that hired in workers are typically employees of the labor hire firm, not the host employer, though the host employer directs their work. Both the labor hire firm and host employer need certain insurance policies to cover risks from hired in workers, such as workers' compensation, liability insurance, and policies covering the workers' use of vehicles. The document also discusses how liability is typically apportioned between the labor hire firm and host employer in the event of an injury or damage claim involving a hired in worker.

1. C on tr ac tu al Li abili ty Ti psh e e t – Cl ie n t V ersi on
No vem b er 2016.
PA GE 1 o f 7
TIPSHEET 11
HIRED-IN LABOUR.
Contracts for labour hire – what are the insurance issues when using “hired in” workers?
W H A T I S “ H I R E D I N ” L A B O U R ?
Under a labour hire arrangement, the employer
known as the “host employer” engages a
recruitment or labour hire firm to supply skilled
or semi-skilled workers on a part time, casual or
fixed term basis.
“Hired in” labour is used in many different
industries and professions including primary
production, manufacturing, mining, cleaning,
transport, slaughterhouse and the
building/construction industries. The skills
shortage throughout Australia means it is now
being used in “white collar” industries such as
technology, banking and financial services,
accounting/legal and other professions.
In the current economic environment, “hired in”
labour will increase in popularity because it
allows an employer to fill casual vacancies or
“scale up” or “scale down” their workforce at
short notice. Hired in labour is also used as a
means for businesses to transition new
employees from a temporary to permanent
position on a “try before you buy” basis.
Another form of “hired in” labour is where the
hirer supplies a person to operate hired
equipment. This is referred to in the industry as
“wet hire” or in some cases is simply sub-
contracting.
EXAMPLE: Bill Jones owns a forklift contracting
business and hires seven forklifts along with
seven employees to operate them.
I S A “ H I R E D I N ” W O R K ER A N E M P L O YE E ?
Typically,
1
“hired in” workers are employed by
the labour hire firm that supplies their services
to the host employer. These “hired in” workers
carry out work under the direction, supervision
and control of the host employer.
The labour hire firm has responsibility for “hired
in” workers (eg vicarious liability for the worker)
and legal liability for superannuation, PAYE tax
and other employment entitlements, such as
annual leave.
2
EXAMPLE: Marrickville Engineering (ME) is a
specialist engineering company with a wage roll
of $2m of which labour hire workers make up
$500k. ME uses a labour hire firm, Excel Labour
Ltd, to supply extra workers to supplement its
existing workforce and to resource certain
projects for its clients.
W H A T S O R T O F I N S U R A N C E I S
R E Q U I R E D F O R “ H I R E D I N ” WOR K E R S ?
The labour hire firm should have the following
insurance:

2. PA GE 2 o f 6
 Workers compensation (as required by the
law that applies in the state where the
employee works);
 Public liability (covering legal liability for
personal injury and property damage caused
by employees whilst on assignment);
 Professional indemnity (for professional
exposure as a recruitment company and for
any vicarious liability for the professional
activities of their employees (if any)).
A labour hire firm cannot purchase insurance for
damage or liability arising from use of a vehicle
by an employee while on assignment, so
invariably the host employer must have
insurance for that.
The host employer needs to have other
insurance to protect it for its direct liability
arising from incidents involving the hired in
worker. Because the worker is under the direct
supervision and control of the host employer,
there can be increased exposure to claims for
injury which are not covered by the host
employer’s workers compensation.
In most cases, the host employer’s policy will
only cover vicarious liability for the acts or
omissions of its own employees. In the
overwhelming majority of cases, it is the labour
hire company who is the employer of the worker
that is liable for the acts or omissions of the
worker.
However there is still exposure for contingent or
collateral liability where the host employer
brings in hired in workers and where the host
employer has contributed to the cause of the
liability claim.
The main problems for host employers are the
exposure that “hired in” workers bring in the
form of:
 third party injury claims (ie where a member
of the public or another worker is injured by
the “hired in” worker);
 common law claims for compensation
arising from injury suffered by the “hired in”
worker; or
 a subrogated recovery action by a workers’
compensation insurer after paying a workers
compensation claim under the labour hire
firm’s policy.
Consult your broker in relation to labour hire or
recruitment services contracts to assess whether
your program provides protection in these areas.
EXAMPLE: Under the terms of its labour hire
agreement with Excel Labour Ltd, ME is required
to have insurance to cover labour hire employees
while they work in its business.
ME asks its insurance broker to check to see
whether it has appropriate insurance to cover
injury claims for “hired in” workers.
ME has a:
 Public liability policy (eg property damage or
personal injury claims); and
 Workers compensation; and
 Motor vehicle insurance policies
(comprehensive for some vehicles and third
party property damage for others).
The broker identifies a number of areas where
the current policies will not cover injury or
liability claims involving the “hired in” workers.
The broker also reviews the terms of the labour

3. PA GE 3 o f 6
hire agreement to check whether ME has the
policies required by the contract and to see
whether there are indemnities in the agreement.
A R E “ H I R E D I N ” WO R K E R S C O V E R E D
U N D E R L I A B I L I T Y P O L I C I E S H E L D B Y A
H O S T E M P L O YE R ?
A standard public liability policy may not insure
the risks relating to the “hired in” worker.
For example, most public and products liability
policies cover an employer’s liability where the
claim would not be met by workers
compensation. However it includes only those
persons deemed to be workers under workers
compensation law. This may not extend to “hired
in” workers when they are contracted to the
host employer by the labour hire firm.
3
It can be difficult to obtain an extension to a
public liability policy to cover “hired in” workers
and to have the necessary waivers of
subrogation given for other policies (eg host
employer’s property and workers compensation
insurers).
However it is possible to purchase insurance that
is specifically designed to insure host employer
liability.
A motor vehicle policy held by the host employer
needs to be extended to drivers who are “hired
in” workers to properly protect the host
employer from third party claims. In most cases,
a labour hire firm will want to know that the host
employer’s motor vehicle policy covers the
“hired in” workers.
I N S U R A N C E R E Q U I R E M E N T S U N D E R A
L A B O U R H I R E A G R E E M E N T
Some labour hire contracts
4
specify who is
responsible for purchasing insurance and the
types of insurance required. Usually they require
the host employer to maintain the following
insurance for their business:
 Public liability insurance;
 Professional indemnity (if professional
services are provided);
 Motor vehicle; and
 Workers compensation (to the extent
necessary by law).
EXAMPLE: In the hire labour agreement, ME is
required to hold comprehensive motor vehicle
insurance and insurance to cover public liability
arising from the conduct of the workers while
engaged by ME.
The broker advises ME that their motor policies
will need to include the names of the “hired in”
workers as drivers of the vehicles (and updated
regularly to take account of changes). ME
instructs the broker to make the necessary
changes and notify the insurer.
The broker also suggests a specialist host
employer liability policy because ME’s workers
compensation insurance and public liability
insurance will not cover injury suffered by the
“hired in” worker, nor public liability for property
damage or personal injury caused by the “hired
in” worker. ME instructs the broker to seek
quotes and terms.

4. PA GE 4 o f 6
“ H I R E D I N ” WO R K E R S A N D
P R O P O R T I O N A T E L I A B I L I T Y
The general rule is that:
 Proportionate liability legislation applies to
compensation claims for economic loss or
property damage claims;
5
and
 Contributory negligence (as determined by
statute and the case law) applies to
compensation claims for personal injury
claims.
6
This means courts will apportion liability
between a “hired in” worker, labour hire firm
and a host employer for a property damage or
economic loss claim caused by or involving the
“hired-in” worker.
For personal injury to the worker, the ‘hired in
worker’s’ contributory negligence will be taken
into account, but either the host employer or the
labour hire firm can be sued for damages.
Usually the party sued will bring a recovery
action against the other party and the court will
make an award for damages against each of
them.
If the “hired in” worker is an employee of the
labour hire firm and the worker causes loss or
damage, injury or death to someone, the labour
hire firm is vicariously liable for the worker.
The labour hire firm should always hold its own
insurance to cover this exposure.
Until 2006, it was generally accepted that a
labour hire firm would be liable for 25% of a
third party property damage or personal injury
claim and the host employer would be liable for
75%.
7
More recently
8
the courts have apportioned the
liability differently with as much as 35% to 50%
liability for the labour hire firm.
The primary reason for this has been due to the
failure of the labour hire firm to appropriately
discharge its duty of care to the employee. In
one case
9
involving a 35% allocation of liability,
this was due to a failure of the labour hire firm
to:
 Properly instruct their workers and warn
them of the risks that they may face when
working on site with a host employer; and
 Inspect the workplace and ensure that the
host employer provided a proper induction
program.
10
In another case
11
involving a 50% allocation of
liability, this was due to a failure of the labour
hire firm to:
 Properly manage ‘return to work’
obligations in consultation with the
employee’s general practitioner; and
 Inform the host employer of the employee’s
recent injuries.
I N D E M N I TY O R ‘ H O L D H A R M L E S S ’
C L A U S E S I N L A B O U R H I R E A G R E E M E N T S
In some cases
12
, labour hire companies will try
to pass on liability for accidents involving the
“hired in” worker to the host employer under
the labour hire agreement.
Host employers should not assume contractual
liability for the work performed by a “hired in”
worker by agreeing to indemnify the labour hire
firm 100% or hold them completely ‘harmless’.

5. PA GE 5 o f 6
Any attempt to transfer legal responsibility for
injury or damage claims to another party should
be avoided because it triggers a potential
‘uninsured loss’ for the host employer.
If proportionate liability or contributory
negligence applies and the host employer
assumes 100% of liability for personal injury, the
‘contractual liability’ exclusion in the host
employer’s liability policy will be triggered. The
outcome is that the insurer will not pay the
labour hire firm’s share of any compensation
claim (usually somewhere between 25 – 35% of
the claim, but it can be as high as 50%) – the host
employer’s insurer will only pay the host
employer’s share.
EXAMPLE
13
: Excel Labour has a clause in its
labour hire contract with ME that states “You
agree to indemnify us to the full extent of our
liability to any party for all damage, loss or injury
of whatsoever nature or kind, caused by your
negligence or that of one or more of your
employees or independent contractors, their
servants or agents which may be suffered or
incurred whether directly or indirectly in respect
of any work performed for or on behalf of you.”
This means ME must indemnify Excel for 100% of
any damages claim involving its negligence or
that of the hired in worker. This is inconsistent
with ME’s liability at law and will trigger the
‘contractual liability’ exclusion. ME’s broker
raises this issue with ME and ME have asked the
broker to assist in negotiating to have this
indemnity clause amended to take account of
proportionate liability and contributory
negligence principles.
This can also interfere with the ability of each
party’s workers compensation insurer to
properly manage recoveries. For this reason in
Queensland, there is legislation that overrides
the indemnity clause to the extent that it
requires an employer to indemnify a
contributing party.
14
The effect of this is that in relation to workers
compensation insurance in Queensland, workers
compensation is automatically subject to
proportionate liability principles, regardless of
any contractual indemnities.
P R I N C I P A L ’ S I N D E M N I T Y
In some cases, it may be possible for a labour
hire firm to have the host employer covered as a
principal under its public liability insurance. A
specific labour hire policy, or a public liability
policy contains an expansive principal's liability
clause.
15
If both host employer and labour hire
firm are covered by the same policy, there is also
less likelihood of disputes in relation to the
indemnities in the agreement.
M I T I G A T I N G I N S U R E D A N D U N I N S U R E D
C L A I M S
Both labour hire firms and host employers must
focus on risk management as this is the best way
to mitigate claims.
The labour hire company should properly brief
its workers, conduct workplace inspections and
work cooperatively with the host employer to
educate and inform “hired in” workers about
workplace safety procedures.
Host employers need to treat “hired in” workers
the same way they treat their own employees in
this regard.
For more assistance, contact your
broker.
1
If the person is an employee of the labour hire firm, there is no
presumption at law that they are employed by the host employer: FP
Group Pty Ltd v Tooheys Pty Ltd [2013] FWCFB 9605. The exception is

6. PA GE 6 o f 6
independent contractors. In rare cases - (eg a “hired in” worker who is
an independent contractor to the labour hire firm) depending on the
amount of “control” the host employer has over the worker, the
“hired in” worker can be deemed to be an employee of the host
employer. The “control” test is complex and outcomes vary according
to the circumstances of the worker and the way in which they were
managed in the workplace. If the “hired in” worker is deemed to be
an ‘employee’, then the host employer can be responsible for
superannuation, workers compensation, PAYE tax and accrued leave
entitlements amongst other things. It is important that host
employers clarify the employment status of “hired in” workers – in
some cases it may be too risky to accept a worker who is an
independent contractor to the labour hire firm.
2
Deutz Australia Pty Ltd v Skilled Engineering Ltd & Anor [2001] VSC
194
3
Again this depends on whether the person meets the definition of
“worker” under workers compensation legislation.
4
Some contracts such as the standard RCSA contract actually
transfer primary contractual responsibility for hired in workers to host
employers by requiring the host employer to give an indemnity to the
labour hire company for loss, liability, injury or death caused by the
hired in worker. In most cases this will trigger the contractual liability
exclusion in a liability insurance policy.
5
For more details about proportionate liability see Tipsheet
3. Ask your broker for a copy.
6
The courts will discount compensation claims to take account of the
plaintiff’s own negligence before awarding a compensation
claim. It is only if a party is joined to the proceedings that the court
will consider the respective liability of each party.
7
TNT Australia Limited v Christie & Ors [2003] NSWCA 47
8
Victorian Workcover Authority v Carrier Air Conditioning Pty Ltd
[2006] VSCA 63
9
These were the primary reasons the court in Victorian Workcover
Authority v Carrier Air Conditioning Pty Ltd [2006] VSCA 63 assessed
the labour hire firm to be more responsible for the injury claim. The
courts now say that each instance needs to be reviewed based on the
facts of the case and there is no presumption that the labour hire
company would be only 25% liable.
10
These were the primary reasons the court in Victorian Workcover
Authority v Carrier Air Conditioning Pty Ltd [2006] VSCA 63 assessed
the labour hire firm to be more responsible for the injury claim. The
courts now say that each instance needs to be reviewed based on the
facts of the case and there is no presumption that the labour hire
company would be only 25% liable.
11
Papadopoulos v. MC Labour Hire Services Pty Ltd & Anor (No
4) [2009] VSC 193 and Victorian WorkCover Authority v. Concept Hire
Ltd & Ors [2009] VSC 194
12
Shoalhaven City Council v Humphries [2013] NSWCA 390.
13
The Fold acknowledges the use of an indemnity clause from a
labour hire contract which was sent into the Contractual Liability
Helpline by a Steadfast Broker. The name of the labour hire firm shall
remain confidential!
14
s236B Workers' Compensation & Rehabilitation Act 2003 (Qld). In
Queensland these laws apply retrospectively to all claims made on
and from 31 August 2016 including those where no settlement has
been made or trial commenced at that date. As far as we are aware,
there is no equivalent legislation in other States and territories.
15 The case of GIO General Ltd v Centennial Newstan Pty Ltd [2014]
NSWCA 13, considered a principal's liability clause which insured the
direct liability of both the principal and the insured to each other and
to third parties. A similar clause can be found in the Steadfast Public &
Products Liability Policy.
CAN WE HELP YOU.
DISCLAIMER
This Tipsheet has been prepared for Steadfast Group Limited
and its brokers. It contains general information about
contractual liability issues. It is not tailored to the individual
circumstances of any recipient and is not a substitute for
obtaining specific advice about the contractual liability
issues that arise in your business.
© 2016 The Fold Legal Pty Ltd
For further assistance, contact:
The Steadfast Contractual Liability Helpline
02 8353 6607
contracthelpline@thefoldlegal.com.au
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