If someone sues Gusto because of something you did while using the platform, you are responsible for covering Gusto's legal costs and any damages, not just your own.
This analysis describes what Gusto's agreement states, permits, or reserves. It does not constitute a legal determination about enforceability. Regulatory applicability and practical outcomes may vary by jurisdiction, enforcement context, and individual circumstances. Read our methodology
This clause means employer-customers could be financially responsible for defending Gusto in third-party lawsuits that arise from the employer's payroll data, HR actions, or compliance failures, even if Gusto is named as a co-defendant.
Interpretive note: The breadth of the indemnification and whether it includes a carve-out for Gusto's own negligence is not fully clear from the excerpt; the absence of a negligence carve-out would be operationally significant but requires full document review to confirm.
The updated terms make explicit that requesting a background check through Gusto creates a legally binding agreement not just with Gusto but also incorporating terms from Gusto's payroll service and Checkr's service agreement. This means customers are committing to multiple overlapping sets of terms when they initiate a background check request. The change does not appear to alter the substantive rights or obligations, but rather clarifies their scope and binding nature in writing.
View change record →Developers integrating with Gusto's platform are now bound by mandatory arbitration and class action waiver provisions, meaning they cannot join or file class actions against Gusto and must resolve disputes through individual, binding arbitration. The updated terms also grant Gusto the right to modify, update, or discontinue developer tools at its sole discretion without notice or liability, which could disrupt integrations and require developers to absorb costs of upgrading to new versions. Developers should review Section 19 of the updated terms carefully before creating or maintaining integrations with Gusto's platform, and consider whether the arbitration and modification provisions align with their business and legal risk tolerance.
View change record →The updated terms now explicitly state that Employers waive the right to participate in class-action lawsuits and must pursue all claims against Gusto on an individual basis through binding arbitration. This means Employers can no longer join other users in collective legal action, even if many face identical problems with Gusto's service or billing. Individual arbitration typically costs more and produces less leverage for individual plaintiffs than class actions. You should review whether this dispute resolution requirement aligns with your business needs and consult legal counsel if you have concerns about waiving class-action rights.
View change record →Removal of explicit indemnification language may reduce employer obligations to defend Gusto, though liability may be addressed elsewhere in revised terms.
View full change record →An employer that submits incorrect payroll data leading to employee wage complaints, or that uses Gusto in a way that violates employment law, may be required to cover not just their own legal costs but also Gusto's defense costs in any resulting litigation. This creates significant financial exposure beyond the platform fee itself.
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"You agree to defend, indemnify, and hold harmless Gusto and its officers, directors, employees, and agents from and against any and all claims, liabilities, damages, losses, costs, and expenses (including reasonable attorneys' fees) arising out of or relating to: (a) your use of the Services; (b) your violation of this Agreement; (c) your violation of any applicable laws or regulations; or (d) any content or data you provide through the Services.— Excerpt from Gusto's Gusto Terms of Service
REGULATORY LANDSCAPE: Indemnification clauses in commercial contracts are generally enforceable under US contract law, subject to public policy limits in some states. Where the indemnifying party is a small business with limited resources, the practical enforceability of broad indemnification obligations may be limited. State wage and hour regulators do not typically recognize contractual indemnification as a defense to employer obligations, meaning the employer remains independently liable to employees regardless of the indemnification clause. GOVERNANCE EXPOSURE: Medium. The breadth of the indemnification scope, covering any use of the services, any applicable law violation, and any content provided, is notable but not uncommon in SaaS agreements. The risk is higher for employer-customers operating in heavily regulated industries such as healthcare or financial services, where the intersection of Gusto's platform and sector-specific compliance obligations creates broader indemnification surface area. JURISDICTION FLAGS: California employer obligations under the Labor Code cannot be contractually waived or transferred, meaning indemnification of Gusto does not reduce the employer's independent wage and hour liability. New York and Illinois similarly maintain independent employer obligations that exist regardless of contractual indemnification arrangements with third-party vendors. CONTRACT AND VENDOR IMPLICATIONS: Enterprise legal teams should assess whether the indemnification clause includes any carve-outs for Gusto's own negligence or misconduct. If no such carve-out exists, the employer may be obligated to indemnify Gusto even in cases where a platform error contributed to the underlying claim. Standard commercial practice generally includes mutual indemnification or at minimum a gross negligence carve-out. COMPLIANCE CONSIDERATIONS: Legal teams should review the indemnification clause for consistency with the organization's vendor contract standards and consider requesting a mutual indemnification provision or a carve-out for claims arising from Gusto's own acts or omissions. Risk management should include this obligation in vendor risk assessments.
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This clause means employer-customers could be financially responsible for defending Gusto in third-party lawsuits that arise from the employer's payroll data, HR actions, or compliance failures, even if Gusto is named as a co-defendant.
An employer that submits incorrect payroll data leading to employee wage complaints, or that uses Gusto in a way that violates employment law, may be required to cover not just their own legal costs but also Gusto's defense costs in any resulting litigation. This creates significant financial exposure beyond the platform fee itself.
ConductAtlas has identified this type of provision across 83 platforms. See the full comparison.
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