WHEN CAN CONSULTANTS BE SUED BY THIRD PARTIES?

Consultants are paid by their clients to offer advice.  Sometimes, a consultant's advice causes harm to third parties.  For example, a consultant may advise a client to change vendors or lay off employees.  The former vendor and the laid-off employees will be harmed if the client follows the consultant's advise.  This article discusses the circumstances under which third parties, such as the former vendor and the laid-off employees, can sue the consultant.

The law has established a rule called the Consultant's Privilege, which protects consultants from third-party lawsuits in most instances.  Under this privilege, a consultant is immune from third-party lawsuits if the consultant gives honest advice within the scope of the engagement.   Courts grant this immunity to consultants as a matter of public policy.  The courts recognize that businesses often need to rely on consultants' advice, and consultants will be reluctant to give advice unless they are protected from third-party claims.  Fortunately for consultants, getting past the Consultant's Privilege is usually not easy.

First, proving that a consultant has not given honest advice can be quite difficult.  Consulting is often subjective.  Simply because different consultants might suggest different solutions does not make a particular suggestion dishonest.  However, consultants may be acting dishonestly if they offer advice primarily for their own benefit rather than for the client's benefit, and as a result, third parties are injured.  For example, a consultant may be acting dishonestly if the consultant, desiring to sell a client software, convinces the client to terminate a competing vendor when that action was really unnecessary for the client's interests.

Second, proving that a consultant has gone beyond the scope of the engagement is also generally difficult because, for purposes of the Consultant's Privilege, the scope of the engagement may expand to fit the advice.  The Consultant's Privilege provides that if a consultant discovers a problem that is outside the initial scope of the engagement but is within the consultant's competence, the consultant may alert and advise the client without fear of third-party lawsuits.  Again, public policy is involved.  The courts expand the scope of the privilege because they assume that clients want consultants to give complete advice, even on matters that were not part of the initial engagement.  For example, a consultant engaged to debug coding for a website may also advise the client to change website hosts if such additional advice is within the consultant's expertise.  However, the consultant may not be protected from a lawsuit by the website host if the consultant lacked expertise regarding website hosting.

In conclusion, consultants should be immune from claims brought by third parties who are harmed by the consultant's advice, so long as the advice was honestly given and is within the scope of the consultant's expertise.  Consultants can best invoke the protections of the Consultant's Privilege by refraining from acting as a consultant and vendor for the same project and by refraining from giving advice beyond their expertise.