US Expansion: Terms of Business, Enforceability, and Insurance Structures
The scale of the US recruitment market makes it an obvious area of interest for UK agencies, but commercial opportunity needs to be matched by an equally clear approach to risk. In this session, Will Pendleton, Head of Business Development at Workwell Global, and Chloe Hawley of Kingsbridge explored the contractual, operational and insurance considerations recruitment leaders need to understand when expanding into the US.
For many agencies, the important distinction is between recruiting into the US from the UK and establishing a physical business presence there. The first can be more straightforward than expected. The second introduces a new layer of legal, insurance and employment responsibilities.
The opportunity does not remove the risk
The US is significantly larger than the UK recruitment market and was presented as accounting for more than 30 per cent of the global market.
It can also offer stronger recruitment margins. The session highlighted lower agency saturation compared with the UK as one reason recruitment services can command greater value.
Contract recruitment is another important part of the opportunity. A substantial proportion of the US workforce operates on a contract basis, creating scope for agencies that have traditionally concentrated on permanent recruitment to broaden their offering.
However, higher potential returns sit alongside greater exposure when things go wrong.
The US legal environment means the cost of defending a claim can itself be significant, even where the recruitment agency is not ultimately found responsible. Entering the market without the right contracts and insurance arrangements can therefore create risks that are disproportionate to the initial revenue being generated.
Start with appropriate US terms of business
One of the most important foundations for US expansion is having terms of business designed for the market in which the client operates.
A UK contract governed by the laws of England and Wales may be appropriate for a UK client, but it can create practical enforcement difficulties where the customer and its assets are in the US.
Even if an agency successfully pursued a matter through a UK court, it could still face the additional process and cost of trying to enforce that outcome against a US business.
For recruitment leaders, a useful principle is to consider where the end client is based when deciding which terms should govern the relationship.
The issue is not limited to enforcement. UK agreements can contain references to concepts such as IR35, off-payroll rules and other UK-specific provisions that have little relevance to a US customer. Presenting unsuitable terms can create unnecessary negotiation and extensive contract amendments before work has even started.
Purpose-built US terms can make the relationship clearer for both parties and demonstrate that the agency understands the market in which it is operating.
Do not accept unlimited exposure without scrutiny
US client contracts can transfer substantial liabilities down the supply chain.
Recruitment businesses therefore need to pay close attention to clauses dealing with indemnities and liability caps. Accepting uncapped or unlimited liabilities can expose an agency to losses that are far greater than the value of the recruitment assignment itself.
Contract recruitment also creates specific areas that need to be addressed.
Overtime is one example. Eligible workers can be entitled to enhanced pay when working beyond specified hours, and individual states can impose additional requirements. If the contract with the client does not deal clearly with these costs, the recruitment agency could find itself responsible for additional payments it cannot recover.
Appropriate US legal advice should therefore be treated as part of the infrastructure for entering the market, rather than something required only when a dispute occurs.
State law matters during the recruitment process
The US cannot be approached as one uniform employment market.
Requirements can vary from state to state and may depend on where the candidate or worker is located rather than where the client has its headquarters.
This can affect ordinary recruitment activity.
Pay transparency requirements may mean job advertisements need to show realistic minimum and maximum compensation ranges.
Salary history restrictions can limit whether recruiters are allowed to ask candidates about previous earnings.
Ban the box requirements can also affect how and when criminal history is considered during a hiring process.
For agencies entering the US for the first time, geographic focus can therefore have an operational advantage as well as a commercial one. Working within a defined market makes it easier for consultants and operational teams to build familiarity with the rules governing the candidates they are representing.
Contract recruitment creates a cash flow consideration
US contract recruitment can also change the relationship between worker payments and client payment terms.
Workers may need to be paid on a much shorter timetable than the agency receives money from its customer. Agreeing extended client terms without understanding that gap can place considerable pressure on working capital.
Recruitment businesses should therefore consider payment terms as part of their market entry strategy rather than treating them simply as a commercial negotiation after a placement has been made.
The obligation to pay workers promptly can also support conversations with clients about shorter payment periods.
Check where your insurance can actually respond
A UK recruitment business already has insurance, but that does not automatically mean the policy provides suitable protection for US activity.
One of the first areas to examine is policy jurisdiction.
This determines where the insurer is able to defend and settle a claim. UK policies commonly provide broad international cover while excluding the USA and Canada from their jurisdiction.
Territorial limits are related but different. They determine where the policy is active, while jurisdiction determines where the insurer can respond to legal proceedings.
That distinction becomes particularly important when an agency adopts US terms governed by US state law. If a dispute can be brought in a US court, the agency needs to understand whether its insurer can defend it there.
Contractor placements increase vicarious liability exposure
Contract recruitment introduces another layer of risk because recruitment agencies sit within the contractual chain between worker and client.
A contractor may ultimately be responsible for their own actions, but that does not necessarily prevent the agency from being included in a claim when something goes wrong.
The immediate exposure may therefore be legal defence costs before responsibility has even been determined.
Recruitment leaders should check whether their insurance addresses vicarious liability as well as their own professional negligence, and whether the relevant territorial and jurisdictional extensions are in place.
Where contractors operate through their own businesses, checking that they maintain suitable insurance can help manage the agency's position.
An EOR structure can provide another route. Where the EOR employs the worker, the individual can sit under the EOR's relevant insurance arrangements. For a recruitment agency, this can help satisfy client requirements without directly employing and insuring every contractor.
A US presence changes the insurance question
Recruiting into the US from a UK company is materially different from opening an office, establishing a US entity or employing local staff.
Once the business has a physical presence, it may need to consider local protection for premises, equipment, professional liabilities and employees.
Workers' compensation becomes particularly important where the business employs people in the US. It serves a role comparable with aspects of employers' liability in the UK but needs to be arranged within the US rather than added to a conventional UK policy.
Client contracts may also require commercial general liability and automobile liability. Automobile cover can appear even where the underlying assignment is predominantly white collar, particularly if workers travel between locations or use vehicles as part of their work.
The contractual requirement and the agency's genuine exposure are not always identical, so requirements need to be understood and, where appropriate, discussed with the client and relevant advisers.
Local insurance can become more appropriate as the business grows
A UK parent company may be able to include a US subsidiary within a wider group insurance programme, but recruitment leaders should understand the distinction between that approach and locally admitted US insurance.
Local admitted insurance operates within the relevant state framework and can benefit from state guarantee arrangements.
Covering a US subsidiary through a UK programme can simplify administration, particularly for a group operating across several countries. However, it may not provide the same local protections, and claims may be settled in pounds rather than dollars.
For an agency with an established US entity, local insurance can therefore provide a structure more closely aligned with local requirements.
Build the infrastructure in proportion to the opportunity
UK recruitment companies do not necessarily need a US entity before testing the market.
Suitable terms of business, appropriate insurance extensions, a US dollar banking facility and relatively simple operational infrastructure can allow an agency to begin recruiting into the US while remaining UK based.
That provides an opportunity to prove the commercial case before taking on the additional complexity of a US entity, premises and employees.
As activity grows, the structure can then develop with it.
The central requirement is not to remove every possible risk. In a market where an organisation can still be included in a claim regardless of where responsibility ultimately sits, that is unrealistic.
The objective is to understand the contractual chain, know which state requirements apply, make sure agreements are enforceable and confirm that insurance will respond in the places and circumstances where it may actually be needed.
Speaker: Will Pendleton - Head of Business Development, Workwell Global
Speaker: Chloe Hawley - Recruitment Insurance Product Lead, Kingsbridge
For more information about Workwell Global, visit their Partner page here.