Quirky Question # 191:

I read with interest your analysis of pre-employment background checks in Quirky Question # 189. I’ve got a slightly different inquiry touching on the same issue.

I’m a Human Resources Executive at a national retail company. During several parts of the year, we need to hire additional cashiers. For many years, we have successfully used a temporary staffing agency to fill these seasonal positions. The temporary workers are employed by the staffing agency, but work at our company.  

We offer a store credit card, and instruct all cashiers (whether regular or temporary) to encourage customers to complete applications for the card while checking out their purchases. The credit card application requires detailed personal and confidential information. We have several practices, procedures and policies in place to protect our customers from identity theft. For example, we conduct pre-employment credit and criminal background checks on all of our regular employees, and assume that the temporary agency conducts similar background checks on their workers whom they place at our company.  

Since the seasonal workers are technically employed by the staffing agency, does that eliminate (or reduce) our liability should it turn out that the worker steals a customer’s identity? Moreover, should we play any role in what background checks the staffing agency runs on the seasonal workers to reduce any liability we may have for negligent hiring of those workers?

Ed’s and Jillian’s Analysis:

Great questions.  Here are a few general principles that we hope you will find helpful.

In your contract with your staffing agency, you should require the staffing agency to conduct background checks for any employee placed at your company. Those background checks should be very similar (and preferably identical) to the background checks performed on your own employees for the temporary workers the agency provides. Your contract should also clearly provide: (1) how and under what conditions negative information revealed by the background checks must be communicated to the company before any employee is placed by the staffing agency at the company; and (2) the type of approval the company must provide before any such placement if the background check uncovers negative information in the employee’s background.  

It may be possible for an employer to avoid vicariously liability for the tortious or criminal acts of individuals working on their premises through a temporary staffing agency. See, e.g., Sandra M. v. St. Luke’s Roosevelt Hosp. Center, 33 A.D.3d 875, 880 (N.Y. App. Div. 2006) (stating that an employer may delegate the task of conducting pre-employment background checks, and the liability for performing them negligently, to an independent contractor); Escoto v. Estate of Ambriz, 200 S.W.3d 716 (Tex. App. 2006); Gaeke v. Primus Automotive Fin. Svcs., Inc., 2002 WL 32133028 (W.D. Tex. 2002) (finding no liability for negligent hiring or supervision where defendant contracted with staffing agency for clerical help).  

The delegation is not without limits, however. Even in situations where the employer did not have a duty to hire or supervise the temporary worker, an employer still may be found liable to an injured party if it acted negligently in choosing the staffing agency that provided the worker and conducted his/her background check. For example, if a temporary worker engages in inappropriate conduct that results in liability, whether the employer or the staffing agency that conducted the background check will be held liable may depend on the reasonableness of and diligence used in the employer’s choice of the staffing agency. See Sandra, 33 A.D. 3d at 881 (stating that an employer’s reliance on another entity to supply temporary workers was reasonable for certain positions, so long as the temporary agency supplied workers with “no inappropriate behavior or propensities”) (quoting Maristany v. Patient Support Servs., 264 A.D. 2d 302, 303 (N.Y. App. Div. 1999) (“an employer has the right to rely on the supposed qualifications and good character of the contractor”)). Therefore, an injured party could potentially bring a successful negligence action against the employer based on the employer’s negligence in choosing and relying on a particular staffing agency to conduct background checks and inform it of any negative information uncovered regarding the workers to be placed on its premises.  

The employer also can be found negligent under a failure to supervise theory. See e.g., Verinakis v. Medical Profiles, Inc., 987 S.W. 2d 90, 98 (Tex. Ct. App. 1998) (pet. denied Tex. 1999); Cook v. Greyhound Lines, Inc., 847 F. Supp. 725, 732 (D. Minn. 1994). For example, if the employer failed to provide proper oversight or training, or failed to employ reasonable safeguards to guard against employee theft of customer information, an individual injured by the actions of the temporary employee might be able to assert a claim successfully.

Moreover, once negative background information is conveyed to the employer by the staffing agency, the employer may be subject to liability for the improper use of that information to the same extent it would be had the employer conducted the check. Therefore, all employers should be aware of laws affecting the use of information learned through pre-employment background checks when establishing the policies and procedures for handling such information.

Practical Guidance

There are several approaches employers can use in contracting and working with a staffing agency that may reduce the potential of liability for the conduct of a temporary worker for whom the staffing agency failed to conduct an adequate credit or criminal background check or to convey relevant negative information.

  1. Make a Well-Considered Choice of A Temporary Staffing Agency

If you choose to have a staffing agency conduct background checks for your own employees or for temporary workers who will work at your company, take care to that you use due diligence in choosing the agency that your organization uses. Make sure you know the vendor by gathering adequate information on the background of the agency and its clients, practices, awards, and any prior problems to make an informed decision on which agency to use. Your goal is to hire an agency that no one could argue you were negligent in choosing. In short, check the background of the background checkers.

  1. Make Clear Through a Binding Contract That The Staffing Agency Has The Obligation To Conduct The Background Checks

Once you have carefully selected the entity you will use for candidate selection and associated background checks (and documented your decision-making process) the structure of the contract under which these tasks will be done is a critical factor to how any potential liability based on the worker’s conduct may be determined. Without a contractual obligation to conduct background checks, a temporary agency may be found to have had no duty to do so. See Fox Associates, Inc. v. Robert Half Intern., Inc., 334 Ill. App. 3d 90, 97 (Ill. App. Ct. 2002) (affirming dismissal of plaintiff employer’s negligent misrepresentation claim based on the staffing agency’s failure to provide information of a temporary worker’s prior conviction for embezzlement after the worker embezzled from the plaintiff, because plaintiff failed to allege that the staffing agency was under a duty to conduct a criminal background check on the temporary worker).  

  1. Set Forth Specific Procedures for Conducting Checks and Communicating Their Results

The contract with the staffing agency should specifically set forth the agency’s obligations in conducting the background checks and the checks should be no less than the scope of the checks performed on your own employees. The contract should also cover when and how negative information uncovered should be communicated to you. The required procedures for doing so should be in writing, and should, at a minimum, include what information will be conveyed (e.g., all negative information) and how this will be done (e.g., a written report, signed by the recipient before the candidate is placed). A clear and detailed procedure for what and how potentially damaging information will be communicated to the employer is essential.

  1. The Contract Should Govern What Happens if Negative Information Is Uncovered

The contract with the staffing agency should provide detailed procedures for how any negative information revealed in the checks will be communicated to you and what must occur before a worker whose background check reveals negative information is placed on your premises. The contract should require that no temporary worker whose background check reveals negative information, as defined in the contract, will be placed on your premises without your written consent. Once any negative information is communicated to you, the decision regarding the effect of the that information should be based on the duties and industry of the position, as well as the context of the negative information, as we discussed in Quirky Question # 189 regarding the potential for claims of disparate impact discrimination based on pre-employment background checks.  

  1. Do Not Allow For Discretion in Whether to Share Information

The contract should not allow for discretion in these matters. To avoid a potential argument by the staffing agency that its failure to convey information was reasonable, the contract should provide detailed directives for what background check information will be shared with you.

  1. Include an Indemnify and Hold Harmless Provision for Liability Resulting From Improperly Conducted Checks and Improperly Conveyed Information

Because unforeseen scenarios may arise, you should require that the contract contain an indemnify and hold-harmless provision for any employer liability resulting from the inadequacy of the staffing agency’s background check or the failure of the agency to convey relevant (and contractually required) information uncovered by the background check. That provision should also cover your attorneys’ fees and costs in defending against any such claims.

  1. Ensure That Contract Procedures are Consistently Followed

Once your detailed contract is implemented, make sure its required procedures are consistently followed. We recommend conducting random audits of worker referrals and how their background checks were conducted and any resulting information was shared with you. The timing and frequency of the random audits should be specified in the contract.  

  1. Act On Negative Information Revealed in a Candidate’s Background Check

Once the staffing agency has met its contractual obligations in conducting the check and conveying its results, you must act on that information in the same manner as if you conducted the background check yourself.  

  1. Review training and safeguards to make sure they are reasonable and sufficient to guard against theft of customer information

Although not directly related to the background checks, an employer should review its processes and procedures to make sure that its training and safeguards are reasonably designed to prevent identity theft.  

One caveat: This approach is not a one-step solution to your dilemma. By way of example only, while it might diminish a company’s risk of a successful suit alleging negligent hiring, it would not necessarily diminish a claim based upon the company’s allegedly insufficient oversight of or training of the temporary worker if the worker were to steal confidential information after the worker is placed at the company. Plaintiffs might also attack the company’s technology, claiming that safeguards should have been, but were not employed by the company, to prevent the theft. As we discussed previously, there remains a risk of disparate impact discrimination claims stemming from the way in which background checks are conducted or the way in which information revealed by them is used by the company.

That said, while there is no guaranteed method of eliminating all potential liability, consistent application of these nine steps should reduce the likelihood of liability based on a temporary worker’s past conduct.