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Employment Law/Avoidance of Litigation Risk

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Question
My wife has been helping to hire staff for her son's insurance business on a voluntary unpaid basis.  She used to work as an HR secretary for State Farm, so has some expertise in reading resumes, interviewing prospects, etc, but didn't actually do any hiring.  Now her son's firm wants to hire her to recruit some telemarketers and agents.  she and I are both concerned about personal liability in the event she gets sued for discrimination or (whatever?).  How can she protect her and my personal assets from a lawsuit?  What is the best way to handle her employment - as a simple employee of the firm, as an outside contractor, or ?  And where is the best place to find out what not to do as a recruiter to avoid legal ramifications?

Answer
Paul:

First, let me acknowledge that your questions are good ones.  While primary liability under all the major employment laws is the risk of the employer, who is vicariously liable for the acts and omissions of his employees and agents, it is possible for individual employees to be named as co-defendants in employment litigation.  Most plaintiffs' lawyers are more interested in the deep pockets of an employer than in going after individual employees, but sometimes they see value, strategic more than financial in most cases, in also naming employees as defendants.  In this context, as in most others, protection from personal liability is essentially a question of insurance, which raises the question, "Whose insurance?"  All prudent businesses have insurance that protects employees of the firm from personal liability for doing their jobs, so long as the employee acts within the scope of her authority and does not commit intentional criminal or malicious acts, and one would guess that an insurance firm would be especially careful in this regard.  So the first question your wife should ask her son is, what insurance does he carry for directors, officers and employees?  In the unlikely event that the answer is "none", then unless she wants to buy insurance on her own to cover such risks, she might want to politely turn down the offer of employment.  

If the firm does have insurance to cover its employees, then employee status is much better, in my view, than being an independent contractor, for reasons not limited to the liability coverage.  The biggest issue is that an independent contractor (assuming true independent contractor status exists, which is another whole set of legal issues) is responsible for her own Social Security and other Federal and state taxes, rather than having them withheld by an employer, and would be responsible for providing her own "tools and equipment."  If she prefers not to be an employee of her son's firm for whatever reason, even if he insures his own employees, it would be better for her to become employed by a staffing agency which in turn would contract with the insurance firm to provide her services to them.

As far as getting guidance for avoiding legal risks as a recruiter is concerned, the best source would be the firm's own attorney, assuming he or she is knowledgeable about employment law or works for a law firm that has someone available with that expertise.  If that is not possible, then she ought to consult an experienced employment lawyer on her own.  Recruiting in and of itself is not nearly as risk-laden as the actual hiring process, so a lot depends on how much authority she would have in making hiring recommendations or decisions.  There are also websites for HR professionals that contain good general guidance, but can't really help with specific situations that may arise in her work.  One good one is http://www.shrm.org/Pages/Default.aspx, run by the Society for Human Resource Management (SHRM).  

I hope this is helpful to you.

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Frank C. Magill

Expertise

I can answer questions about any U.S. labor or employment law question. I cannot answer questions about non-US law. I am not a specialist in employee benefit law (ERISA and HIPAA) or Workers' Compensation law, but will do my best to point questioners toward good resources availabe online. Expertise includes, without limitation, EEO/Affirmative Action/Employment discrimination (Title VII, Age Discrimination in Employment Act, Americans With Disabilities Act, GINA, Fair Credit Reporting Act as applied to employment); Fair Labor Standards Act; Texas labor code; Family Medical Leave Act; employee compensation; discipline and dismissal; force reductions, severance pay programs and administration; collective bargaining, union representation, grievances and arbitration, National Labor Relations Act and National Labor Relations Board; employee handbooks; staffing; dispute resolution outside of traditional labor agreements; employee communications; employment policies and compliance programs; codes of ethics; employment or labor litigation.

Experience

30+ years experience as corporate counsel for a Fortune 100 telecom company, specializing in labor and employment law issues. In addition to providing day-to-day advice to my company's internal HR leadership and staff, I've represented the company in numerous labor arbitration cases and at the bargaining table.

Organizations
Texas, Illinois and Missouri state bars

Education/Credentials
J.D. 1979, Harvard Law School. B.A., Summa Cum Laude, 1976, Illinois Wesleyan University.

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