The Foley Factor The Risks of Negligent Hiring
"If Foley worked at any Fortune 500 company, we’d be picking the jury right now," says David Curtis, a partner and employment law specialist at Shackelford, Melton & McKinley in Dallas.
Although the most infamous negligent hiring and supervision lawsuits arise from incidents of workplace violence, employers may be liable for many types of unlawful behavior by their employees, including acts of harassment, identity theft and fraud. Reports of applicants seeking jobs purely for the purpose of gaining access to sensitive information have fueled concerns about negligent hiring liabilities.
"An employer is ultimately judged--if not in court, then in the public eye--on what it should have done to protect its employees and the public given what it could have inferred from the available information about an applicant," says Ann Margaret Pointer, partner in the Atlanta office of employment law firm Fisher & Phillips. "Sophisticated HR executives know this."
Negligent hiring lawsuits were once relatively uncommon.
"The real drumbeat began three or four years ago, driven by the plaintiffs’ bar and by the increasing frequency and notoriety of incidents of workplace violence," Curtis says.
Sixteen states have specifically addressed negligent hiring in legislation and other states recognize the tort concept entailed.
Although negligent hiring cases are less common than many types of employment-related lawsuits, the size of the risk is large. Claims arising from workplace violence can result in a huge exposure because there are no caps on punitive damages.
"We’re talking about millions of dollars," notes Jody Ballmer, an attorney in the Chicago office of employment law firm Littler Mendelson.
"These cases revolve around the failure of companies to act ‘reasonably’ in the hiring process," Curtis says. "With these lawsuits, if the employer has not taken reasonable care in hiring, then there is no defense and the employer must settle the case."
HR executives can take specific actions to reduce the risk of a negligent hiring lawsuit, but the process is complicated by conflicting legal concerns about privacy laws, discrimination charges and defamation claims. Skilled interviewing techniques and a more thoughtful approach to reference letters can minimize these difficulties and limit the potential for a claim.
To show reasonable care in hiring, employers must make a systematic effort to gain relevant information about the applicant, verify documentation, follow up on missing records or gaps in employment, and keep a detailed log of all attempts to obtain the information, including the names and dates for phone calls or other requests.
Wide variations in state privacy laws restrict screening efforts.
"Most states allow some access to conviction records, for example, but some limit the number of years that can be covered in a search." Ballmer says. "The key is what the employer could have and should have known."
Interviewers commonly fail to pursue the lines of questioning that might help protect an employer from a negligent hiring claim.
"Most interviewers are not sufficiently familiar with the open position to ask the right questions," Curtis says. "And some companies have outsourced interviewing to people who don’t know what the job entails."
To reduce the risk of a negligent hiring lawsuit, the interviewer must have a detailed understanding of the work performed, the degree of contact with other employees and the public, the amount of access to sensitive information, and the level of independent judgment required.
"If you know the position, you know what ‘reasonable’ questions to ask to screen applicants," Curtis says.
For example, hiring a candidate with a history of difficulty in dealing with minority groups for a position that requires direct contact with those groups may open claims of negligent hiring if the new hire engages in harassment or violence.
"You must attempt to unearth any difficulties the applicant had in the past," Curtis warns.
In many cases, interviewers are keenly aware of the discrimination charges that may occur if they ask certain questions, but are unaware of the negligent hiring claims that may arise if they fail to pursue certain topics.
"There is a lot of irrational paranoia about discrimination claims stemming from the interviewing process," Curtis reports.
Curtis suggests that interviewers mentally place themselves on the witness stand in a negligent hiring trial and explain to the jury why they did or did not ask the job candidate certain questions that might have revealed red flags.
"The people who were responsible for the hiring will have to describe exactly what they did. An interview is not just talk and intuition," Curtis says. "A trained interviewer knows how to read an application and ask tough questions."
Policies on reference letters can create additional risks because many companies will provide only the most basic information on a former employee.
"But getting at least this basic information is important to spot gaps in employment and confirm the job titles for previously held positions," Pointer says. "And for some occupations, employers have an affirmative duty to inform a prospective employer about any negative conduct or behaviors."
In addition to reviewing reference letters, Pointer recommends that HR staff should attempt to talk to the candidate’s former supervisors.
"Sometimes they will be forthcoming," she says. "When you talk to them, you not only learn what they say and--equally important--what they don’t say, but you can also note the tone and the nuance of the conversation."
HR should keep written records of the phone calls, including the names and dates and any follow-ups based on the discussion. The key is to document all elements of the screening effort. Pointer also recommends that employers request official transcripts directly from the schools so they can verify the degrees earned and check for time gaps.
The liability for a previous employer is generally limited if that employer has a clear policy that it will only release a limited amount of information, Ballmer says.
"The real question is what the prospective employer asks, not what the previous employer reports," Ballmer says. "It is important to record all attempts to gain information and any results."
Curtis notes, however, that the extent of a previous employer’s duty to reveal information about a former employee is now a developing area of law.
"For example, if an employee was fired after multiple incidents of sexual harassment, and the former employer fails to reveal this information in a reference, that employer could share some liability for the employee’s unlawful behavior in the new workplace," he says. "This is the next wave in negligent hiring lawsuits."
Curtis advises employers to revisit their policies on the information they reveal in reference letters.
"Companies are afraid of defamation lawsuits, but that position is being pierced now," he says. "There may be greater risks in withholding information."
The prospective employer can find protection in a properly constructed waiver. The waiver should explicitly list all references requested.
"Make sure that the waiver particularizes each employer and complies with state law," Curtis advises. "Once you’ve done that, if a previous employer refuses to release information, your liability is limited."
Liability issues are also complicated when a third party is involved in the hiring and screening process. When a negligent hiring claim arises from the behavior of a temporary or contract employee, the employer and the employment agency may be held in joint employer status and incur joint liability, according Ballmer. When screening is outsourced, both the employer and the screening firm may be jointly liable.
In selecting a screening vendor, the employer should ensure that the firm is complying with federal and state privacy laws. Particularly if the screening firm handles sensitive jobs, the employer needs to exercise due diligence in its investigation of the vendor.
Recruiting and hiring staff should exercise extreme caution in screening applicants for HR positions.
"Research indicates that some people are taking jobs in human resources and other corporate departments purely for the access they gain to other employees’ Social Security numbers and other personal information," Pointer cautions.
Budget-stressed companies may bring in temporary workers without considering the type of information they will have access to.
"This is a real flash point for danger," Pointer says. "Some applicants may be looking for access to trade secrets. This is a growing concern for HR executives. The point is that the downstream negative consequences of insufficient screening go well beyond the threat of a negligent hiring lawsuit."
Too often, recruiting risks are not properly evaluated because recruiting is not a priority for operations, Curtis says.
"In these situations, the role of the HR executive is to provide vertical education—informing the COO, CFO or CEO about the potential liability that occurs when exercising ‘reasonable care’ is not part of hiring process," Curtis says. "If the top executives understand that the threat is a verdict with a seven-figure price tag, they will pay attention."