As the placement industry has developed over the past 40 years, placers have become more candid about who they are and what they do. From the misleading “counselor” designation of the applicant-paid days through the “consultant” title that implied objective advice to employers and the “account executive” tag that represented an ongoing “client” relationship, we’ve accepted our role as recruiters. Hired guns headhunters paid on a COD basis for producing ready, willing, able and placed employees.
Since your fee (and everything else in the relationship) is “contingent,” it would be great to ignore liability for protecting employer and candidate confidences. Legally, you owe them nothing because they owe you nothing. “Nudum pactum” as lawyers say No consideration. No contract. No obligation.
Thirty years ago you’d have been right. But today, legislatures everywhere are starting to draw a line marked “confidential.” On a regular basis, courts are granting temporary restraining orders and preliminary injunctions to prevent use of sensitive information. Then the entire range of damages are available at trial compensatory (to compensate for the use), punitive (to punish for it) and exemplary (to make an example of you so others will be deterred).
The more capable a recruiter is, the more opportunity exists for them to get in trouble. As Allan Cox noted in Confessions of a Corporate Headhunter:
If I can get a client to trust me with his most sensitive . . . concerns and plans, I can be of more assistance than even he may be aware. . .
I am honest and sensitive enough to prefer dealing with a problem frankly and intelligently if I can do so without alienating my clients, But more often than not, I’ve got to make compromises.
This column will show you where the confidential line is being drawn, and how to stay behind it:
Even employers who hire through you regularly aren’t “clients” in a traditional sense. Their job orders are non-exclusive and you’re only as good as your last placement. However, in the course of obtaining JO’s, proprietary information is often revealed. Even the opening itself may be highly confidential a corporate “trade secret.”
Operations items include mergers, new facilities, consolidations, impending layoffs, financial projections, departmental reorganizations and product developments. Human resources items range from compensation programs and benefit packages to specific relocation and promotion possibilities for the person hired. Some companies even consider the names and titles of employees a trade secret!
Here’s part of a response I recently wrote to the lawyer representing one of the majors, reiterating a phone conversation:
Although my client has not called any ___________ employees, I saw no violation of the law in the activities you summarized. You asserted that _______________ parted with something of value by revealing the names and titles of its employees. You were careful to point out that while the employees’ rights were not being asserted, somehow ____________ had a proprietary right to their names and titles. You did not offer any explanation as to why you believed this was in violation of any telephone tariffs or statutory prohibitions. While the techniques allegedly used were obviously unprofessional and probably unnecessary, they were certainly not illegal.
In Trade Secrets: How to Protect your Ideas and Assets, lawyer James Pooley suggested:
To defend a claim of employee raiding, be prepared with minutes of your interviews, which show that each employee solicited new employment, provided information concerning compensation and benefits, and confirmed in writing that obligations to the former employer [your former “client”] have not been violated.
The only business relationship that has consistently been “privileged” is the one between an attorney and his client. As noted by Richard Flamm in the September 1988 issue of California Lawyer:
A host of ethical considerations, canons and rules enjoin lawyers from disclosing client confidences to others unless the client consents. . . The firm might also be subject to sanctions or disciplinary action. It could even wind up on the wrong end of an action for disgorgement [a punitive civil remedy of releasing the client].
As you can see, the attorney-client privilege is a sacred trust to lawyers. It goes far deeper than avoiding a conflict of interest, and relates to the client’s right to inviolate secrecy of the communication with counsel. Lawyers rarely get legalistic about this subject. They don’t violate the attorney-client privilege. It’s an unforgivable sin. They consider it malum in se (wrong in itself), not merely malum prohibitum (legally wrong).
According to Bruce Shertzer and Shelley Stone in Fundamentals of Counseling, the privilege is now being extended to non-legal business advisors as well. They noted:
The rationale for granting privileged communication is now and has always been the same: confidentiality promotes full disclosure by the client and enables the practitioner to provide professional help.
. . . About confidential relationships involving such people as bankers, accountants, journalists and counselors, a duty not to divulge is recognized by the courts and implemented by judges so far as is consistent with the overriding claims of the interests of justice.
This hardly helps to see a straight line the law is unclear. That’s because the courts are more concerned with the expectation of confidentiality than the status of the advisor. For this reason, your non-exclusive, contingency, one-time (or less) employer can assert legal rights against you for revealing proprietary information.
The information doesn’t have to be revealed in confidence to be “cloaked” with a privilege. Let’s assume the hiring authority casually tells you about a new plant opening. If a competitor learns about it through your calls trying to recruit one of its employees and the “client” is injured, you can be liable. How liable? That depends on:
a. The extent of the injury, and
b. Whether the information was otherwise available.
The basic defense is:
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a. The information was generally known,
b. The hiring authority knew it was generally known, and therefore
c. It was not revealed by the employer in confidence.
Pooley cautioned employers against “shooting from the lip:”
Too many businesses operate like banks which not only leave the doors unlocked, but display the combination to the safe throughout the lobby. Most businesses and individuals are woefully negligent in not identifying and protecting their trade secrets; the two initial steps required to turn those assets into dollars.
He also suggests that consultants be required to sign a Non-disclosure Agreement. It’s usually part of a Placement Service Agreement (PSA). You know the kind those that have low fee ceilings, extended refund guarantees, and page after page of other insulting consulting provisions.
It’s surprising how many recruiters sign PSA’s thinking they’re unenforceable. Even if they are, the first invoice at the lower fee locks the recruiter into the entire PSA insults and all.
Typical PSAs define “proprietary information” or “trade secrets” as anything related to:
a. Past, present or future businesses.
b. Research and development.
c. Names, contact information and items about employees, customers or vendors.
Sometimes the hiring authority doesn’t ask you to sign a PSA because he thinks you signed one from the personnel department. Sometimes you’re asked but “forget” to return it. Sometimes it’s “lost” in the mail. And sometimes the employer just doesn’t use it. In all of these situations, your best argument is that the employer waived its rights. Legally, it was asleep at the switch.
We couldn’t agree more with Pooley’s advice:
[C]onsultants make their living by hopping from one firm to the other in the same industry.
[D]on’t sign these things if you can avoid it. Remember more than one person can possess the same trade secret, discovered independently. If you have to sign, insist on a precise definition.
We’ll let you know as the legal line continues to be drawn in the high-stakes employer confidence game. In the meantime, say the secret word and it could cost you your business