EEOC loses – again – in challenge to background checks

In the latest blow to the Equal Employment Opportunity Commission’s (the “EEOC”) attempts to regulate employers’ use of background checks, the Fourth U.S. Circuit Court of Appeals threw out a case in a scathing opinion that expressed disappointment in the agency’s litigation conduct.

The controversy began in April 2012, when the EEOC released guidance on the issue of criminal background checks for employers. The “Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964” emphasized that while the use of criminal history does not violate the statute per se, an employer may run afoul of the law if the checks result in systemic discrimination based on a protected category like race, color, national origin, religion, or sex.

As an alternative, the agency suggested employers strive to perform individualized assessments of prospective employees, and consider factors such as the nature of the crime and its relation to the potential job, as well as the individual’s rehabilitation efforts and the length of time that has passed since the conviction.

The EEOC then followed up with multiple lawsuits alleging that certain employers engaged in the discriminatory use of background checks, disproportionately screening out African-American workers in cases filed against BMW Manufacturing in South Carolina, Dollar General in Illinois, Kaplan Higher Education Company in Ohio, and Freeman Company in Maryland.

To date, all of the lawsuits have been dismissed and the agency has faced criticism about its efforts to pursue such cases from both industry and lawmakers. The most recent critic: the Fourth Circuit.

In the agency’s case against Freeman Company, the EEOC alleged the company’s use of criminal background checks for all applicants and credit checks for “credit sensitive” positions had an unlawful disparate impact on black and male job applicants. To support its case, the agency produced expert reports by an industrial/organizational psychologist. But the federal district court granted summary judgment for Freeman, finding the psychologist’s reports “rife with analytical errors” and “completely unreliable.”

The Fourth Circuit affirmed the ruling, identifying “an alarming number of errors and analytical fallacies” in the reports, “making it impossible to rely on any of his conclusions.” Freeman provided complete background screening logs for thousands of applicants to the EEOC but the psychologist “cherry-picked” data, the court said, omitting information from half of the company’s branch offices while purporting to analyze all the background checks, and further failed to utilize an appropriate sample size, selecting the vast majority of data to focus on before October 14, 2008.

Although the relevant time period extended to August 31, 2011 and Freeman conducted over 1,500 criminal checks and more than 300 credit reviews between October 14, 2008 and August 31, 2011, the psychologist used data from only 19 applicants during that time, just one of whom passed the check.

A “mind-boggling number of errors and unexplained discrepancies” existed in the psychologist’s database, the panel added, rejecting the EEOC’s argument that the mistakes originated in Freeman’s data. The psychologist introduced the errors, the court said, and further managed to introduce fresh errors when he tried to supplement his original reports with corrections.

“The sheer number of mistakes and omissions in the analysis renders it “outside the range where experts might reasonably differ,” the three-judge panel wrote. One of the panelists added a concurring opinion expressing concern with the “EEOC’s disappointing litigation conduct” and continued efforts to defend the psychologist’s work despite other courts reaching similar conclusions about his reports.

“The Commission’s conduct in this case suggets that its exercise of vigilance has been lacking,” according to the concurring opinion. “It would serve the agency well in the future to reconsider how it might better discharge the responsibilities delegated to it or face consquences for failing to do so.”

With public criticism, zero litigation victories, and a counterargument from one defendant that its background check procedures are the same as those conducted by the agency itself, the Fourth Circuit’s decision does not bode well for the future of EEOC challenges to background checks. That said, employers should still be cautious and utilize background reports in a non-discriminatory manner.

Read the EEOC guidance.

Read the opinion in EEOC v. Freeman.

May 8th, 2015|Employment Decisions|

No number, no lawsuit

Tossing a lawsuit alleging religious discrimination, the Sixth U.S. Circuit Court of Appeals found that an applicant could not sue after refusing to provide his Social Security number to a prospective employer. The plaintiff, an applicant for a position with an energy company, claimed that he had no number because he “disclaimed and disavowed it” on account of his sincerely held religious beliefs.

The company’s refusal to hire the plaintiff violated Title VII and Ohio state law, the complaint charged, requesting both injunctive relief in the form of a job and monetary damages. A federal district court judge dismissed the lawsuit, and the federal appellate panel affirmed.

Courts considering the issue apply a two-step analysis, the Sixth Circuit explained. First, the court determines whether the plaintiff established a “prima facie case of religious discrimination,” which requires proof that the plaintiff “(1) holds a sincere religious belief that conflicts with an employment requirement; (2) has informed the employer about the conflicts; and (3) was discharged or disciplined for failing to comply with the conflicting employment requirement.” If the plaintiff manages to establish a prima facie case, the burden shifts to the employer to show it could not “reasonably accommodate” the religious beliefs without “undue hardship.”

This suit failed under the first step, the panel said, because the Internal Revenue Code mandates that employers collect and provide the Social Security numbers of their employees. Because the company’s collection of the plaintiff’s number was a “requirement imposed by law” and not an “employment requirement,” the court had no need to consider the sincerity of the plaintiff’s beliefs.

The panel also noted that every other federal appellate court to consider the issue has concluded “that Title VII does not require an employer to reasonably accommodate an employee’s religious beliefs if such accommodation would violate a federal statute,” citing decisions from the Fourth, Eighth, Ninth, and Tenth Circuits, as well as federal district courts in Michigan and Virginia.

All of the courts have arrived “at the same, sensible conclusion: ‘[A]n employer is not liable under Title VII when accommodating an employee’s religious beliefs would require the employer to violate federal … law,” the Sixth Circuit wrote. “This conclusion is consistent with Title VII’s text, which says nothing that might license an employer to disregard other federal statutes in the name of reasonably accommodating an employee’s religious practices.”

For employers, the decision provides even greater peace of mind. With five federal appellate courts in agreement that a religious discrimination claim will not stand against an employer that complies with federal requirements to collect an applicant’s Social Security number, companies do not have to worry about the merits of a Title VII lawsuit under such circumstances.

Read the opinion.

May 8th, 2015|Employment Decisions, Judgment, Legislation|

Asset searches: who can get bank information and why

Accessing bank account information can be vitally important, particularly for those engaged in a lending transaction seeking to fulfill due diligence requirements. But getting your hands on the information can be a challenge.

Asset searches are not illegal. However, certain methods to obtain bank or investment account information can be, such as pretext calling. The simplest way to obtain financial information is via the account holder, a designated representative, or a party with a valid court order. The first two options are unlikely to be forthcoming. As for the third choice, obtaining a court order to access such information can be time-consuming and costly.

Access to financial information is regulated by both federal and state laws. For example, the Gramm-Leach-Bliley Act (GLBA) prohibits obtaining customer information from a financial institution under false pretenses and imposes an obligation on financial institutions to protect customer information. Generally, a “customer” is defined as an individual consuming goods or services for personal or household use, although some authorities have included sole proprietors, partnerships of five or fewer, and other small businesses to receive the same privacy protections. For businesses, the issue of data protection is governed by contract. While the consumer protection provisions of laws like the GLBA would not apply, it does not mean that financial institutions can freely share their information.

International asset searches present their own set of problems. Other countries – particularly those in the European Union – have strict data privacy laws that prohibit any access to personal information as well as the transfer of data across national borders. Federal law also comes into play, with the Foreign Corrupt Practices Act presenting potential liability issues if an entity searching for asset information obtained the information by illegal means (such as bribing a banking or government official).

What about judgments? While a judgment cannot by itself force a bank or brokerage firm to disclose account information, it allows a creditor to use the court to seize the debtor’s assets. With a judgment in hand, a creditor can file for an order of examination which will require the debtor to disclose – under oath – the location of assets, details about income, or other relevant information. However, the judicial process of obtaining a judgment reveals the intent of the creditor and can give the debtor time to empty an account or move assets prior to the court entering an order. Judgments can also be tricky to enforce. State law governs judgments with specifics varying in each jurisdiction. In California, a creditor must obtain a writ of execution directing a levying officer (usually a sheriff) to serve the writ on the named institution. The institution must then freeze the specific account(s) or, in certain situations, turn over the balance in the account. Serving a writ of execution in California was recently simplified to allow service on a “central location” designated by a bank with nine or more locations in the state or accept service at any branch without such a designated office.

Long-arm statutes can be used to reach accounts in a jurisdiction other than where the judgment originated. A debtor can object to the attempt and courts typically impose a test of whether the debtor or third party (like the bank or brokerage holding the assets) has connections with the court or creditor, which, at a minimum, can delay the process and make it more expensive.

For assets like stocks, bonds, and commodities, creditors can again obtain a court order that can liquidate the account into cash to be turned over to the creditor. It should be noted that certain types of accounts (notably retirement accounts) cannot be reached, even in cases of fraud. To preserve an account balance, a creditor can serve a levy on a brokerage in order to put a hold on the account while waiting for a court order.

Public records – ranging from property records to litigation – can also help locate or confirm a debtor’s assets. One important consideration: it is essential to vet any company that purports to be able to obtain financial account information. Many misleading claims and offers about obtaining such information can be found on the Internet and creditors should ensure that any data obtained was in accordance with applicable law and regulations.

February 23rd, 2015|Criminal Activity, Employment Decisions, Guidence|

Going global: international background checks

As the business world increasingly goes global, even small or medium-sized companies may have international outposts or employees located beyond the U.S. border. In addition, with security – both physical and digital – an important issue, employers want to know everything they can about their employees.

Many employers are turning to international background checks. But a criminal record or a credit report like those used in the United States can get lost in the translation.

First up: cultural norms. What may seem perfectly routine and acceptable in the United States may confuse or offend those in other countries. For example, things like credit checks and drug tests are virtually unheard of abroad and cultural differences may yield what might by American standards be unusual answers in a personality test. A second important consideration: the law. Just as the U.S. has the Fair Credit Reporting Act (FCRA) and other regulations setting the boundaries of background checks, foreign jurisdictions have their own laws of the land. The French Labor Code, for example, requires that its “works council” review employment screening procedures prior to an employer’s use.

One huge legal complication can be found in the area of privacy law. The European Union imposes restrictions on obtaining information about employees or applicants, the way in which such information can be used, and how the information can be shared or transmitted. To alleviate some of the liability concerns, the U.S. has entered into a Safe Harbor framework with the European Commission, which requires compliance with seven principles of data security. And while the EU leads the pack, other countries (like Australia, Canada, Hong Kong, and Japan) also pose challenges with their strict regulation of privacy.

Having an applicant sign a consent form to release information may be of little help as several EU countries also recognize a presumption against enforcement of such agreements on the basis that employees and applicants have limited bargaining power in the employment context. Alternatively, employers may have better luck by having applicants do the work themselves, providing their own background information to avoid implicating data privacy laws. Of course, this raises authentication and accuracy questions.

The collection of criminal information can also present logistical challenges. Many countries do not have an organized court system, and records, if available, may have to be searched on a regional or town-by-town basis, or at multiple agencies (like the police, the court venue and a government agency, for example). Certain countries offer what is known as a “police certificate” which will confirm the information about an applicant found in police records. Some countries, like Poland, have banned the collection of criminal records altogether; Spain prohibits the possession of records but an applicant could, in theory, show an employer his or her record.

If the screening is being conducted by a consumer reporting agency located in the United States, the FCRA requirements also come into play. International background checks are not impossible, but they do pose a number of legal and cultural risks that can be tackled with the right planning and professional assistance from an experienced background screening company.

February 23rd, 2015|Criminal Activity, Educational Series, Employment Decisions, Fraud|

Trend of suing employers for technical FCRA violations continues

The threat of a multi-million potential class action lawsuit alleging technical violations of the Fair Credit Reporting Act (FCRA) continues to haunt employers, even where the plaintiffs have alleged or proven no harm.

Pursuant to the statute, employers are required to “provide prior written notice before they can procure a consumer report about any employee or applicant for employment.” Just as important, 15 U.S.C. Section 1681b(b)(2)(A)(i) adds that the notice must be given “in a document that consists solely of the disclosure.”

Seeking to take advantage of the statutory damages available under the FCRA – from $100 up to $1,000 for a willful violation – plaintiffs have challenged employers’ use of a disclosure form that combined the written notice to procure a consumer report with other information or documents, such as an application form.

The trend to sue for FCRA technical violations was started by Singleton v. Domino’s Pizza, LLC in the U.S. District Court of Maryland (case no. 8:11-cv-01823-DKC) where the court ruled that inclusion of a liability release in the employer’s disclosure/authorization form violates the FCRA. Domino’s ended up reaching a settlement with the plaintiffs in 2013 for $2.5 million.

Also taking a strict reading of the statutory language, the Western District Court of Pennsylvania ruled in 2013 in Reardon v. Closetmaid Corporation (case no. 2:0S-cv-01730) that an employer could be liable for the combination of a disclosure/authorization with a liability waiver, and granted summary judgment in favor of the roughly 1,800 job applicants.

In a more recent example, a class of applicants sued Publix Super Markets in the U.S. District Court for the Middle District of Tennessee (case no. 3:14-cv-00720) also based on a violation of the sole disclosure requirement and release of liability. With Domino’s and Closetmaid’s payouts looming over its head and a class of 90,000, Publix agreed to settle the claims for $6.8 million earlier last year.

Although these companies opted not to fight the suits on their merits, a defendant in a case filed in the U.S. District Court for the Eastern District of California (case no. 1:14-742-WBS-BAM) did and won dismissal in October 2014. Syed v. M-I LLC involved identical claims but the judge reached a contrary decision, finding that the FCRA text was not as clear-cut as the plaintiff claimed. Immediately following the subsection mandating the sole disclosure of the employer’s intent to procure a consumer report is a provision that states that the consumer’s authorization is to “be made on the document referred to in clause (i)” – “that is, the same document as the disclosure,” the court noted, and “…thus, the statute itself suggests that the term ‘solely’ is more flexible than at first it may appear…”

The Syed decision is the second one that may give hope to employers facing similar suits. (There are at least six class actions pending.) But the obvious answer for companies looking to avoid the problem entirely is simple: use a standalone disclosure/authorization form that is separate from any other information or documents.

January 29th, 2015|Employment Decisions, Lawsuit|

Medical marijuana laws put employers in a tough spot

The growing number of jurisdictions permitting medical marijuana is putting employers in a tough position. One the one hand, marijuana remains illegal under federal law and a workforce under the influence isn’t much of a workforce at all. On the other hand, 23 states and the District of Columbia now permit the use of marijuana for regulated medical purposes and some state laws include anti-discrimination provisions prohibiting employers from taking action against employees based on their status as a registered medical marijuana user.

A first-of-its-kind lawsuit demonstrates the conundrum. In December, the American Civil Liberties Union filed suit in a Rhode Island state court on behalf of an individual who allegedly was denied an internship after she disclosed that she lawfully carried a medical marijuana card for severe migraines.

According to the complaint, the company told the applicant that she had been rejected because of her status as a cardholder, and despite promises not to bring medical marijuana on the premises or come to work under the influence, the applicant was denied the position.

The lawsuit charges that the company violated Rhode Island’s medical marijuana law which prohibits schools, employers, and landlords from refusing “to enroll, employ, or lease to, or otherwise penalize, a person solely for his or her status as a cardholder.” The complaint – which also includes allegations of disability discrimination under state law – seeks compensatory and punitive damages.

Employers in states permitting medical marijuana would be well-advised to review their relevant law when considering marijuana use or marijuana-related criminal records in employment decisions. While Rhode Island is not alone in including an anti-discrimination requirement in its law, joined by Arizona, Connecticut, Delaware, Illinois, Maine, Minnesota, Nevada, and New York, other states – including California, Massachusetts, and New York – are clear that employers have no obligation to accommodate an employee’s medical marijuana use or permit them to work under the influence.

Read the complaint.

January 29th, 2015|Employment Decisions|

Class action charges LinkedIn with violations of FCRA

According to a new putative class action filed in California federal court, social networking site LinkedIn runs afoul of the Fair Credit Reporting Act (FCRA).

The plaintiffs claim that LinkedIn’s reference search functionality allows prospective employers, among others, to obtain reports on job applicants with profiles on the site. LinkedIn’s dissemination of “Reference Reports” – that are created based on a user’s profile and connections to form a list of former supervisors and co-workers as possible references – are available for users who pay a monthly or annual subscription fee.

“LinkedIn has created a marketplace in consumer employment information, where it sells employment information, that may or may not be accurate, and that is has obtained in part from unwitting members, and without complying with the FCRA,” according to the complaint, which noted the site has more than 300 million members and one million jobs listed.

The Reference Reports bring LinkedIn within the purview of the FCRA, and yet the company fails to comply with a host of statutory requirements, according to the complaint.

Specifically, the complaint alleges that the site violates Section 1581(b) by furnishing consumer reports for employment purposes without obtaining the certifications required by the statute or a summary of the consumer’s rights and also does not maintain any of the procedures required by Section 1681e(a) to limit the furnishing of consumer reports to the limited purposes of the statute. In addition, Section 1681e(b) mandates that all consumer reporting agencies follow reasonable procedures to assure the maximum possible accuracy of consumer report information, Section 1681e(d) requires that a user notice be provided to individuals when a report is provided about them, and Section 1681b states that reports can only be provided after an inquiry to ensure the report is used for a “permissible purpose.” None of these statutory requirements were met by LinkedIn, the suit alleges.

“[A]ny potential employer can anonymously dig into the employment history of any LinkedIn member, and make hiring and firing decisions based upon the information they gather, without the knowledge of the member, and without any safeguards in place as to the accuracy of the information that the potential employer has obtained,” Sweet and the other plaintiffs claim. “Such secrecy in dealing in consumer information directly contradicts the express purposes of the FCRA.”

The main plaintiff alleges that she located a job opening on the site and submitted her resume through LinkedIn. She received a notification from the site that the general manager of the employer had viewed her profile and she was offered the job after an interview. The general manager declined the plaintiff’s offer to provide a list of references but later called back to rescind the offer, telling her that he had checked some of her references and changed his mind.

The plaintiffs seek to certify a nationwide class of LinkedIn users who had a Reference Report run on them as well as a subclass of users who applied for employment via the site and had a Report generated by a potential employer. As for remedies, the putative class requests actual, statutory, and punitive damages, as well as attorney’s fees and costs.

To read the complaint in Sweet v. LinkedIn Corporation, click here.

December 3rd, 2014|Employment Decisions, Lawsuit|

Background screening of independent contractors

The issue of worker misclassification is a hot topic for employers, with state and federal authorities as well as class action suits challenging whether a worker is an employee or an independent contractor. But what about the differences in background screening for independent contractors? Are they subject to the same disclosure and authorization requirements, adverse action notices, and dispute rights that apply to employees?

The answer: it depends.

While the Fair Credit Reporting Act (FCRA) doesn’t directly address independent contractors, the Federal Trade Commission (FTC) has issued two advisory opinions stating that they should be afforded the same rights as employees. The FTC also reiterated this view in its staff report published in July 2011, stating that the FCRA’s broad definition of the term “employment purposes” extends beyond traditional employment relationships. (FTC Staff Report at 32.)

The Allison Letter (a response to an inquiry from a Georgia worker named Herman L. Allison) addressed the issue in the context of a trucking company that hired drivers who owned and operated their own equipment. Characterizing the situation as a “business relationship” and not an “employment relationship,” Allison asked whether the protections of the FCRA still applied.

Taking a broad interpretation of the term “employment,” the FTC said that treating independent contractors differently than employees would hamper the goals of the FCRA. Even a homeowner who conducts a background check on a handyman or other worker hired as an independent contractor should follow the FCRA requirements, the agency wrote.

In a second letter, the FTC considered a query from Harris K. Solomon, an attorney in Florida. A client wished to conduct background checks on individuals selling its insurance products and handling title exams. Again, the agency said the checks would trigger the requirements of the FCRA.

The FTC’s advisory letters – both issued in 1998 – as well as the staff report, are advisory and non-binding on other parties. But they provide insight into how federal authorities would address the rights and protections owed to an independent contractor as the subject of a background check.

However, on the other end of the spectrum, a Wisconsin federal court judge in 2012 held that the disclosure obligations of the FCRA do not apply to independent contractor relationships. The case involved a sales rep who sued EMS Energy Marketing Service after he was terminated. The plaintiff claimed that the company failed to provide him with either the written notice of his rights or a copy of the report as required by the statute. But the court granted summary judgment for the employer, ruling that Lamson was hired as an independent contractor, not an employee, and therefore, the FCRA did not apply. The language of the statute refers only to employees and if a worker is not an employee “it necessarily follows that he or she is not covered by the FCRA,” the court wrote in Lamson v. EMS Energy Marketing Service. The court also distinguished the FTC letters as advisory opinions, adding that the “letters, in and of themselves, are of limited, if any, persuasive power.”

To read the Allison Letter, click here.

To read the Solomon Letter, click here.

December 3rd, 2014|Employment Decisions|

New York City’s new bill would restrict using credit reports for employment decisions

Last month, the New York City Council’s Committee on Civil Rights held a hearing on a bill that would amend the city’s administrative code, prohibiting employers from using consumer credit reports for personnel decisions. Although the hearing ended without a disposition, it is expected that this bill will pass in some form in the near future. The Committee is holding a separate hearing in December on a bill that would prohibit employment discrimination based on an applicant’s or employee’s criminal history.

October 15th, 2014|Employment Decisions, Legislation|

Congress proposes bill that protects regulated employers’ background checks

While the Equal Employment Opportunity Commission (the “EEOC”) is continuing its challenge of employers’ use of criminal history and credit report information in personnel decisions, and new “ban-the-box” laws are rapidly gaining momentum, on September 9, 2014, Congress proposed legislation that protects certain regulated employers from EEOC, state agency and private actions when they strive to comply with the screening laws that are particular to their industries. The Certainty in Enforcement Act of 2014 would amend Section 703 of the Civil Rights Act of 1964 (42 U.S.C. 2000e-2), and cover employers that include those engaged in “health care, childcare, in-home services, policing, security, education, finance, employee benefits, and fiduciary duties.”

October 15th, 2014|Employment Decisions, Legislation|