Duty of Care, Negligent Referrals and the Risk of Liability in the Sharing Economy

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Without realizing it, many Sharing Economy companies are making binding legal claims about the safety of their marketplaces – claims which could come back to haunt them should any of their contractors ever commit crimes while performing a service. So believes Robert Yonowitz, Partner at law firm Fisher & Phillips, LLP.

In fact, at the recent Collaborative Economy conference in San Francisco, Mr. Yonowitz cited example after example of potentially legally binding claims that he found on various Sharing Economy companies’ websites. These include claims such as “screened and trained,” “extensive vetting,” “verified,” “safety is our number one concern,” “peace of mind, guaranteed,” and on and on it went.

That safety and security is such a commonly emphasized theme suggests that the Sharing Economy sector seems to be cognizant about perceived risks in its respective marketplaces, though may not have fully understood all of the potential legal implications of its claims.

Mr. Yonowitz argued that at least some of these companies may have inadvertently created a duty of care, the failure of which could result in negligence claims.

Furthermore, he educated the audience that Sharing Economy companies, under certain conditions, might potentially be accused of negligent referrals through their marketplaces (i.e. a negligent referral may apply if a company provides a favorable reference thereby assuming a legal duty to its clients that it has conducted the proper due diligence to assert that the referred service provider does not pose a risk or danger to its clients.)

While some of this may sound rather esoteric and nuanced to those of us lacking a formal legal education, the consequences can potentially be severe.

Fortunately, companies can proactively take action to help mitigate some of these risks.

For example, Mr. Yonowitz made a compelling argument for minimizing liability by:

  1. Conducting thorough background checks,
  2. Reviewing credit history and civil judgments for financially sensitive positions as legally permissible, and
  3. Utilizing consistent processes for adjudications, while still providing each candidate with an individualized assessment of their background.

While not all risks can be eliminated, Sharing Economy marketplaces might consider implementing a “layered” approach to risk mitigation.

In addition to building the appropriate policies and internal security controls, background screening of marketplace service providers would be a key component of this strategy.

While some background verifications are a famously complex undertakings involving technical and operational challenges, all while remaining in compliance with regulations stemming in part from the Fair Credit Reporting Act (FCRA) as well as guidance from the Equal Employment Opportunity Commission (EEOC), savvy Sharing Economy clients should engage their legal counsel in a robust discussion regarding the risks posed by negligent referrals against the benefits of background screening.

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Abdul Rastagar

I lead the Product Marketing team at HireRight. I am a customer advocate, digital and future enthusiast, technologist, and all around curious guy.

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