Lawsuits against Executive Recruiters
are on the rise. Leading insurance brokers and lawyers
across the country report that lawsuits against
Executive Recruiters have soared by 30% over the
past few years, and show no sign of letting up.
These lawsuits generally involve allegations of
unqualified candidates, failure to perform background
checks or improper screening. The lawsuits are costly
to defend. Moreover, because clients invariably
seek lost profits arising from business interruption,
it is not unusual for clients to seek tens of thousands,
if not hundreds of thousands, of dollars in damages.
A few years ago, clients were more willing to welcome
Executive Recruiters into the corporate family and
work with them when challenges and problems arose.
Today, however, when there are problems clients
do not hesitate to hire lawyers and race to the
courthouse. Clients defend their race to the courthouse
by arguing that they are looking to bring some accountability
to the executive Recruiter Profession; Executive
Recruiters counter that they are simply scapegoats
for corporate executives seeking cover.
As a result of the flood of lawsuits, Executive
Recruiters are being more careful in how they approach
a new assignment. Handshake and verbal deals have
been scraped for written contracts with legal protection.
Any many Executive Recruiters are insisting that
two key provisions be written into the contract:
a Limitation of Liability Provision and a One Year
Time Limitation to File Suit. |
| A Limitation of Liability Provision is a
contracted-for term, which caps the monetary
liability of the Executive Recruiter in the
event of a lawsuit. The most common limitation
of liability provision caps the liability
of the Executive Recruiter to a percentage
of the finders fee paid to it by the client.
This precludes the client from recovering
consequential damages, such as loss of anticipated
profits-which can be crippling and send an
Executive Recruiter into a financial crisis
or bankruptcy. In most states across the country,
limitations of liability provisions are valid
and |
 |
enforceable so long as they
are properly drafted. Moreover, more states,
including Pennsylvania and New Jersey, allow
firms to limit liability even for breach of
contract and negligence.
A One Year Time Limitation to File Suit is
a contracted-for term, which modifies the
otherwise applicable stature of limitations
(usually 2 to 4 years) and provides that any
lawsuit against the Executive recruiter must
be filed within one year of the date of the
hire. This provision helps prevent against
the difficulty of defending a lawsuit filed
2 or more years after the alleged wrongful
act or conduct when memories have faded, documents
have been lost or destroyed and |
|
witnesses have moved or past one. This provision
is enforceable in most states, including Pennsylvania
and New Jersey, so long as it is properly
drafted.
Don't expect clients to roll over and agree
to these and other contractual provisions
without some persuasion. One negotiating tactic,
however, which has proven the test of time,
is as follows. The Executive Recruiter should
advise the client that the fee being charged
is based upon the liability being assumed
by the Executive Recruiter in the contract.
Then, offer the client a greater limitation
of liability or longer time period to sue
in exchange for higher fees. This negotiating
tactic usually results in a "win win"
for the Executive Recruiter; that is, the
client either agrees to the original limitation
of liability and one year time to sue, or
agrees to pay the Executive Recruiter more
money for more protection.
The Executive Recruitment business is changing.
It has come far from the days when clients
welcomed Executive Recruiters into the "Corporate
Family". Rather than changing how you
do business, consider changing your legal
contract to enable you to prosper in the current
business and legal environment.
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