Negligent Hiring and Due Diligence as an Employer

In Manhattan this week, jurors are debating whether Matthew Martoma is guilty of insider trading while at SAC Capital Advisors, a prominent hedge-fund. For an injury lawyer, Mr. Martoma’s trial raises an interesting question: what kind of background searches are being performed these days?  

I ask this question because Mr. Martoma’s background contains some serious red flags. While attending Harvard Law School, Mr. Martoma forged his transcript in an attempt to get a clerkship with a federal judge. When the fraud was discovered, he was expelled from Harvard. Thereafter, he changed his name — prior to that time, he had been Mr. Ajai Mathew Thomas. Despite being expelled from Harvard, Mr. Thomas aka Mr. Martoma was admitted to Stanford, a highly-competitive school that has its choice of candidates and certainly does not need to take disgraced students out of some type of financial necessity. And after leaving Stanford, Mr. Martoma found his was to SAC Capital Advisors. So one is left to wonder if Stanford or SAC Capital Advisors performed any type of due diligence in researching Mr. Martoma’s background before accepting him as a student or hiring him as an employee.

 

Failing to perform a background search in some instances can result in liability. For instance, if a daycare hires someone with a history of a sexual abuse and then the employee sexually abuses a child at the daycare, then the daycare could be held liable for the assault under a theory of negligent hiring. By failing to perform due diligence before hiring the employee, the daycare placed a person unsuited for the job in a position where they could inflict harm on a student in their care.

 

Neglient hiring is often seen in instances of sexual abuse or physical assaults at churches, schools, nursing homes and hospitals. But, it can also arise with companies whose employees are inside customer’s homes and the customer becomes a crime victim at the hands of the employee. For instance, a carpet cleaning company who hires a violent criminal and the employee attacks the customer in their home. 

 

Going back to Mr. Martoma, it may be that SAC Capital Advisors assumed that if Mr. Martoma had graduated from Stanford then he could not have any problems. And that is exactly where the problem lies. Many employers assume that if the person was previously employed at a reputable company then there are no problems. And this is simply unacceptable in situations where a company’s employees are in a position to inflict substantial harm on the customer. Due diligence demands more than just assuming.

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