This clause requires one party (typically an employee or contractor) to maintain employers liability insurance, which covers the employer's legal responsibility for employee injuries, illnesses, or workplace accidents. The clause specifies minimum coverage amounts, required policy terms, and often mandates that the employer be named as an additional insured. This protects the employer from catastrophic financial exposure due to workplace incidents. The clause matters because workplace injuries can result in substantial claims—medical expenses, lost wages, rehabilitation costs, and legal fees—that could bankrupt a small business without proper insurance. By contractually requiring this coverage, the employer shifts risk management responsibility and ensures a financial safety net exists.
However, this clause is somewhat unusual in its categorization as a "restrictive covenant" since it's typically a protective measure rather than a restriction on employee conduct. When used in employment contracts, it may create tension if the employee is expected to pay for coverage that primarily benefits the employer, which could be challenged in some jurisdictions as an improper cost-shifting mechanism.
If you're an employer, ensure this clause clearly specifies: (1) minimum coverage amounts appropriate to your industry and workforce size, (2) that your company is named as additional insured, (3) that policies remain in force throughout employment, and (4) that employees provide proof of coverage annually. If you're an employee or contractor, negotiate whether the employer will reimburse insurance costs, as this is a significant expense. Consider whether the required coverage limits are commercially reasonable for your role. Clarify whether this requirement applies only during active work or extends to post-employment periods.
Frequently Asked Questions
What does this clause mean in simple terms?
This clause requires one party (typically an employee or contractor) to maintain employers liability insurance, which covers the employer's legal responsibility for employee injuries, illnesses, or workplace accidents.
Why should I care about this clause?
The clause specifies minimum coverage amounts, required policy terms, and often mandates that the employer be named as an additional insured.
What are my options?
This protects the employer from catastrophic financial exposure due to workplace incidents.
How does this affect small businesses?
The clause matters because workplace injuries can result in substantial claims—medical expenses, lost wages, rehabilitation costs, and legal fees—that could bankrupt a small business without proper insurance.