Lawsuit Raises the Question of a Recruiter's Legal Duty to the Candidate

Recruiting lawyers can be lucrative, as demonstrated in my coverage of a Texas noncompete case last year. There, a legal recruiter's former employer won a $3,640,132.60 damage award against the recruiter for misappropriating trade secrets and violating his non-competition agreement. The story included a list of the substantial lawyer placement fees that made up the court's damage calculation.

A recent lawsuit brought against California legal search boutique Watanabe, LLC and its client, McDermott Will & Emery, presents the question of what legal duty, if any, a recruiter owes to a candidate. The case was filed by entertainment industry litigator Jeffery McFarland, who Watanabe placed at McDermott in July 2020.

The case arises out of a law firm's ethical requirement to determine whether a prospective lateral hire represents clients whose interests conflict with the hiring firm's existing clients. In some cases, such conflicts can be worked around. In others, they might actually derail a placement. In this case, the placement went through, with McFarland anticipating $3,250,000 in annual compensation.

According to the Complaint, things did not go as expected from the start. McFarland alleges that undisclosed conflicts of interest prevented him from bringing in the clients and billings he expected, thereby impacting his anticipated partnership status and income:

On his first day at MWE, Plaintiff asked the marketing department to prepare a package on the firm that he could send out to ... a large client for whom Plaintiff had done substantial work and which Plaintiff had expressly identified and listed... Shockingly, the marketing department responded that as MWE represented the outside directors of [the client] in a securities class action, representing the company was a conflict.

Also on the first day, Plaintiff prepared retainer letters for a group of partners of a talent agency ... that he represented ... so that he could bring their matters over to MWE. For the first time – and despite the matters ... being listed... Plaintiff was told that MWE represented [the agency] and its management in a wage and hour matter and Plaintiff’s clients created a conflict.

Further, despite Plaintiff telling MWE from the outset that he generally is adverse to the big studios, Plaintiff was surprised to later find that MWE represented nearly all the major studios in pre-production labor and employment/sexual harassment counseling. Accordingly, Plaintiff could not be adverse to any studios and thus his expectations regarding a major component of his arrangement with MWE were being defeated because of MWE’s negligent undertaking of the conflicts check and its failure to disclose material impediments to the expressed parameters of the deal MWE offered to Plaintiff.

On September 1, 2021, McFarland resigned from McDermott and moved to another firm. The lawsuit asserts that his practice "has yet to recover from the damage caused by the negligently undisclosed conflicts at MWE."

So why is recruiter Watanabe in the lawsuit? The Complaint goes on to allege:

In 2023, Plaintiff learned for the first time that MWE claims to have provided information to WATANABE regarding the undisclosed conflicts at MWE and that WATANABE failed to provide that information to Plaintiff in advance of him agreeing to the partnership with MWE.

Defendant WATANABE ... undertook to serve as a conduit for
communications on behalf of Defendant MWE, and by such undertaking, had a duty to Plaintiff to communicate accurately and completely all information related to the business that was to occur between Plaintiff and Defendant MWE, including but not limited to all representations by MWE to Plaintiff, and the status and outcome of any conflicts checks that were undertaken, and/or that were to be undertaken, by Defendant MWE in regard to clientele that Plaintiff was to be bringing to MWE in connection with his partnership with MWE (emphasis added).

The highlighted allegation raises the question of whether a recruiter has a professional duty to a candidate to make full disclosure of circumstances that could adversely affect the candidate. This is a matter of state law, and as the case progresses, we may learn how this federal judge views the issue. If the answer is yes, then the Plaintiff will still be obligated to prove that his allegations are true.

My quick search for relevant legal authority located a recent case that may be instructive, although not exactly on point factually. Patel vs. Kelly Services, Inc., Civil Action No. 22-2421 (E.D. Pa. 2023), presented a federal judge in Pennsylvania with the question of "whether a staffing agency owes candidates a legal duty to accurately answer questions about an employer's job requirements." Here, a recruiter falsely told a candidate that a college degree was not a client requirement for the position, apparently hoping that the client would overlook the candidate's lack of credentials. The placement was made, but after a short time the client discovered the lack of credentials and terminated the candidate. The candidate, who quit another job to take the position, sued Kelly. In a February 21, 2023, opinion the Court found that the recruiter could be held liable to the candidate for fraudulent misrepresentation. However, the court went on to find that the facts would not support a claim for simple negligence, because there was no recognized legal duty of due care by a recruiter to a candidate. In other words, the candidate had no professional liability claim.

McFarland's allegations against Watanabe do not allege misrepresentation. Rather, the Complaint merely alleges that the recruiter "failed to provide [the conflict] information to Plaintiff..." This would seem to squarely present a professional liability duty of care issue. I expect a Motion to Dismiss will be filed, and we may soon see how a California Federal Judge views the matter, keeping in mind that he or she will be making an educated guess about how California state courts would rule.