Importance of background checks in employment decisions

Performing a background check as part of the hiring process, promotion, or retention in today’s world is essential. Stakeholders expect it. Regulators mandate it.

In a turbulent economy, the pool of job candidates is greater than ever and misrepresentations abound. For many firms, once an offer of employment has been extended, it is common practice to check the candidate’s background. Depending on the risk level of the position and its requirements, background checks can run the gamut from reference calls done internally, to using a consumer reporting agency to perform comprehensive searches to determine the existence of potentially negative information, such as criminal matters, civil litigation, bankruptcy filings, tax liens, judgments, regulatory actions, driving violations, and adverse media publicity, and to verify academic, licensing, employment and other professional qualifications and claims.

The law is clear–an employer who hires or retains a dangerous or incompetent employee can be held liable for that employee’s wrongful acts, if committed in the course and scope of his or her employment. The theories of negligent hiring and retention go even further–someone who is injured by an employee can sue the employer even if the employee’s conduct is outside of the employer’s control. For instance, one court found the owner of an apartment complex liable for a handyman’s assault of a tenant after working hours. The liability existed because the owner failed to screen the handyman’s background, which included a long list of violent crimes.

Underpinning the negligent hiring and retention theories is the negligence of the employer—that is, the employer knew or should have known the employee was unfit for the job, posed an unreasonable risk of harm to others, and did nothing about it. Virtually every state recognizes these theories as causes of action, or if not, has a similar legal theory. One of the best ways to reduce the risk of negligent hiring and retention liability is to perform adequate background checks as part of the hiring process and in connection with promotions or retention.

A well-designed background screening program that is compliant with applicable laws and regulations makes good business sense, as an individual’s prior history is often a predictor of future performance, workplace behavior and cultural fit. Various studies have shown that the cost of a bad hire is one to five times the salary of the job in question, considering the direct and indirect cost involved in recruiting, hiring, training, development, administration, management, and potential litigation, as well as the wasted wages and benefits. Comprehensive background screening can help identify individuals who may have a propensity for violence, theft, fraud, dishonesty, substance abuse, absenteeism, and other misconduct, and at the same time, find the candidates that can make the employer more successful.

Many employers are also required by government regulation, their insurance carriers, and/or their clients to conduct background checks. A comprehensive background check is clearly worth the investment. Employers never want to say “we should have known,” as an uninformed employment decision can result in significant financial losses and quickly tarnish an employer’s reputation.

November 5th, 2015|Educational Series, Employment Decisions|

Oregon bans the box

Oregon became the eighth state to ban the box after the state legislature passed House Bill 3025 and Governor Kate Brown signed the bill into law on June 26.

Beginning January 1, 2016, employers in the state may not require an applicant to disclose a criminal conviction on an employment application or at any time prior to an initial interview. If no interview takes place, disclosure may not be mandated prior to a conditional offer of employment. That means employers are only permitted to ask about criminal convictions during an interview or after it occurs.

Employers must notify an applicant that they will be subject to a criminal background check or required to disclose any convictions but “nothing in [the law] prevents an employer from considering an applicant’s conviction history when making a hiring decision” as long as the employer times the questions in compliance with the statute.

HB 3025 applies to all employers in the state with just four exceptions. Law enforcement agencies, employers in the criminal justice system, and employers seeking “a nonemployee volunteer” are all exempt. Positions where federal, state, or local law requires consideration of an applicant’s criminal history are also not covered by the statute.

Tasked with enforcement: the Oregon Commissioner of the Bureau of Labor and Industries. The law did not create a private right of action allowing individuals to file suit. Importantly for employers in the state, the legislature elected not to preempt municipalities from enacting their own stricter version of the law. For example, the Portland City Council is currently considering its own take on a “ban the box” law that would apply to employers in the city.

Oregon’s passage of the measure adds the state to the fast growing list of jurisdictions to ban the box. There are over 100 cities and counties, and 18 states representing nearly every region of the country that have adopted the policies — California (2013, 2010), Colorado (2012), Connecticut (2010), Delaware (2014), Georgia (2015), Hawaii (1998), Illinois (2014, 2013), Maryland (2013), Massachusetts (2010), Minnesota (2013, 2009), Nebraska (2014), New Jersey (2014), New Mexico (2010), Ohio (2015), Oregon (2015), Rhode Island (2013), Vermont (2015), and Virginia (2015). Six states—Hawaii, Illinois, Massachusetts, Minnesota, New Jersey, and Rhode Island—have removed the conviction history question on job applications for private employers, which advocates embrace as the next step in the evolution of these policies.

Federally, the U.S. Equal Employment Opportunity Commission (EEOC) endorsed removing the conviction question from the job application as a best practice in its 2012 guidance making clear that federal civil rights laws regulate employment decisions based on arrests and convictions.

Employers should keep a close eye on their local authorities to ensure continuing compliance as the list of jurisdictions continues to grow.

Read House Bill 3025.

 

September 23rd, 2015|Employment Decisions|

Mini FCRA update: Georgia enacts new law, California law mired in uncertainty

Enacted in 1970, the Fair Credit Reporting Act (FCRA) provides federal regulation of consumer reporting agencies that provide consumer reports to third parties.

In the 45 years since the FCRA took effect, several states have passed their own version of the statute to provide additional protections for consumers. Colloquially referred to as “mini” FCRAs, the laws can be found in Arizona, California, Maine, Massachusetts, Minnesota, New Jersey, New York, Oklahoma, and Washington.

Joining the group: Georgia, where House Bill 328 took effect on July 1. The new law applies to consumer reporting agencies (CRAs) that “conduct business” within the state, defined as those entities that “provide information to any individual, partnership, corporation, association, or any other group however organized that is domiciled within this state or whose principal place of business” is located within Georgia’s borders.

A CRA encompasses any person or entity “which, for monetary fees or dues or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties.”

For its part, a consumer report broadly includes “any written, oral, or other communication of any information bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer’s eligibility for purposes of credit, insurance, or employment.”

As it closely tracks the federal FCRA, Georgia’s law provides that a CRA that furnishes consumer reports for employment purposes in compliance with the federal statute will be in compliance with the state version.

While Georgia’s new law already took effect, other states have struggled with application of their mini FCRAs.

For example, in 2013, a federal court judge California ruled that one of the state’s two FCRA corrollaries, the Investigative Consumer Reporting Agencies Act (ICRAA), was unconstitutionally vague in Roe v. LexisNexis Risk Solutions, Inc. The case involved an anonymous plaintiff who sued when she failed to obtain employment.  She argued she didn’t get the job as a result of an allegedly inaccurate background check furnished by the defendant to her prospective employer in violation of both the FCRA and the ICRAA.

The defendant argued that the ICRAA was unconstitutionally vague as applied and the court agreed. In addition to the FCRA and the ICRAA, California had previously enacted the Consumer Credit Reporting Agencies Act (CCRAA), a law that governs consumer credit checks. The interplay between the CCRAA and ICRAA resulted in confusion for covered entities, the court found, as criminal background information about consumers was regulated by both laws, leaving companies uncertain about which statute’s requirements actually applied.

Although the plaintiff appealed the decision to the Ninth Circuit Court of Appeals, the federal appellate panel dismissed the appeal for procedural reasons; on remand, the federal district court later dismissed the case with prejudice in December 2013. However, the opinion in Roe remains valid law in the state, leaving a shadow of uncertainty hanging over the ICRAA.

Read Georgia’s House Bill 328.

Read Roe v. LexisNexis Risk Solutions, Inc.

September 23rd, 2015|Employment Decisions, FCRA|

California’s marijuana laws present challenges for employers

Even for those not partaking in marijuana, the various California laws regulating its use can be confusing – particularly for employers.

The trend in state legislatures to permit the recreational and/or medicinal use of marijuana began with California’s Compassionate Use Act in 1996, which allowed state residents to use the drug for medical purposes and decriminalized possession of less than 28 grams. Complicating the matter, however: marijuana use remains prohibited by federal law.

With limited use of marijuana legal in the state, how can employers find out about a worker’s use of the drug or limit it without running afoul of state law?

Employers have two options, either try to get their hands on historical information, such as criminal convictions, or seek out current input via drug testing.

Criminal history related to drugs in many instances is off-limits for employers. Job applicants cannot be required to disclose an arrest that did not result in a conviction or participation in a pretrial or post-trial diversion program. Any criminal history that has been expunged, sealed, or dismissed will be unavailable as are marijuana-related convictions dating back more than two years.

While California has not banned the box for private employers, local jurisdictions such as San Francisco have, requiring employers to wait until after a live interview or determining that an applicant meets the qualifications for the position before inquiring into criminal history. Background checks – whether performed in-house or by a third party – require compliance with federal law (the Fair Credit and Reporting Act (FCRA) as well as California’s counterpart, the Investigative Consumer Reporting Agencies Act (although the legality of the state statute is unclear, see story below for more detail). And such investigations into applicants’ history are a current target for the Equal Employment Opportunity Commission – which has filed multiple lawsuits (http://www.scherzer.com/eeoc-loses-again-in-challenge-to-background-checks/) against employers alleging their background checks constitute disparate impact discrimination against protected groups like African-Americans – and a popular basis for class actions. Recent cases have settled with multi-million awards, including a $2.5 million payout by Domino’s Pizza and a $6.8 million deal between Publix Super Markets and a class of applicants alleging the company violated the FCRA.

Drug tests can be viable option for employers. Once a job offer has been made, an employer may require an applicant to pass a drug test as a condition of employment (as long as all potential employees are subject to the same requirement). After a worker has been hired, drug tests may be used if an employer has a reasonable suspicion that the employee is under the influence. Certain jobs – such as those in the transportation industry like truck drivers – may permit such testing more freely. If a test comes back positive, employers do have the discretion to discipline, terminate, or choose not to hire an applicant even if the individual legally holds a medical marijuana card issued by the state. In addition, despite the requirements under the Americans With Disabilities Act and California state law to provide reasonable accommodations to employees considered disabled, neither federal nor state law requires employers to permit marijuana use as such an accommodation.

September 23rd, 2015|Criminal Activity, Employment Decisions|

Company fined $600,000 for I-9 violations

A recent decision from the Office of the Chief Administrative Hearing Officer provides an important reminder: keep up on I-9 compliance or face a sizable civil penalty.

Pursuant to 8 U.S.C. Section 1324(a)(1)(B) of the Immigration Reform and Control Act, employers must examine and document the identity and immigration documents of employees. Since the Act’s 1986 enactment, the Employment Eligibility Verification Form, colloquially known as the I-9, is used to verify the identity and employment authorization of individuals hired for work in the United States. Both the employee and the employer must complete the form. In addition, employers must examine the worker’s documentation establishing his or her identity and employment authorization to determine if the documents “reasonably appear to be genuine.”

In 2013, the agency transitioned employers to use of a new form with additional fields (including employee telephone number and e-mail address), new formatting, and clarified instructions. Failure to complete an I-9 form can lead to an enforcement action from Immigration and Customs Enforcement (ICE) with penalties ranging from $110 to $1,100 per form.

Recently, a California-based event design and construction company learned that lesson the hard way when the agency charged the employer with 818 violations of the statute, seeking $812,665.25 in civil penalties.

The company’s “employment verification procedures are sufficiently defective to foreclose a claim of either good faith or substantial compliance,” Administrative Law Judge Ellen K. Thomas wrote, finding that the company engaged in the majority of the violations alleged.

The judge found most of the violations occurred in Section 2 of the I-9, which requires a representative from the employer to review the documents presented by the employee to prove identity and work authorization and then sign, under penalty of perjury, that he or she reviewed the documents. ICE found that 797 of the company’s I-9 forms were left blank. Characterizing the employer attestation in Section 2 as “the very heart” of the verification process, the ALJ fined Hartmann $700 for each violation, or $557,900.

Judge Thomas found other serious violations in the company’s I-9 forms, including failing to ensure that in Section 1 employees checked a box attesting to status as a U.S. citizen, lawful permanent resident, or alien authorized to work (with the need to add an alien registration number if either lawful permanent resident or alien authorized to work were selected). Many employees also failed to sign Section 1, the court found, and the company neglected to have employees list a driver’s license expiration date in Section 2.

The company tried to mitigate the fine by arguing that it improved its processes after receiving notice from ICE, but the judge was not persuaded, particularly as the company made no effort until after the federal agency came knocking. “[T]he company does appear to need additional motivation to conform its employment verification processes to what the law requires,” Judge Thomas wrote, issuing a total fine of $605,250.

To avoid a similar fate, compliance with I-9 requirements should be taken seriously and employers should ensure that the appropriate forms are being correctly filled out.

Read the decision.

September 23rd, 2015|Employment Decisions|

Right to be Forgotten movement gains backers in the U.S.

Seeking to expand recognition of the Right to be Forgotten to the United States, a consumer group has filed a petition with the Federal Trade Commission (the “FTC”) requesting that Google be required to remove links upon request.

Last year, the European Court of Justice ordered Google to remove links about the financial history of a Spanish attorney, finding that the links to stories about his debts were “inadequate, irrelevant or no longer relevant, or excessive,” establishing the Right to be Forgotten (“RTBF”). Over the last 12 months, Google has received 274,462 removal requests and evaluated 997,008 URLs for removal from its search results.

In the hopes of bringing the RTBF to the United States, Consumer Watchdog recently filed a petition with the FTC. The group argued that by providing the ability to request removal of links to European consumers in Europe, Google engaged in unfair and deceptive practices in violation of the Federal Trade Commission Act. Not offering Americans the right to request removal – while providing it to millions of users across Europe – is unfair, the group argued to the FTC. And Google’s claims in its privacy policy that “[p]rotecting the privacy and security” of customer information “is a top priority,” are deceptive because the company limits protections by denying the RTBF, the consumer group added.

Consumer Watchdog listed several examples of U.S. citizens who have been harmed without the RTBF in this country, ranging from a guidance counselor who was fired after photos of her as a lingerie model from 20 years prior surfaced online to a woman whose mug shot appeared online after she was arrested defending herself against an abusive boyfriend. The group also told the FTC that Google already removes certain types of links from search results in this country (such as revenge porn), meaning it has the capability to remove other links as well.

“As clearly demonstrated by its willingness to remove links to certain information when requested in the United States, Google could easily offer the RTBF or the Right To Relevancy request option to Americans,” Consumer Watchdog wrote. “It unfairly and deceptively opts not to do so.”

The RTBF doesn’t implicate First Amendment concerns or constitute censorship, the group said, because the content remains on the Internet. The right “simply allows a person to request that links from their name to data that is inadequate, irrelevant, no longer relevant, or excessive be removed from search results,” according to the petition. “Americans deserve the same ability to make such a privacy-protecting request and have it honored.”

Further, the right isn’t automatic. “Removal won’t always happen, but the balance Google has found between privacy and the public’s right to know demonstrates Google can make the RTBF or Right To Relevancy work in the United States,” Consumer Watchdog concluded.

Meanwhile, the issue of expanding the RTBF has also come up in Europe. In July, a French regulatory authority ordered Google to remove all the links from its search pages including Google.com in the U.S. – not just the European pages. Google refused to comply and filed an appeal of the order. “We believe that no one country should have the authority to control what content someone in a second country can access,” Google’s global privacy counsel Peter Fleischer wrote on the company’s blog.

Read Consumer Watchdog’s petition to the FTC.

September 23rd, 2015|Criminal Activity, Educational Series, Employment Decisions|

DOL offers new guidance on old question of employee or independent contractor

For the last few years, one of the top priorities for the Department of Labor (the “DOL”) has been the fight against the misclassification of employees as independent contractors. In the agency’s latest effort, it released new guidance for employers when classifying workers, using six factors to consider.

The Administrator’s Interpretation 2015-1 focuses on the issue of whether the worker is “economically dependent on the employer or truly in business for him or herself.” The more the worker relies upon an employer for income stream, business skills, and supplies, the more likely he or she is an employee – and entitled to all of the benefits included in that classification, such as overtime or worker’s compensation.

In “The Application of the Fair Labor Standards Act’s ‘Suffer or Permit’ Standard in the Identification of Employees Who Are Misclassified as Independent Contractors,” the DOL started with the Fair Labor Standards Act’s (the “FLSA”) definition of “employ:” “to suffer or permit to work.” Under this broad definition, “most workers are employees,” the agency stated unequivocally.

With that in mind, the DOL turned to the six factors of the economic realities test commonly used by courts when considering whether a worker is an employee or an independent contractor. The agency noted that the labels used by an employer are not determinative of the nature of the relationship and neither are tax filings.

“All of the factors must be considered in each case, and no one factor (particularly the control factor) is determinative of whether a worker is an employee,” the DOL wrote. “Moreover, the factors themselves should not be applied in a mechanical fashion, but with an understanding that the factors are indicators of the broader concept of economic dependence. Ultimately, the goal is not simply to tally which factors are met, but to determine whether the worker is economically dependent on the employer (and thus its employee) or is really in business for him or herself (and thus its independent contractor).”

Is the work an integral part of the employer’s business? If a worker is economically dependent upon the employer, he or she is likely an employee, while a “true independent contractor’s work, on the other hand, is unlikely to be integral to the employer’s business.” Recognizing the increasing use of telecommuting and other flexible work schedules in today’s economy, the DOL added that work can be integral even if it is performed away from the employer’s premises.

The second factor considers whether the worker’s managerial skill affects the worker’s opportunity for profit or loss. A worker in business for him or herself not only has the opportunity to profit but also to experience a loss, the DOL explained. The question isn’t whether a worker is on the job more hours or earns more money but if the worker makes decisions and exercises skill and initiative – hiring other workers or advertising his services, for example – to move the business forward.

In the third factor, the worker’s relative investment as compared to the employer’s investment should be evaluated. “The worker should make some investment (and therefore undertake at least some risk for a loss) in order for there to be an indication that he or she is an independent business,” according to the guidance. Simply purchasing tools or other equipment may not constitute an investment, the agency added, when considered relative to the employer’s investment.

Fourth: does the work performed require special skill and initiative? Technical skills alone will not indicate that a worker is an independent contractor, the DOL said. Instead, business skills, judgment, and initiative should be evaluated. For example, a highly skilled carpenter who provides his services to a construction company may simply be providing skilled labor as an employee. On the other hand, if the carpenter decides which jobs to take, advertises his services, and determines what materials to order, he is more likely to be classified as an independent contractor.

The length of the relationship between the worker and the employer is the focus of factor five. A permanent or indefinite relationship signals an employee, the DOL said. “After all, a worker who is truly in business for him or herself will eschew a permanent or indefinite relationship with an employer and the dependence that comes with such permanence or indefiniteness,” the agency wrote. The length of time should be considered in the context of the industry, however – seasonal positions may not always indicate an independent contractor relationship, for example.

In the sixth factor, the DOL advised employers to think about control. While the control factor should not receive more weight than the other factors in the economic realities test, the nature and degree of the employer’s control should be considered in light of the ultimate determination whether the worker is economically dependent on the employer or an independent contractor. Employers do not need to look over a worker’s shoulder every day to make them an employee, the guidance cautioned, as technological advancements permit many employees to work off-site and unsupervised.

Employers should review the new guidance and be prepared for agency oversight on the issue of worker classification, keeping in mind that the DOL repeatedly emphasized that “most workers are employees.”

Read the Administrator’s Interpretation No. 2015-1.

September 23rd, 2015|Educational Series, Employment Decisions|

Revised FCRA Summary of Rights form released

Did you know that a revised version of the Fair Credit Reporting Act (the “FCRA”) Summary of Rights form was released a few months ago?

If the answer is “no,” don’t worry. The form was not published in the Federal Register and appeared under the radar without an announcement.

The FCRA mandates that employers are required to provide a disclosure and obtain written authorization from any applicant or employee prior to conducting a background check. If the employer decides to take an “adverse action” against the applicant or employee based on the results of the background check, the employer must provide the individual with a copy of the background check and the Summary of Rights form under the FCRA.

The revised form does not require a lot of adjustments for employers. Some of the government addresses found on the last page were changed and all references to Maine’s laws were removed. Earlier this year, the state repealed its mini-FCRA to adopt the federal FCRA.

View the new Summary of Rights form.

September 23rd, 2015|Educational Series, Employment Decisions|

NYC Commission issues legal enforcement guidance on employment credit checks

The New York City Commission recently issued interpretive legal enforcement guidance clarifying some of the exemptions in the City’s Stop Credit Discrimination in Employment Act (“SCDEA”), as well as recordkeeping requirements and penalties.

As we reported previously, effective September 3, 2015, the SCDEA amends the New York City Human Rights Law (the “NYCHRL”) to make requesting and using consumer credit history for hiring and other employment purposes, with certain exceptions, an unlawful discriminatory practice.

The SCDEA defines “consumer credit history” as an individual’s “credit worthiness, credit standing, credit capacity, or payment history, as indicated by: (a) a consumer credit report; (b) credit score; or (c) information an employer obtains directly from the individual regarding details about (1) credit accounts, including the individual’s number of credit accounts, late or missed payments, charged-off debts, items in collections, credit limit, prior credit report inquiries, or (2) bankruptcies, judgments or liens.”

It remains unclear whether the law bans only inquiries, but not public record searches, for bankruptcies, judgments or liens. Under the SCDEA, a consumer credit report includes “any written or other communication of any information by a consumer reporting agency that bears on a consumer’s creditworthiness, credit standing, credit capacity or credit history,” and given the broad scope of “any  written or other communication of any information by a consumer reporting agency” caution should be taken regarding these searches and even for civil litigation, as such public records may reveal credit-related information that New York City employers are prohibited from using.

While the SCDEA generally establishes eight categories of exemptions, such as those of individuals required to be bonded under city, state, or federal law which are self-explanatory, there has been much speculation as to the scope of others. In its FAQs, the guidance specifically provides that the exemptions do not cover most low-level employees including, but not limited to, bank tellers, cashiers, salespeople, clerical workers, administrative staff, restaurant/bar workers, and private security employees.

Interpretation about non-clerical positions having regular access to trade secrets is also included in the guidance. The SCDEA defines “trade secrets” as “information that: (a) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means, by other persons who can obtain economic value from its disclosure or use; (b) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy; and (c) can reasonably be said to be the end product of significant innovation.”

The SCDEA limits the trade secret definition to exclude “general proprietary company information such as handbooks and policies” and “access to or the use of client, customer, or mailing lists.” Consistent with this definition and the broad scope of the NYCHRL, “trade secrets” do not include information such as recipes, formulas, customer lists, processes, and other information regularly collected in the course of business or regularly used by entry-level and non-salaried employees and supervisors or managers of such employees.

The guidance emphasizes that all exemptions to coverage under the SCDEA’s anti-discrimination provisions are to be construed narrowly. Employers may claim an exemption to defend against liability, but they have the burden of proving the exemption by a preponderance of the evidence. No exemption applies to an entire employer or industry–exemptions apply only to positions or roles, and not to individual applicants or employees. The law does permits employers to request credit information in response to any lawful subpoena, court order, or law enforcement investigation.

An employer claiming an exemption must show that the position or role falls under one of the eight  general position categories referenced previously. Employers availing themselves of the exemptions should inform applicants or employees of the claimed exemption, and should also keep a record of their use of such exemptions for a period of five years from the date an exemption is used. Keeping an exemption log will help the employer respond to the Commission’s requests for information.

The guidance sets forth civil penalties for violations of the law (up to $250,000 for willful, wanton, or malicious violations, and up to $125,000 for other violations) in addition to other remedies available under the NYCHRL.

Read the SCDEA, N.Y.C. Admin. Code §§ 8-102(29), 8-107(9)(d), (24); Local Law No. 37 (2015)

Access the interpretive guidance, FAQs and other information about the credit check law here.

 

September 23rd, 2015|Legislation|

FTC launches new resource for identity theft victims

The FTC has launched IdentityTheft.gov, a new resource that makes it easier for identity theft victims to report and recover from the crime. A Spanish version of the site is available at RobodeIdentidad.gov.

The new website provides an interactive checklist that explains the recovery process and helps victims understand the steps that should be taken upon learning that their identity has been stolen. It also provides sample letters and other helpful resources. In addition, the site offers specialized tips for specific forms of identity theft, including medical and tax-related, and contains advice for people who have been notified that their personal information was exposed in a data breach.

Identity theft has been the top consumer complaint reported to the FTC for the past 15 years, and in 2014, the Commission received more than 330,000 complaints from consumers who were victims.

June 12th, 2015|Educational Series|