The answer, of course, is “maybe.” In this case, a staffing agency placed a receptionist with a company, who, after being promoted to the head of accounting, proceeded to embezzle $15 million in the course of eight years. When the company discovered the theft, it sued the staffing agency arguing that it should have conducted a criminal background check on the woman (she had a prior theft record) before placing her with the company and that the staffing agency failed to notify the company of the woman’s criminal record when it discovered it at some point after she had been placed.

The trial court held the staffing agency did nothing wrong and dismissed all of the company’s claims finding that:

the staffing agency’s contract with the company did not require it to conduct criminal background checks;

the agency did not owe the company a fiduciary duty in placing employees because their contract specifically stated that the staffing agency was an “independent contractor;”

the agency was not negligent in supervising the employee because the staffing contract excluded the accounting department from the list of departments to be supervised by the agency;

the agency was not negligent in hiring or retaining the employee without a background check because it was not foreseeable that the employee would engage in embezzlement as a receptionist – the position in which she was originally placed.

The Court of Appeals agreed with the trial court on all except one claim. It found that the staffing agency could be liable for negligent retention i.e. for continuing to employ the employee after it found out about her criminal record and after it found out that the company had placed the employee in its accounting department, and failing to notify the company about the employee’s criminal background. Thus, a jury will have to decide whether it was foreseeable that an employee with a theft record would embezzle money when placed in an accounting department.

TAKEAWAY FOR COMPANIES: If your company uses a staffing agency, make sure your contract accurately and fully describes every responsibility and duty that you want the staffing agency to undertake. e.g., criminal background checks. If a placed employee does something that creates potential liability, the language of the staffing agreement will be key in determining who is held responsible for that employee’s actions.

TAKEAWAY FOR STAFFING AGENCIES: Sharing suspicions, concerns, or red flags about placed employees with the company with which they are placed can help avoid a later argument by the company that it had no knowledge of these concerns and blaming the agency. Also, when contracting with a company, consider limiting the staffing agency’s indemnification obligations only to those situation where the agency itself is negligent. If a company transfers or assigns a borrowed employee to a task or department that is not covered by the staffing agreement, consider getting a written release from the company confirming that the agency is not responsible for monitoring such employee after the transfer.

To read the entire Court of Appeals’ opinion, see Davis-Lynch, Inc. v. Asgard Technologies, Inc. (Tex. App.–Houston [14th Dist.] June 30, 2015.

Leiza Dolghih litigates employment and business disputes. She advises employers and employees on how to minimize the risk of litigation before it occurs and pursues and defends their rights in courts and arbitration once litigation arises. For more information, contact Ms. Dolghih for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.