Indemnity clauses appear in nearly all commercial contracts including agreements between catering companies, hotels and restaurants and staffing agencies who provide workers for events. They are an essential risk allocation tool between parties.

Indemnity clauses may allow a party to protect itself from damages and lawsuits. Generally, New York courts enforce the parties’ clear language in a contract. That is, except those agreements that implicate employees’ wages and gratuities, if related to indemnification obligations. Two recent judicial decisions illustrate that hospitality employers cannot rely upon contracts with indemnification provisions alone, to shift liability, or to define a work relationship.

In one decision, a New York appellate court voided an indemnification clause in a contract shifting liability for wages and gratuities from a catering company to a staffing agency. The issue arose in the context of a plaintiffs’ class action lawsuit alleging misappropriation of gratuities. The staffing agency had agreed to indemnify the caterer “for any claims for violation of federal and state wage and hour laws, including overtime,” and the defendant catering company filed a third-party complaint seeking indemnification based upon that agreement. The staffing agency moved to dismiss the third -party complaint, which the trial court granted. The defendant appealed the decision to the Appellate Division.

The Appellate Division agreed with the trial court, holding that...

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