How A Recruiting Firm Can Prevent Lawsuits

More and more placement services are being sued — along with their owners. I’ve devoted my career to limiting your liability. But effective defenses don’t usually stop some employer, temp client or ex-employee from filing a lawsuit against you.

As a natural promoter, you are considered a “target defendant” — visible, wealthy and not that popular. It’s unlikely you’ll be mistaken for a member of the clergy, so you’re also vulnerable. Very vulnerable, in fact. Every successful owner bends the rules.

But I’m not a member of the clergy either. So I won’t preach to you about right and wrong. I’m a lawyer. Let’s talk about how to discourage a lawsuit regardless of its merits:


Aside from those loveable lawyers inside your TV set, insurance coverage is the main reason lawsuits are filed. Not the coverage itself — the knowledge of it by potential adversaries. Consultants in every area of placement have been bombarded with the need for insurance. The statistic you’ll never see is the difference between the number of lawsuits filed against insured owners and uninsured ones.

Legal requirements for employees and bonds are only the beginning. “Standard” business packages are “supplemented” with everything from errors and omissions to temp liability products.

How could this or any other lawyer advise against them? As far as every competent lawyer is concerned, you can’t have too much insurance.

But do your employees have to know that your homeowner’s policy will defend you against their claim for emotional distress when they leave? Or that your business policy will pay like a slot machine if they allege unfair competition when you sue them for using your trade secrets? Do your fee schedules have to proclaim that you’re “bonded and insured?” Does anyone really care until they want to nail you?

It doesn’t stop there. We estimate that over 90% of the people in our industry tell their potential adversary that they’re insured the moment a hint of dissatisfaction occurs. It’s as though they think the words, “I don’t care. I’ll just turn it over to my insurance company” will scare someone away.

What would you do if you heard that? Here you are, some petrified paper-pushing human resourcer who’s about to lose their job because you won’t return a fee. There’s already some reason to use for questioning the candidate’s “qualifications.” A call to the corporate counsel is all it takes to crank out a formal demand letter.

Your carrier won’t pay an unfounded claim. A Summons and Complaint will get its attention though. It’ll get yours too — for many negative, time-wasting, placement-blowing hours.

As a practical matter, there’s no way for someone to discover most liability insurance coverage unless you tell them about it. The following precautions should be SOP:

a. Give your home phone number only to your agent and all other company representatives.

b. Meet with your agent and all other company representatives outside the office or after hours.

c. Write a letter to your agent requesting that statements, policy renewals, notices and advertisements be sent to your home or a private post office box.

d. Do not allow your staff to complete any insurance forms that request information on additional coverage.

e. Do not discuss your types of coverage, deductibles or limits of liability with anyone connected with your business.


Recruiters don’t realize how easily assets can be traced. For a few hundred dollars and a call to a private investigator in the Yellow Pages, anyone can obtain the following information on you:

a. The location, amount and activity on your business or personal bank accounts.

b. The location, amount and activity on your “asset management” or other stock brokerage accounts.

c. The location, value and liens on your business and personal cars, your office equipment or other property.

d. The lines of credit, financial profiles, loan payment history and other financial data concerning your business or yourself.

e. The amount you paid for real property, or to satisfy any court judgment.

It’s just not practical to bury things like the title to real estate or other major fixed assets. However, these are not enticing to angry adversaries anyway. Anger hurts. They want relief. If you’re nervous about losing these assets, find a competent attorney who specializes in trusts (“estate planning”) and strategize. You’ll be compromising flexibility for security, but a well-constructed trust is impenetrable like a well-constructed safe.


We are constantly amazed at the way placement paupers conduct their public relations. We regularly hear from owners who can’t pay their rent, but appear at the top of this or that “_______ 100”. One recently took three-months to pay us a $41 court filing fee for a contingency-fee collection case. While we were awaiting the reimbursement, his name appeared at the top of a major business publication’s “hit parade.”

How do folks like this get there? What did they write on the publisher’s form? Who receives copies of the published PR prize? All the people who care.

These PR pros think nothing of inflating financial data for loans, credit lines, or bidding proposals. It’s as though the information will never be saved. It always is — to be used against the one who provided it.

Publishers are most accommodating when it comes to disclosing the information. Their credibility is on the line, so they’re only too happy to show their objectivity.


Few owners in our business are detail-oriented. Most come up through the ranks, and lack the aptitude or fortitude to fight their way through financial figures and forms.

It’s natural to delegate this clerical job to clerks. Only clerks don’t usually guard the secrecy of financial data with their lives. In a small office, the level of their popularity increases directly with the level of their willingness to share. When was the last time you even mentioned a desire to keep financial data confidential?

If you want to stop leaks before they cause a flood of lawsuits, write a policy memorandum to every employee involved now. Be sure to include:

a. A reminder that all financial data is not to be disclosed to anyone other than yourself.

Article Continues Below

b. A prohibition against photocopying or removing any documents without your prior approval.

c. Specific instructions for safeguarding in-process documents in separate locked areas.

Even if your financial data is totally accurate, you can get in trouble. If you’re creative, and the recipient relies on the data to its “detriment,” creativity becomes “fraud.” No insurance will cover you for damages that result from intentional misrepresentations.


It does no good to talk or write about financial secrecy if you leave sensitive documents lying around.

This should be obvious, but what about old data? Remove it from the premises or shred it.

Any employee looking for dirt isn’t beyond jumping into a dumpster. It’s one of the regular places a private investigator checks, because it’s an open treasure chest.

Finally, tax returns may lose their confidential status if an employee files a lawsuit claiming that his compensation was adjusted improperly.

So even if documents aren’t taken or copied, the information can be used against you.


Expensive clothes, cars and entertainment are among the noticeable things that make you attractive to an adversary. Employees assume — sometimes justifiably — that you’re living well at their expense.

This makes them jealous and angry. To them, it’s just a matter of getting the money they earned.
The days of ostentatious display by owners have long since passed. If you’re still living in them, your dollar days are numbered.


While they’re working for you, recruiters are far more loyal to those contingency-fee, “maybe clients” than they’ll ever be to you. The reverse is also true. This is natural. There’s a personal and business relationship occurring that excludes you. The recruiter can afford to be nice — he’s really not liable for anything since he’s your employee.

When a recruiter is looking to leave, he capitalizes on that relationship. Clients reasonably believe that financial data you disclosed to them is known to your “consultants.” It doesn’t take much for it to be revealed. Even less for the client to become suspicious.

Banking relationships are similar. Although most bank employees are conscious of the confidential nature of financial information, they think your employee is authorized to discuss it Having worked in a bank legal department, I can assure you that “financial secrecy” is a contradiction in terms.

Therefore it is essential to notify your clients and senior bank officials that no financial information is to be discussed with any of your employees. Where appropriate, clearly mark each page of sensitive documents “Personal and Confidential.” In the case of your bank, inform them in writing that no unauthorized disclosure is to occur.

Even accurate data can entice a lawsuit. And as I mentioned in Item 3, there’s the added concern about creativity.

That’s how to prevent someone from filing a lawsuit against you. Don’t forego a fee to do it though. Before you file to collect on one, read The National Placement Law Center Fee Collection Guide (with Case Citations).* It contains important information to reduce the probability of a Cross-Complaint.

For more on how to make yourself “judgment proof,” I recommend Lawsuit Defensive Measures by Nahur Greenbird. It is available for $15.95 from your bookstore or the publisher:

H. W. Parker Publishers
l60l Woodrock Dr.
Round Rock, TX 78681
(512) 255-0702

*The National Placement Law Center Fee Collection Guide (with Case Citations) is available through:

Jeff Allen, J.D., C.P.C. may be reached at: Law Offices of Jeffrey G. Allen, 9601 Wilshire Blvd., Suite 1400, Beverly Hills, CA 90210, (310) 559-6000.

More than thirty-five years ago, Jeffrey G. Allen, J.D., C.P.C. turned a decade of recruiting and human resources management into the legal specialty of placement law. Since 1975, Jeff has collected more placement fees, litigated more trade secrets cases, and assisted more placement practitioners than anyone else. From individuals to multinational corporations in every phase of staffing, his name is synonymous with competent legal representation. Jeff holds four certifications in placement and is the author of 24 popular books in the career field, including bestsellers How to Turn an Interview into a Job, The Complete Q&A Job Interview Book and the revolutionary Instant Interviews. As the world?s leading placement lawyer, Jeff?s experience includes: Thirty-five years of law practice specializing in representation of staffing businesses and practitioners; Author of ?The Allen Law?--the only placement information trade secrets law in the United States; Expert witness on employment and placement matters; Recruiter and staffing service office manager; Human resources manager for major employers; Certified Personnel Consultant, Certified Placement Counselor, Certified Employment Specialist and Certified Search Specialist designations; Cofounder of the national Certified Search Specialist program; Special Advisor to the American Employment Association; General Counsel to the California Association of Personnel Consultants (honorary lifetime membership conferred); Founder and Director of the National Placement Law Center; Recipient of the Staffing Industry Lifetime Achievement Award; Advisor to national, regional and state trade associations on legal, ethics and legislative matters; Author of The Placement Strategy Handbook, Placement Management, The National Placement Law Center Fee Collection Guide and The Best of Jeff Allen, published by Search Research Institute exclusively for the staffing industry; and Producer of the EMPLAW Audio Series on employment law matters. Email him at


Leave a Comment

Your email address will not be published. Required fields are marked *