Staffing firm supplies embezzler with felony fraud conviction but not liable to Employer

In a recent state court case that concerned a fact pattern familiar to background screening specialist, a local office of a national staffing firm supplied an employer with a bookkeeper that turned out to have criminal record for felony fraud and who misrepresented her educational background.  The worker embezzled $138,350.  However, since the employer did not specify that the staffing firm should do a background check, and the staffing firm never claimed that they would do one, the employer’s claims were dismissed. 

In that case, an employer requested the locally licensed office of a national staffing firm to fill a position of secretary/bookkeeper position on a temp-to-hire basis, meaning the worker would start as a temporary worker and the employer had the option to make the position permanent with payment of a fee. 

According to the Court’s opinion, the local office would search and, “provide the names of the best candidates to (employer).  (The staffing firm) did not represent that it would perform a criminal background check on the candidates, and (employer) did not ask that a criminal background check be performed on the candidates. (Employer) did not specify that candidates should not have a history of any felony, fraud, or theft convictions. 

The worker sent to the employer in fact had a criminal conviction for felony fraud as well as false educational claims. The candidate misrepresented her past, including educational achievements, to the staffing firm, and the staffing firm did not do a background check. 

As it turned out, the worker sent was probably not the best candidate as was promised because after the worker became permanent, she started committing embezzlement from the employer in the amount of $138,350. 

The employer sued on the basis that the major national staffing firm was negligent in who they supplied, and made negligent misrepresentation (presumably about the commitment to send a qualified candidate). 

At a hearing for a summary judgment however, the trial court ruled for the major national staffing firm.  The appeals court upheld the ruling noting:

Foremost, it was undisputed that (staffing firm) did not represent to (employer) that it would verify an employment candidate’s educational and criminal history, and (employer) did not specifically ask (staffing firm) to perform such services… (staffing firm) did not have a blanket policy of performing criminal background checks on every employment candidate, and they did not represent to their employer-clients that they did perform that service. Plaintiffs did not offer any evidence that verifying educational and criminal histories of employment candidates was an industry standard in similar staffing firms. (Employer) admitted he told (staffing firm) he needed someone to answer the phones, get the mail, and take care of general bookkeeping. He also admitted he did not tell (staffing firm) that (the worker) would be allowed access to signed, blank checks, would be the sole person to review the general ledger, would be handling cash, and would have complete access to his and (employer’s) bank accounts. Furthermore, other than providing (the worker’s) name as a potential employment candidate, (employer) admitted that (the staffing firm) had no part in his ultimate hiring decision. 

Staffing firms however should not assume based upon this decision that the failure to perform background checks is always legally defensible. Even though the staffing firm won the case, given the negative publicity and potential harm to reputation, a background check would have been very cheap by comparison.  At a minimum, clearly specifying the staffing firm’s policy on background checks would also have been a best practice.

Most employers would probably assume that they would not have to specifically request that a staffing professional not send someone convicted of felony fraud to handle their books.  It is almost like saying that a when a person orders food in a restaurant, they need to specify that the food should not be contaminated. 

The employer in this case however, apparently had a lack of internal financial controls.  As the court noted, the embezzler had access to blank checks that were signed, would be the sole person to review the general ledger, would be handling cash, and would have complete access to his and (employer’s) bank accounts.  However, staffing professionals are generally well acquainted with fact the small businesses often cannot afford the type of internal controls needed to prevent embezzlement, which is another reason that staffing firms need to be careful when they place people in sensitive positions. 

The court noted that the plaintiff failed to present evident that staffing firms regularly do background checks. Employment Screening Resources is privileged to work with a number of truly outstanding professional staffing firms and recruiters that certainly do perform background checks before placing workers in sensitive positions.  Employers are well advised to ensure that any staffing firm or recruiters they choose conducts appropriate background checks with a qualified background firm.  ESR can recommend staffing firms and recruiters that operate under the highest professional standards and exercise due diligence in whom they place. 

(Note: Employment Screening Resources has adopted a practice of not indentifying the names of parties to lawsuits unnecessarily in blogs and newsletters, since it does not add anything to the lessons learned, and there can be more to the story.  However, if a reader has a reason to review the actual case and cannot locate it themselves, please contact Jared Callahan at jcallahan@ESRcheck.com or by phone at 415-898-0044.)