May Recruiters Solicit Employees from Clients?

Case law indicates that recruiters have no fiduciary duty to clients
As the competition for qualified employees becomes more intense, employers often retain recruiters or search firms to help find and recruit new employees. Employers, however, may not realize that the recruiters who are assisting them may also be placing their own employees with other companies. The role of recruiters and the limits on their conduct in soliciting employees from one of their own clients has not yet received extensive judicial attention but should be of growing concern in an increasingly competitive market. This article examines whether and how a company can protect itself from a recruiter that the company has retained.

A company using a recruiter to solicit new employees should be aware that little prevents the recruiter from placing the company's own employees with another company for which the recruiter is also working. The multiple allegiances that recruiters have to any company that retains them leads to the sometimes harsh reality that turnabout is fair play. While it might seem like a conflict of interest for a recruiter to solicit the employees of a company while also seeking to help that company find new employees, there are a few common law limitations on a recruiters ability to place employees of its own clients at other companies.

No fiduciary relationship
First, recruiters do not typically owe their clients a fiducuary duty, particularly if they are working on a nonexclusive basis. Forum Personnel Inc. v. David J. Greene and Co. LLC, No. 01-402, 2002 WL 424344, at *1 (N.Y. App. Term 1st Dep't March 14, 2002). Even when a recruiter works closely with a company, the recruiter's role is to typically locate and forward potential candidates to the company. The company conducts its own interviews with the candidates, makes the decision about whom to hire, and is not obligated to hire any of the candidates  forwarded by the recruiter (although the company might have to pay the recruiter even if it hires a candidiate the company locates through other sources).

Since the recruiter's role is limited to finding and presenting candidates to the company and the company conducts its own dilligence by, at least, interviewing the candidates and deciding whether to hire a candidate, the relationship between the recruiter and the company typically does not rise to the level of a fiduciary relationship. Id. at *1; Mount Sinai Med. Ctr. of Greater Miami Inc. v. Heidrick & Struggles Inc., No. 04-13880, 2006 WI. 1914587, at *2 (11th Cir. July 12,2006) (per curiam); see, e.g., Northeast Gen. Corp. v. Wellington Adver. Inc., 624 N.E.2d 129 (N.Y. 1993) (a finder does not owe its client a fiduciary duty since, among other things, the finder's role is to locate and introduce to the client potential targets for acquisition, the finder had no power to negotiate transactions and the client company was capable of, and could perform, its own due diligence).

In Forum Personnel Inc., the plaintiff recruiter sucessfully placed a candidate with the defendant company. The recruiter subsequently placed the defendant company's own personnel manager with another of the recruiter's clients. As a result, the defendant company refused to pay the recruiter's fee for the original successful placement. The recruiter sued to recover the fee and the company counterclaimed for, among other things, breach of fiduciary duty. The trial court dismissed the company's breach of fiduciary duty counterclaim and granted judgement for the recruiter. On appeal, the New York appellate court affirmed, recognizing that there was no fiduciary relationship between the recruiter and its client company.

Second, while it may seem reasonable to believe that a recruiter who uses his knowledge of a client's organizational or compensation structure to recruit the client's employees has misappropriated confidential information and can be held liable for doing so, such a claim is unlikely to be successful. Initially, a company would need to prove that the recruiter actually used the company's information to solicit the company's employees. Then a company would need to prove that the information the recruiter used was confidential. A number of courts have held that information identifying an employee or the employee's contact information, position, experience and compensation is not confidential. See Lockheed Martin Corp. v. Aatlas Commerce Inc., 725 N.Y.S.2d 722, 725-26 (N.Y. App. Div. 3d Dep't 2001); Unisource Worldwide Inc. v. Carrara, 244 F. Supp. 2d 977, 988 (C.D. Ill.2003) (applying Illinois law). Thus an employer would need to show that the recruiter relied on something more than basic information about the employees being solicited to prevail on a claim of misappropriation of confidential information.

Third, it is unlikely that a recruiter's placement of a client's employee with another company gives rise to a claim that the recruiter has breached a duty of good faith and fair dealing. While a duty of good faith and fair dealing is implied in most contractural relationships, the recruiter's obligation is limited to presenting candidates to the client. A claim that the recrutier breached its good faith obligation through conduct unrelated to the recruiter's location and presentation of candidates to the client is unlikely to be successful. See e.g. Mount Sinai Med. Ctr. of Greater Miami Inc. v. Heidrick  & Struggles Inc., 329 F. Supp. 2d 1309 (S.D. Fla.2004). aff'd 2006 WL 1914587 (11th Cir.2006) ( a recruiter's alleged material misepresentations of a candidates career and qualifications could not constitute breach of duty of good faith and fair dealing since the central purpose of the contract was for the recruiter to present candidates to the client so the client can make its hiring decisions and the recruiter's alleged bad acts did not obviate that central purpose).

No one industry standard
With a few common law limitations on a recruiter's conduct, there does not appear to be a uniform position within the recruiting industry regarding whether and when a recruiter can place employees of a current or recent client with a different client. For example, the Professional Practice Guidelines of the Association of Executive Search Consultants do not contain any explicit limitation on a recruiter's ability to recruit from a current or recent client. Instead, they state that the recruiter and client should agree "concerning any 'off limit' restrictions or other related policies that govern when and how the recruiter may recruit from the company in the future." The implication of this guideline is that absent an agreement between the recruiter and client, there are no limits on the recruiter's ability to recruit from the client.

The consultants' code of ethics provides no insight into what this "reasonable belief" should be based on, giving the recruiter a tremendous amount of room to recruit from its former or current clients.

Ask Miss Deed...

Dear Miss Deed:

I am the owner of a very small company (three people) and we utilize the World Job Bank as a source for doctors.  As you know, it is very hard to get in touch by phone with candidates, so I find it very time-saving to e-mail them.

Our clients always put pressure on us to get good candidates and want anyone we identify sent to them ASAP. When I read the background of a candidate on the World Job Bank that fits what my client is seeking, I simply e-mail my client the information about the doctor. Sometimes it's the CV, other times it's the summary. The client loves this because they can then call or e-mail the doctor directly, thus speeding up the process. Besides, my client knows far more about their own situation than I do. One of my partners thinks this may not be "according to Hoyle."

Yours truly,
On the Brink

Dear On:

I think it is great you are so heavily immersed in the electronic information age. Regardless, we are, hopefully not surprisingly still in a people-to-people business. Talking to candidates is still the foundation of what we do. While e-mails may be (in your eyes) more efficient, they do not provide all the key information in the detail your clients should expect and deserve.

Furthermore, and certainly of equal importance, the Code of Ethics which you agreed to live by is very specific on the issue of referrals. The candidate must first be made aware of who your client is and must, additionally, give you permission to send their CV to your client. Sending a CV to your client without the doctor's knowledge or permission is a very serious breach of the Code of Ethics. Additionally, you are potentially blocking the proper referral from a recruiter who has truly spoken with and is working with the physician.

I think it is probably time to reassess your referral procedures.

Cordially,
Miss Deed

Miss Deed is an expert on all things ethical, and is ready to answer your questions. All questions to Miss Deed must be accompanied by the individual's name, telephone, and e-mail address. If the individual does not want his or her name published, we will publish the question with the statement: "Name Withheld by Request." No questions will be considered without verifying who the sender is. Send your questions to Miss Deed at the following e-mail address: DearMissDeed@napr.org and your question may appear in an upcoming NewsFlash!