A contractual staff is an employee who works under contract for the employer. A contractual staff is hired for a particular job and is offered a specific payment for the job that he is doing. This is how a contractual staff differs from the permanent employee.
A person performing his duties on contract does not become a regular addition to the job as he is hired only for performing a specific duty or function on a contractual basis.
The director & officer liability Insurance policy offers to cover not just the directors and officers employed by the organization but also directors and officers of subsidiary companies, non-executive or independent directors who are on contractual basis. So, the consulting directors or officers who are appointed on contractual basis are also covered under contractual staff in liability insurance.
Y.R Internationals, an information technology company was operating in Daman. It had a total of thirty employees, three permanent directors and one individual director who was appointed on a consulting basis.
As the profit of the company had been showing a decline since the last two-quarters, the company opted to employ cost cutting measures. One of the cost-cutting measures employed by the directors of Y.R Internationals was to reduce the number of staff. In total, seven employees were relieved of their duty due to the measures taken by the directors.
Upon dismissal, one of the female employees filed the claim against the consulting director stating that her unfair dismissal was based on gender inequality.
Upon receiving the notice against the consulting director, the company immediately contacted its Insurance providers. Y.R International had bought a director & officer liability insurance policy from that insurance company. The director & officer liability insurance policy offered to cover the directors and officers of the firm against the mentioned losses in the policy. But it also offered to cover the contractual staff. The consulting director against whom a suit was filed was the contractual staff of Y.R Internationals as he was not the permanent director. Since the policy also offered to cover for the contractual staff, the independent consulting director was protected against the claim and was able to cover the losses.
Sumit, who lived in Mumbai was appointed as a consulting director of a property management company. In the initial years of business, the company was doing good and was able to generate a considerable return on its investments. However, after some years the business for the firm started declining. The number of contracts that the company got was not able to generate positive numbers for the business.
The company struggled to keep its cash flow numbers in place, as the cash coming in was lesser than the cash going out of business.
Despite many measures that were adopted by the property management company, its bottom line numbers of profits in the income statement were continually declining. Finally, a drastic measure was taken by the directors to sell the company to a prospective buyer. The company was eventually sold.
However, a minority shareholder of the property management company filed a legal action against Sumit (consulting director) stating that he had failed to obtain a fair value for the sale of the company and demanded to pay him for the shortfall.
The property management company had secured all its directors and officers with the help of a director & officer liability Insurance policy. Sumit was also able to secure himself against the claim made by the minority shareholder as the policy also provided protection for the contractual staff. Since Sumit was the consulting director and not a permanent director, he was categorized as a contractual staff. The insurers were able to settle the claim against Sumit successfully.
[cta id=”984″ vid=”3″]