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Why recruitment agencies need insurance

August 6, 2018

Recruitment agencies are in the business of providing recommendations and advice. Your clients rely on your expertise to find, hire and nurture the talent they need to succeed. And while you're great at what you do, you need to protect your business against potential claims for financial loss arising from services you do (or do not) provide.

Know your exposures

  • Failure to perform required background checks on candidates
  • Placing a candidate who does not have the suitable experience or qualities for a role
  • Passing a CV to an existing employer or third party without a candidate’s expressed consent
  • Vicarious liability arising out of actions of on-hired employees

recruitment insuranceA $750,000 lesson

A few years ago a Recruitment Agency specialising in the legal industry learned of a potential job opening at a law firm.  The Agency was not on a retainer or contract with the firm, but sent a candidate’s CV through as a starting point. They never heard back.

The firm never advised that they had hired the candidate, but 6 years later they served a $750,000 writ on the Recruitment Agency. The candidate was found to have misappropriated funds, and had a prior conviction for similar offenses. The firm claimed the Agency should have conducted reference and criminal history checks.

The Recruitment Agency immediately notified their insurer, who successfully argued that they were not responsible and had not recommended the candidate. The incurred defence costs of $18,000 were claimable.

The moral of the story? A recruitment process can give rise to claims many years after they’ve concluded, so recruitment agencies need insurance. Remember:

  • Have professional indemnity insurance
  • Keep good records of all your interactions with clients
  • Understand your obligations when prospecting and vetting candidates
  • Notify your insurers of potential claims and incidents immediately

Click here to learn more about professional indemnity insurance and how it can protect your business.

 

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