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Courts recognize liability of employment agencies

In good times, when candidates for employment are plentiful, many employers utilize employment agencies to locate talent. In tough times, when the labour pool seems particularly lean, employers may rely even more heavily on these outside consultants.
 
There is a lot of wisdom to that practice. Employment
agencies take one aspect of the hiring process, recruitment, and make it their specialty. By putting focus on this one task, their network of possible candidates is extensive and their expertise in screening applicants is well-honed.
 
But by placing their trust in an agency (known, variously, as placement or hiring agencies and more informally as headhunters), employers take a leap of faith that the agency truly has the employer’s best interests at heart. In that respect, the relationship is no different than between a client and any professional organization.
 
Perhaps, however, in the hiring context the client has much more to gain and to lose. The costs of recruitment, hiring, and training are substantial and a lot is riding on each hiring decision. The employee who is ultimately hired can go a long way towards making or breaking the fortunes of an employer. 
 
That being the case, employers want to make the most of each hiring and they place great trust in the hiring agency chosen to search out candidates.  Sometimes, however, that trust is misplaced and leads to a disastrous result. In those instances, the employer may turn its sights on the hiring agency for compensation.
 
One such case involved an Ontario employer named The Treaty Group and the placement agency Drake International Ltd. In 1996, Drake assisted Treaty Group in hiring an administrative assistant for its growing leather business.
 
The employee who was hired for the position, Simpson, worked for Treaty until 1998 at which time she resigned. After her departure, Treaty Group discovered she had defrauded the company of over $250,000. 
 
Treaty Group sued Simpson and won an award of damages against her. She was also convicted of fraud. It turned out that Simpson had two other criminal convictions of fraud against previous employers. 
 
Treaty Group then sued Drake for breach of contract, negligent misrepresentation, and negligence in relation to the services it provided in relation to the recruitment of Simpson. The primary issue at trial was Drake’s failure to adequately check Simpson’s references.
 
There was some dispute over whether reference checking was Drake’s responsibility. Drake’s undoing in this regard was their own fee schedule, which promised the “highest calibre of professional screening, evaluation and reference-checking”, and an “accurate outline of the ability, qualifications and past experience” of candidates. 
 
The Court determined that Treaty Group’s understanding was that it could rely on Drake to hire the best person possible who had been checked out and qualified for the position.
 
The Court found that Drake had failed “to perform any meaningful reference checking” in relation to Simpson. In a blunt assessment, the Court called Drake’s representations in their fee schedule “so much puffery that had little, or nothing, to do with the reality in which Drake conducted their business”.
 
The Court further determined that Drake ought to have known Treaty Group would rely on its representations about reference checking. It found that, had Drake taken the time to check Simpson’s references, Treaty Group would not have offered Simpson the job.
 
Ultimately, having determined that Drake was 50% responsible for the losses suffered by Treaty Group, the Court awarded Treaty Group damages of over $130,000. 
 
How could Treaty Group have avoided this long, unpleasant saga? First, it could have done a better job of ensuring it had clear knowledge of what tasks Drake was, and was not, performing on its behalf. It is one thing to believe that a contractual party is performing a certain function, it is another thing entirely to have substantiated knowledge of that fact.
 
Second, it could have been more active in reviewing the employment history and references of the employee Drake had put forward. Taking this active role would surely have led to the early discovery that reference checks had not been done.
 
In the end, Treaty Group obtained awards of damages from both Simpson and Drake to compensate it for its losses. But the impact on its business of spending almost 10 years in litigation surely was, to quote a popular advertisement, priceless.
 
Robert Smithson is a partner at Pushor Mitchell LLP in Kelowna practicing exclusively in the area of labour and employment law. For more information about his practice, log on to http://www.pushormitchell.com/.