Sooner or later some recruiter is going to really get nailed for not verifying candidate backgrounds. Aside from a few insignificant cases, it hasn’t happened yet.
Will you be one of them? Very likely. Search Research Institute estimates that over 98% of our industry relies totally on candidate representations.
That’s a shocking statistic — but one that electrocutes is that over 60% of all resumes contain some misrepresentation.
This column will answer the questions about why you are vulnerable, where you are liable, and how to avoid getting nailed:
1. MUST I CHECK REFERENCES?
No. But that’s not the question you should ask. So let’s start over with the right one:
1. AM I LIABLE IF I DON’T CHECK REFERENCES?
Yes. Thanks. We feel better already. You shouldn’t, though. There are few cases on the subject, so let’s reason out the answer using common law and common sense:
We’re in the area known as negligent misrepresentation, so let’s analyze the elements:
Our position is always that we have no legal duty to check anything. We “assert” (say) that our five-figure fee is strictly to match a person’s background to some job requirements given to us by a “client.”
We just check references if we’re curious or because we like to be thorough.
The law doesn’t quite see it that way: A legal “duty of due care to others” is interpreted according to a “reasonable person” standard. This is a shorthand way of asking “What would a reasonable person do in the same or similar circumstances?”
Therefore, the circumstances raise or lower the duty. Let’s say you call me for advice about your neighbor’s kids trampling on your tulips. Unless they’re old enough to place somewhere, I don’t have a clue about what to advise. But you’re in Sioux City (everyone is these days), so probably didn’t call me because I was in the “A’s in the phone book. Not only that, my receptionist answered the phone “National Placement Law Center.”
What do I do? Let’s say I source the applicable Iowa law. Only the computer prints out Indiana law through an error in the program. I sens you a copy of it along with reimbursement for your phone call.
Am I liable to you if you sue your neighbor and lose?
You’ll argue that you reasonably relied upon my representation (just like employers). Oh, I know — all I did was send you the law. But I blessed it, didn’t I? You’ll call yourself a “client” too (just like employers). Lawyers owe a duty to clients when it comes to legal things.
Did I write the law? Of course not. You don’t usually write the resume either. But you bless it when you send it. Your letterhead or rubber stamp is blessing enough to make it the same as if you prepared it. This is called “adopting” the resume, and you’re liable. (It’s like adopting a person or a pet.)
If you think about the duty some other person owes to you (like me), you won’t be so defensive.
Isn’t this fun? For you, maybe. But I have to defend myself, so I’ll “assert” that:
i. You “knew or should have known” that I didn’t specialize in trespass cases.
ii. You called me because I’m a placement attorney.
iii The receptionist answered “National Placement Law Center.”
iv. You didn’t pay me (the famous “freebie defense”).
Do any of these alter Jeff’s duty to give you the right rights? Nope.
This is merely a formality — it simply means that you didn’t do your duty.
Once again, the reasonable person standard is used. Would a reasonable person in the same or similar circumstances rely on my accuracy?
That’s why there’s an unreasonable amount of litigation: I’m reasonable, you’re not. (Don’t take it personally — you feel the same way about me.)
Let’s say I sent you a cover letter like your accountant uses when you ask him to balance your checkbook. You know — one of those “Don’t ask me because I’ll lose my ticket if I’m wrong.” goodies? I would be okay. You’d be “on notice” that I wasn’t accepting liability for the outcome. Now let’s get serious:
Suppose instead of a computer printout of a statute, you were sending a resume. Giving you the best possible argument, let’s assume it was the candidate’s resume (and not even stamped with your name or on your letterhead). At least that way, you could say that you were misled just like the “client.” (Don’t you wish you called it an employer now?)
The “client” says it relied upon your representation that the information was accurate. It also says you held yourself out to be a “consultant” — not a contingency-fee, no-guarantee, no-liability rubber-stamper. It’s hard to wiggle out of that one there’s so much talk in our industry about how we “advise,” “staff” and even “act on behalf of.”
We do more than talk about it too. We write it a lot. Brochures and fee schedules read like Roget’s Thesaurus. Here are some of the words (alphabetized for your convenience):
Those words are like “client” and “consultant.” You use them when you’re courting in marriage; your ex uses them later when you’re courting in court.
The law isn’t particularly kind here: It provides (usually by statute) that “ambiguous terms” are to be “construed” against the one who writes them. This makes sense — unless you wrote them. After all, who ran the press? [Rest. Contracts 236(d)]
d. Proximate (Directly-Linked) Cause of the
Injury in dollars. Compensatory means the fee. Punitive means an unlimited amount to punish. Exemplary means an unlimited amount to make an example of you (so people like us can eventually write about it).
A similar theory is breach of warranty. There’s an interesting case using it decided by the Texas Court of Appeals in 1984 (Diversified Human Resources Group, Inc. v. PB-KBB, Inc. (671 SW2d 634):
Diversified placed Bruce B. Bayoud as a senior engineer at PB-KBB, an engineering company. It confirmed the fee, sent his resume, and arranged the interviews. Then it checked his references (better job than most do), but not his credentials — a BSME and MBA. He had neither. (We wonder if Bayoud’s middle initial stood for “Bogus.”)
PB-KBB didn’t check Bayoud out itself. However, after hiring him (and paying Diversified $11,400) they discovered he couldn’t engineer very well. The guarantee period expired. When asked to produce the transcripts of his education, Bayoud balked, talked and walked. Supposedly he “resigned” — you know how that works.
The rest is a typical scenario at the National Placement Law Center:
a. PB-KBB made a demand on Diversified for return of the fee.
b. Diversified refused, offering to replace only.
c. PB-KBB refused, bringing a lawsuit for not only return of the fee, but punitive damages. In this case, it was pursuant to the Texas Deceptive Trade Practices Act (VTCA, B&C 17.41, et seq.). But there are a variety of other statutory and common law remedies.
PB-KBB’s basic theory was that Diversified breached an implied warranty as to candidate backgrounds being verified. PB-KBB could have also alleged negligent misrepresentation, breach of fiduciary duty, and perhaps even fraud. However, since the Texas Act allowed additional damages for an “unconscionable act or course of conduct,” they alleged it.
The implied warranty theory was proudly defended by Diversified. It always is. That’s because there’s always a fee schedule with an express guarantee. Only Diversified had the same proof of its receipt and acceptance by PB-KBB as you have: Nothing.
However, it did have a nifty little form called a “placement notification.” Here’s how the judge described it (671 SW2d 637):
[A] form filled out by one of its employees when an employee has been placed in a job . . . [It] contains various blanks for information to be filled out including the [candidate’s] address, phone number, salary, and the name of the company with which the [candidate] was placed. At the left corner of the form there is a typewritten notation “Guar. Per.” with a dash beside the notation, which [Diversified] claims was filled in with the handwritten notation “30 days.”
The court called the candidate a “client” throughout, so we changed the wording. (Needless to say, I didn’t represent Diversified.)
Unfortunately, Diversified’s daring defense was defective — it seems the placement notification was just an internal document. It wasn’t even sent to the employer!
Diversified’s masterful maneuver probably also included 30-day replacement wording on its fee schedule. It tried to say that the written words were an express guarantee (warranty) that short-circuited any implied one. Too bad — how could it show the employer even received (let alone accepted) it?
Well, I won’t keep you in suspense. The judge ordered return of the $11,400 dollars, and zapped Diversified with another $1,000, stating (671 SW2d 637):
From the record, it is apparent that both [PB-KBB] and [Diversified] were duped by Bayoud . . . There was no agreement between the parties as to who, if anybody, would make such a check, and there was no representation made concerning any verification. Although [Diversified] informed [KB-PBB] that it would send a graduate engineer, it claims that the custom in the employment agency business is not to verify the accuracy of academic claims. However, this custom was not shown to have been known by [PB-KBB] or embodied in the parties’ agreement; therefore, it is not competent evidence. (citing cases)
The retention of the $11,400 fee by [Diversified] after it learned that it had furnished an imposter to [PB-KBB] constitutes an “unconscionable action” under Section 17.58(a)(3) of the Act. An unconscionable action or course of action is defined in Section 17.45(5)(B) as one which results in a gross disparity between the value received and consideration paid in a transaction involving transfer of consideration . . .
As to [Diversified’s] claim that it offered to credit [PB-KBB’s] account when [it] demanded a refund, we find this offer of no consequence. When a consumer revokes an acceptance of a product or a service, the seller does not have a right to cure by repairs or replacement. (citing cases)
In the instant case, [Diversified’s] offer of a credit would have compelled [PB-KBB] to replace Bayoud through [Diversified]. This was tantamount to an offer of replacement . .
That part of the judgment awarding [PB-KBB] the sum of $11,400 actual damages is affirmed; the part of the judgment awarding [PB-KBB] an additional $1,000 as required under Section 17.50(b)(1) of the Act is reformed and increased to the sum of $2,000 as required by the Act.
You may recall an earlier case we reported in 1983 from the North Carolina Superior Court (Winston Realty Co., Inc. v. G.H.G., Inc. t/a Snelling and Snelling, 81 CVS 1137).
After a finding that the Snelling office represented it “prescreened applicants,” a $19,000 verdict was rendered. (This was the amount Winston Realty was skinned by hiring Mary R. Skinner as a bookkeeper.) Under the North Carolina Deceptive Trade Practices Act (NCGS 75-16, et seq.) the amount was automatically trebled to $57,000!
In the judgment, the court asked several questions. Here’s the one you should read carefully:
Did the Defendant, G.H.G., Inc. t/a Snelling and Snelling, do one or more of the following:
i. Publish or cause to be published false or fraudulent information, representation, promise, notice or advertisement?
ii. Knowingly make a false or misleading Promise or representation, or give false or misleading information to the Plaintiff in regard to employment, work or position, its nature, location, duration, compensation, or the circumstances surrounding any employments, work or position including the availability thereof?
Then, the court answered it s own question “Yes.”
2. MUST I CHECK CRIMINAL RECORDS?
Again, the official answer is “No.” We know — nobody does. Of course, the fact that we know it doesn’t help, since we’re not hiring your candidate. The employer must know it, or you can count on the allegation that it relied upon you investigating the criminal record.
There’s not much more to say about this, except that we don’t like it. Criminal records can be checked readily, and it’s no defense that arrests or convictions are illegal to ask a candidate under various state laws. Convictions of a felony would show up, and they can be asked everywhere.
Just look in your Yellow Pages under “Investigators” or similar headings. It’s right after “Insurance Agents.” The charge for a computerized “rap sheet” shouldn’t exceed $200. The charge for errors and omissions insurance should be weighed against the value of it. More on this in Item 5.
Using an independent source for checking gives you a great “alibi” (criminal talk). The investigator can be blamed for any errors, omissions, terrors or commissions.
One of our industry’s best gave his words to the wise in Robert Half On Hiring:
I can remember years ago hiring a young man who had been recommended by a friend of mine whom I hadn’t seen for several years. Because I knew the friend pretty well, it never dawned on me to check the young man’s references. But after a while, I had reason to suspect the honesty of the statements the young man had given me. I did some investigating on my own and found that he’d recently served time in jail for embezzlement and there was a likelihood that he’d be indicted again.
3. WHAT DO I WATCH FOR IN CANDIDATE DOCUMENTS?
a. Functional Resumes – Unlike chronological ones, these mask:
i. Educational embarrassments.
ii. Criminal records and hard time.
iii. Gaps in employment, and
iv. Omissions of jobs.
Experienced human resourcers know this, so they tend to reject candidates presented that way. This is fortunate for you — hiring them is dangerous.
Here’s what I wrote about functional (“flunktional”) resumes in How to Turn an Interview into a Job:
Some authorities advise a “functional” resume generalizing your duties when you have changed jobs more frequently then every two years. Interviewers are accustomed to application forms with chronological sequence, and therefore the narrative that a functional resume recites turns them off.
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Further, it is almost impossible to draft a generalized resume without looking like you’re hiding the truth.
Of course, chronological resumes can be fabricated too — just less easily. When out of state information is included, be careful (see Item 3d).
b. Underwritten Reference Letters
Your state might call them “service letters.” Statutes sometimes require that they be given to former employees. In others, they’re all that can be given. I covered this more fully in How to Get Perfect Job References.
They’re not headed “Statutory Suspicious Service Letter,” but they might as well be. Look for:
i. A subject line like: “Termination of (name of candidate)”
ii. Dates of employment.
iii. Positions held.
iv. Official reason for termination (“voluntary” and “resignation” appear around 90% of the time).
v. Eligibility for rehire (also around a 90% probability).
c. Overwritten (Falsified) Reference Letters
Our research of these shows:
i. The average number of pages is two.
ii. The average number of accomplishments is three.
iii. The average number of adjectives is 23 (“best,” “exceptional,” “superior,” etc.).
There are a variety of motives for people to overwrite reference letters. They range from doing a favor to being blackmailed. In How to Get Perfect Job References, I pointed out:
There’s an inviolate rule of business that applies to references:
Nothing happens until somebody sells something
Now it’s time to find the somebodies to sell you well. You must select your references with care — not so much for what they say but how they say it.
A spokesperson who knows nothing about you but who can speak convincingly, can sell you better than someone who does.
This shouldn’t surprise you. Just turn on your TV. Does the announcer really use the laundry detergent? Does the celebrity really drive the station wagon?
Does the cat really dance when he sees the dry food?
No — there’s another motivator. A big one. It motivates them to motivate you. If the words “This Is a Dramatization” were required, almost every commercial would have them.
I’m not advising you to fabricate references, but this illustrates how easily the game can be rigged.
d. Out-of-State Background or References
Condidates know that checking out-of-state criminal records, colleges, certifications, and even employers is a long, frustrating process. Letters are often necessary. Sources change names, destroy records or evaporate over time.
Women can fabricate data more readily because even failed reference checks can be explained by surname changes. It might not work eventually, but time is always on their side.
Men do it more frequently, though. Whether they’re less cautious, more pressured or just not as honest we can’t say.
The inability to check the reference’s veracity on a letter also encourages overwritten (falsified) letters.
So, regardless of who does it and why, beware of relying on out-of-state background or references.
We gave a comprehensive telephone reference check form in Chapter 34 of The Placement Strategy Handbook entitled “Reference Checking.” (www.searchresearchinstitute.com)
3. DOESN’T THE EMPLOYER HAVE A RESPONSIBILITY TO CHECK OUT THE CANDIDATE?
Yes. But here too, that’s not the question you should ask. The question is:
4. CAN I USE THE EMPLOYER’S FAILURE TO CHECK OUT THE CANDIDATE AS A DEFENSE?
Believe it or not, the answer is “Maybe.” There are three basic defenses to the negligent misrepresentation argument:
a. Assumption of the Risk
The courts historically have recognized that stuntmen can’t legally recover for knotted necks. The same principle applies in the employer negligence area.
The assumption of the risk argument is usually a complete defense. You need to show the employer:
i. Knew the risk of failing to screen (or supervise) the employee properly, and
ii. Voluntarily assumed that risk.
If so, the damages
iii Proximately (directly) caused will be its “own fault.”
Usually the issues here are like the Diversified situation (discussed in Item 1). The employer does everything possible to say it didn’t know of the risk, since it relied on your “consulting” expertise.
It’s a viable defense, but each case depends on different facts. Warnings on cover letters, fee schedules and resumes that you didn’t check references and don’t “warrant” them to be accurate help — legally. But they don’t help place people. The decision is yours.
b. Contributory Negligence
i. Owes a duty to its owners, employees, customers, vendors and the public not to hire unfit people (and improperly supervise them).
ii. It breaches that duty by not doing so,
iii Proximately causing its own
If this sounds like assumption of the risk, you’re right. It’s just that some judges like to distinguish between knowing a risk and being careless.
c. Comparative Negligence
This relatively new concept developed in the great state of California by its automobile insurance industry.
All it says is that if I ram my Yugo into your Rolls, but you were rolling backwards, we should compromise. So let’s say you’re 95% “at fault,” and I’m 5%. That sounds about right.
I pay for 5% of your damage, you pay for 95% of mine. No — we’d better use some other theory.
And the courts usually do. It’s called a mandatory settlement conference. That’s a judicial buzz phrase for “We can’t make them settle, but we can make them wish they had.”
5. WILL ERRORS AND OMISSIONS INSURANCE PROTECT ME?
Probably. At least the company will defend you with its lawyers. It might not pay the claim, though.
A lot will depend on the facts. Marginal claims will immediately generate “Reservation of Rights Letter No. 2.” It’s a little like those “no interest” letters employers send to candidates. The typical compound-sentence wording reads like this:
We call your attention to the Insuring Agreement that provides:
To pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages resulting from any wrongful act of the Insured, or of any other person for whose actions the Insured is legally responsible, but only if such wrongful act occurs during the policy period and arises out of the Insured’s business as a private personnel service as herein defined.
Furthermore, in the definitions portion of the policy, a “wrongful act” is defined as “any breach of duty, negligence, error, misstatement, misleading statement or omission.”
This company does not imply that any of the allegations as presented are correct, but in that they might have a bearing on the applicable coverage, this reservation of rights is being set forth.
We reserve our right to disclaim coverage on an additional and/or alternative basis in the event that factual evidence develops through discovery or investigation that gives us such cause. The company hereby notifies you of its undertaking to investigate the circumstances giving rise to the above-captioned lawsuit, and its acceptance of your defense is not to be construed as a waiver of any rights under said policy, and is subject to its “terms and conditions.”
The letter is signed by a claims adjuster (“representative,” “investigator,” “examiner,” “coordinator,” “supervisor,” “manager,” etc.)
The real message is “We’ll defend you because we don’t want you to report us to the insurance commissioner, or sue us for bad faith (a theory invoking unlimited punitive and exemplary damages). — But we ‘reserve the right’ to deny coverage for any amount you might owe by settlement or judgment.”
Vladimir Chernik cautioned in The Claims Game:
Nowhere is so much discretionary power given to so many people in so short a time as in the insurance claims field . . .
The power adjusters exercise over the future of an injured party are partly derived from laws and legal processes, and partly from the apathy of insurance company managements. As long as profits are hefty, which means that settlements are low, management is satisfied.
However, there is no better experience for a claimant than to meet a real human claims adjuster. Such people exist, even though in limited numbers. Words to the wiser wise. No need for a surprise.
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. www.placementlaw.com