May 2015

In a case from last week the Fifth Circuit found upheld a district court’s judgment ruling that a recruiting firm was not liable for placement of a medical group’s office manager who embezzeled $60,000.  The case provides an interesting analysis of a recruiter’s responsibility in terms of presenting a candidate who turns out to be a thief and the validity of a refund provision.  A brief summary of the facts:

• the medical group needed a new office manager and the recruiter provided five resumes for review;
• the medical group interveriew four of the five and asked for references for two including the thief;
• the recruiter performed a background check on the thief that did not reveal any records from the national database;
• the recruiter was paid $7,275 for the referral;
• the thief worked for the medical group for six months until it was determined she was embezzling money;
• the thief did not have an undergraduate degree and was not an RN;
• the thief had a deferred adjudication in 2007; and
• the recruiters guarantee provided for: (1) full refund if the placement left within 30 days of employment (regardless of reason); (2) a prorated refund or free placement if the placement was employed for 30-90 days; or (3) a replacement for half-price if the placement was employed from 90 days to 5 years.

The medical group sued the recruiter under the Texas Deceptive Trade Practices Act alleging the recruiter was the producing cause of its damages and wanted its placement fee back.  The district court held that the recruiter was not the producing cause and the Fifth Circuit agreed.  Specifically, the district court found:

1. the medical group interviewed the the thief;
2. the medical group made the decision to hire the thief;
3. the medical group relied on the thief’s resume;
4. the medical group relied on its interview of the theif and feedback from the former office manager; and
5. the recruiter’s representation that the thief was an RN was not what caused the medical group to hire her.

In addition to its DTPA claim, the medical group claimed the recruiter’s refusal to refund the placement fee was unconsionable.  Again, the Fifth Circuit disagreed and affirmed, holding that it was not “unconscionable for [the recruiter] to follow its clear-cut express warranty rather than refunding the full fee and providing restitution.”  It’s unclear whether the medical group will take the recruiter up on a half-price placement.  After several years of litigation and an appeal to the Fifth Circuit I suspect the answer is no.

The takeaways for the recruiter: (1) make sure your engagement/guarantee agreement is enforceable and follow it; (2) be careful on what is represented to a client in terms of the background of a candidate; and (3) always make factual representations.  For the employer – don’t rely on a recruiter’s background check and conduct your own due diligence.

Thanks to our friends over at 600camp for pointing out this case and here is link to the opinion.