Articles - Compliance and Legal

At one time or another, most of you have heard about the wisdom of purchasing an errors and omissions insurance policy. However, judging from the number of staffing firms that do not have such insurance, it appears that many do not understand the risks they run every day in business and, more importantly,

that one misstep can be so costly as to spell the end of a business. Remember, in the United States, each party pays its own legal fees, and in some of the scenarios below, it would not be unusual for these fees to run into six figures. So, even winning a “malpractice” case can be prohibitively expensive. What are some of the cases which would typically be covered by an Errors and Omission (E&O) policy?

1. The candidate lies on the resume. Whenever I ask a group of recruiters whether they believe that more than half of their candidates lie on their resumes, invariably almost everyone in the room raises their hands. Yet, almost all recruiters refer the resume, in one form or another, to their clients. Suppose the candidate has lied about work experience, educational background or dates of past employment, and your client states that, had they known the truth about the candidate, they would never have hired him or her.  So, your client states, “You knew the resume was untrue in some respect or another. You are the ‘expert’ in this business. And, you never told me that the resume you sent to me was untrue. Why shouldn’t you compensate me for being defrauded like that?” Add to that the fact that the NAPS Code of Ethics states, in effect, that you are responsible for the accuracy of information you pass on about a candidate – unless you disclaim such responsibility. (To find sample contract language disclaiming such responsibility, take a look at the NAPS/ASA Model Recruiting Agreement at www.recruitinglife.com.) While it is not at all clear that a court would fi nd you liable under the above facts, what is clear is that employers are more aggressive than ever in pursuing recruiters for damages in these cases, and that the cost of legal fees turns even a victory into an expensive defeat.

2. You fail to disclose a candidate’s criminal record. A common complaint to which an E&O policy would respond is that you failed to disclose a previous embezzlement by your candidate, who then embezzled from your client. In these types of cases, it is not unusual for the amount embezzled (and thereby sought from you by your client), to run into the hundreds of thousands of dollars. I have not seen court cases that discuss whether a recruiter has an obligation to check criminal records, in the absence of a contractual agreement to do so, and you may well win the case, but at great expense. (There is one federal court case which held that a jury could find a recruiter liable to its candidate’s co-worker who was raped by the candidate, after the recruiter failed to accurately disclose certain aspects of the candidate’s prior conviction for rape.)

3. Your actions cause the candidate to lose his or her current job. Most typically, that would happen if you refer the candidate to a company which you do not realize is related to or affiliated with your candidate’s current employer. The word gets back to the employer that the candidate is looking around, and the candidate is fired as a result. I’m sure you’re smart enough not to refer your candidate to his or her current employer, but do you know all of the parents, subsidiaries or affiliates of the current employer? You might also become involved in litigation if you do a reference check on your candidate, and the person with whom you check informs the current employer that the candidate is looking.

4. You place the candidate with a company which has a mass layoff or goes out of business. You’re supposed to be the expert here, the candidate will argue. You should have known – or knew and failed to disclose – that the company with whom you placed the candidate was on shaky financial ground. Now the candidate has quit one job and lost another, all because of the glowing remarks you made about the client and the position in order to convince the candidate to take the job, and in order to earn your fee. Isn’t it understandable why a lawyer would advise the candidate to sue you in such circumstances?

5. The client reneges on its offer, after the candidate has quit his or her present job. Are you liable in such circumstances? I doubt it, unless you knew the client had a history of doing this. Isn’t this the client’s problem and not yours? I think so. Will you get named as a defendant along with the client, even though you will probably win? It’s very possible. To try to protect yourself against exposure to huge damage suits and expensive legal fees, you should do the following:

1. Review your contract to see if it is providing you with maximum protection

2. Review the various representations you make to candidates and clients to see if you may be making promises for which you don’t wish to be held liable if you can’t deliver on those promises. In particular, take a look at your website. Are all the representations you make true, or can you prove they are true?

3. Most important of all, purchase a good Errors and Omissions policy which will not only cover damages for situations like those discussed above, but which will also cover attorney fees.

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Biography

Robert Style is special counsel to the firm Astor Weiss Kaplan & Mandel, LLP; with his practice focused on the area of Employment law. Since 1976, has maintained a private practice in Philadelphia, Pennsylvania  focusing on employment and corporate law, with an emphasis on the representation of clients engaged in various aspects of the staffing industry. Prior to that, from 1969 to 1976, he served as Vice President and General Counsel of Snelling and Snelling, Inc.

He has served as general counsel to various staffing industry trade associations, including the National Association of Personnel Services (since 1977), the Pennsylvania Association of Personnel Services and the Mid-Atlantic Association of Personnel Consultants. His representation of staffing industry clients has included counseling, contract preparation, litigation relating to employment discrimination issues, fee collections, enforcement of employment agreements, as well as issues arising out of the Fair Labor Standards Act, Family and Medical Leave Act and the Employee Polygraph Protection Act, mergers and acquisitions, workforce transition issues and co-employment issues. He has spoken on staffing industry issues to associations, networks and employees of staffing firms, and has addressed clients of staffing companies on labor and employment law issues.

Bob has written frequently on issues affecting the staffing industry and is the author of the Certified Personnel Consultant's Legal Manual, the manual used by the National Association of Personnel Services in connection with its CPC program.

His presentation will include an overview of what you must know to prepare for the certification exam, and he will answer any questions attendees may have about the study material or the laws affecting various aspects of the staffing industry.

Mr Style is  also the Counsel for the National Association of Personnel Services. (rstyle@sprynet.com). (215) 732-7131.

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