The Recruiter’s Liability for Wrongful Hiring: Injury to the Candidate, Part 1

Apr 26, 2010

When it comes to wrongful hiring by employers, you can not afford to be anything but concerned.

This is the hottest area of the law, and only luck has kept our industry away from the flame. That’s right, luck.

The major cases have involved candidates hired through other sources. The employers had no recruiter to skewer.

We don’t call them “contingency-fee, no-strings employers,” we call them “clients.” Sometimes “exclusive clients,” even “retained clients.” And we call ourselves “consultants.”

We bend over backwards — even roll over — to provide candidate resumes, references, tests, and guarantees. We sell, sell, SELL those candidates when we only know what they show. We provide “qualified” candidates and temps without really knowing where they’re going, what they’ll be asked to do, or who’ll be asking them to do it.

This may not be in keeping with your self-image, but it’s the nature of the placement business: We operate by relying almost completely on the integrity of others.

There’s just no way to be sure you won’t be inextricably caught in the middle when your candidate, client or someone injured by either of them names you as an “indispensable party.”

This is a firefighter’s report on the fire in Headhunter’s Jungle. It goes beyond the standard “Only you can prevent forest fires.”

The initial exposure for a recruiter occurs when a candidate is injured during the placement process. The theories and cases applying them follow:

1. Misrepresentation About the Job

Misrepresentation can only occur two ways: Intentionally or negligently. Intentional misrepresentation is called fraud, while negligent misrepresentation has no other legal name.

One of the first things law students learn is that the courts are extremely technical in requiring proof of all the elements of these torts (civil wrongs), because everyone who is injured says they’ve been “defrauded,” “ripped off,” “conned,” etc.

In most jurisdictions, the elements of fraud are:

a. A false representation of fact;
b. Knowledge or belief that the information is false;
c. Intent to induce the candidate to accept the job;
d. Causing the candidate to accept the job; and
e. Damage (injury) to the candidate by accepting the job.

Since a candidate doesn’t know whether the employer acted negligently or intentionally, fraud is alleged. Intentional misconduct means unlimited liability in the form of punitive (to punish) and exemplary (to make an example) damages. This is where insurance companies build a firewall into their policies. They’ll defend the employer (and you) in court, but “reserve the right” (and exercise it) to deny coverage if the judgment is for any intentional wrongdoing by the insured. They’re not misrepresenting anything: “E&O” means what it says — errors and omissions.

So if the employer promises a certain salary, a hire-on bonus, a review or promotion within a certain time, a private office, a secretary, complete medical coverage, vacation pay or anything else that closes the candidate, it must deliver.

One of the cases to watch in this area is Dowie v. Exxon Corp., 12 Conn.L.Trib. 29.

A Connecticut jury recently awarded $10.1 million (including $9 million punitive damages) against Exxon for fraudulently recruiting a candidate as its Vice-President. He was promised profit sharing and the presidency. However, once he was hired, the profit sharing was abandoned and he discovered another recruit had also been promised the presidency. Breach of contract was also alleged, but like negligent misrepresentation, only actual damages are usually available.

You and I see cases like this every day — oh, maybe just a brushfire — but if the Connecticut appellate courts affirm the trial court’s decision, brushfires will be fanned by the winds of change.

Your typical defense is that you were misled by the employer, too. Let’s even assume that your job order contains the misrepresented facts. You can still be nailed as a co-conspirator if the candidate can show that you “consulted” with the “client.”

If you “presented” the benefits or the offer, you’re probably not going to prevail. The result is that you and the employer are liable “jointly and severally.” This imputes (attributes) liability for the acts done “within the course and scope” of the conspiracy. Then there’s the conspiracy (unlawful agreement) itself as a separate basis of liability.

Negligence has traditionally been a low-risk, insurance-covered area, since only actual damages could usually be claimed. However, negligent misrepresentation is evolving to include innocent statements that prove to be false.

So if an employer doesn’t tell the candidate that a promotion is contingent on certain sales volume, expanding the duties of the job, or relocating, the elements are there to connect with damages. In these cases, the law says the employer “knew or should have known” that the representation was false. The employer (and perhaps you) are “charged with knowledge.”

Before we leave the misrepresentation area, you should know that “omission to act” when there is a “duty to disclose” is considered the same as actually misrepresenting something. The law calls this concealment.

Major cases have been litigated surrounding concealment of cancellation of medical coverage (Cory v. Binkley Co., 235 Kan. 684 P.2d 1019); concealment of termination of a pension plan (N.C. Monroe Constr. Co., 63 N.C. App. 605, 306 S.E.2d 519 rev.den. 3l0 N.C. 154, 311 S.E. 2d 294); and concealment of unsafe working conditions (Johns-Manville Prods. Corp. v. Contra Costa S.C., 27 Cal.3d 465, 165 Cal.Rptr. 858, 612 P.2d 948).

2. Defamation

The fire is raging out of control when it comes to reference-checking.

Defamation occurs when someone says something (slander) or writes something (libel) that is untrue about a candidate that prevents him from being hired. This (as with everything else in tort law) can also occur negligently. However, interference with someone’s “occupation or calling” or the false “accusation of a crime” imposes strict liability. Actual damages are presumed.

Reference checking is the only way to verify a candidate’s background. However, it is so misunderstood, misused, and inherently biased that there should be a law against it. In fact, there practically is.

How can you know the reference isn’t helping a friend or retaliating against an enemy? How can you measure how well the reference really knows the candidate? How can you know whether the reference doesn’t have emotional disorders, memory lapses, or isn’t thinking of someone else? How can you know if he’s got a hidden agenda to apply for the job, refer the candidate himself, or even recruit the candidate directly?

That untested, unreliable stranger has far too much power over your candidate’s (and your) livelihood.

So there you are — referring people based upon unsubstantiated hearsay. “Good” references on bad candidates back you into liability from the employer. “Bad” references on good candidates have them firebombing your office. Even checking name, rank, serial number and length of employment has too many variables for comfort.

There’s a “qualified” privilege for former employers to bad rap candidates, though. It applies if they can show the statement was:

a. Limited to a legitimate business purpose (keeping a convicted criminal from embezzling, etc.);
b. Limited to the prospective employer (and you); and
c. Made with a “good faith belief” that it was true.

There are three cases you should know about here:

The first is Lewis v. Equitable Life Assurance Society, 389 N.W. 2d 876, 1 IER 1269. Equitable sent a few employees on a business trip, and tried to recover approximately $200 of the advance from each of them. They refused, standing on the expense reports they submitted, and were terminated for “gross insubordination.”

The Minnesota Supreme Court carved out a new theory of compelled self-defamation, stating that an answer would be necessary by the employees when they were asked in interviews why they left Equitable. Since this was foreseeable to the terminating employer, the employer was held liable.

High courts in California, Georgia and Michigan almost immediately adopted the compelled self-defamation theory. Many others are in the process of doing so.

The second case is Frank B. Hall & Co. v. Buck, 678 S.W.2d 612 cert den. 472 U.S. 1009. Hall (also an insurance company) hired a salesman, then several months later lowered his salary and commission. A few months after that, he was fired.

The salesman was suspicious, so engaged a private investigator to run a reference check on himself. Former coworkers said he was “untrustworthy. . . not always entirely truthful . . . disruptive . . . paranoid . . . hostile . . . guilty of padding his expense account . . . horrible in a business sense . . . irrational . . . ruthless . . . disliked by office personnel . . . ‘a zero’.”

This was corroborated by a company official who told a prospective employer that the salesman had not reached his production goals. When asked to elaborate, he said “I can’t go into it.”

A Texas jury returned a verdict of $1.9 million ($1.3 million punitives). It was upheld on appeal, since the court found the jury could reasonably find that the official’s statement was the equivalent of stating the salesman was fired for serious misconduct.

The third case covers that part of your application (or separate form) that says you can check references and are not responsible for what they say. According to the Florida Court of Appeals, the signature of the candidate won’t release you from liability.

Kellum’s v. Freight Sales Centers, Inc.,467 So.2d 816 is the case, and the court held an employer (and certainly a recruiter, too) can’t exculpate (absolve) itself from the consequences of tortious conduct.

Better check your smoke alarms.

Editor’s note: Tomorrow in part 2, dealing with intentional infliction of emotional distress, and more.

This article is for informational purposes only. Please consult your attorney for specific legal advice.

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