Caution Advised Federal and State Laws Regulating Pre-employment

Caution Advised: Federal and State Laws Regulating Pre-employment Screening and Safe Hiring Wednesday, March 3, 2010 © Employment Law Alliance

Introduction -2© Employment Law Alliance

Presenters Michael Porter, Moderator, Miller Nash LLP, Portland, OR mike. porter@millernash. com Jude Biggs, Holland Hart LLP, Boulder, CO jbiggs@hollandhart. com Michael A. Blickman, Ice Miller LLP, Indianapolis, IN michael. blickman@icemiller. com -3© Employment Law Alliance

Presenters Mary E. Funk, Nyemaster, Goode, West, Hansell & O'Brien, P. C. , Des Moines, IA mef@nyemaster. com Sue (“Corky”) Erwin Harper, Nelson Mullins Riley & Scarborough LLP, Columbia, SC corky. harper@nelsonmullins. com Lester S. Rosen, Employment Screening Resources, Novato, CA lsr@esrcheck. com -4© Employment Law Alliance

“Due Diligence” is Mission Critical • Employees are typically a firm’s greatest investment and largest cost • Each hire also represents a large potential risk • Every employer has the obligation to exercise “Due Diligence” in hiring • An employer that hires someone it either knew or reasonably should have known was dangerous, unfit, or unqualified for the work can be sued for negligent hiring -5© Employment Law Alliance

The Parade of Horribles • Statistical certainty that a firm that does not do screening will hire someone with unsuitable criminal record or false credential • Workplace violence • Negligent hiring/termination exposure • Time wasted in recruiting, hiring, training • Fraudulent credentials • Turnover costs – 2 to 3 times their salary • Brand destruction – “just one bad apple” -6© Employment Law Alliance

Due Diligence is the Opposite of Negligent Hiring • Employers have the ability, duty, and resources to prevent harm through due diligence • Courts will ask the following questions: • Did the employer know or should have known of an employee’s potential risk? ; or • Could the risk have been discovered by a reasonable investigation? • Unless employer has a compelling reason why injury not its fault, employers often lose -7© Employment Law Alliance

Examples of Negligent Hiring • • • Neglecting to check personal references Failing to learn why an applicant left a previous job Failing to conduct an interview Neglecting to check a driving record (if applicable) Neglecting to check educational references and verify prior employers • Failing to follow standard internal hiring/screening processes -8© Employment Law Alliance

Negligent Hiring Lawsuits Increasing • According to a recent survey from online payroll provider Sure. Payroll, 12% of small business owners indicate their hiring mistakes resulted in a significant financial loss – more than $10, 000 for each bad hire excluding any litigation costs • Employers lose 60 percent of negligent hiring cases with verdicts averaging about $3 million • Average settlement is $500, 000 plus attorney fees -9© Employment Law Alliance

Other Reasons for Safe Hiring • What is the one question everyone will ask if there is a bad hire? • There is strong evidence to suggest that a person who lies to get a job will be dishonest on the job • One of every 49 U. S. adults is on probation, on parole, or in jail • Only 13% of convicted criminals finish their sentences. 87% are looking for work • 25 -30% of all business failures can be attributed to employee theft. Employee theft costs U. S. business at least $40 billion per year (10 times the cost of street crime) • On-the-job substance abuse costs the U. S. economy $60 billion a year • “Soft costs” include damage to the company’s reputation and employee morale -10© Employment Law Alliance

Higher Duty for High Risk Positions • Level of liability increases with the level of risk and the level of supervision and responsibility • Employer's duty is even greater with applicants where: • There is contact or responsibilities with groups at risk (youth, infirmed, aged) • There is a degree of authority and responsibility, e. g. , security guard or apartment manager • Workers enter homes, or other unique risks exist • There is access to personal data -11© Employment Law Alliance

Defenses Employers Can Use • Successful defenses: • Not foreseeable this would happen or too attenuated • There was nothing for a background check to reveal • We demonstrated due diligence but this hire fell through the cracks despite our best efforts • Less successful defenses: • • Applicant lied on application form and fooled us Too costly We too were a victim of the criminal behavior Other firms in our industry do not perform checks -12© Employment Law Alliance

Gut Instincts Alone Are Not Sufficient • Cannot identify potentially bad hire by detecting lies at interview • Studies show that only 50 -50 chance at best even though people believe they can detect liars • Even trained law enforcement officers and judges are generally right only about half the time • Many applicants tell the lie so often it comes across naturally – they believe their own story • Body language, eyes, voice, etc. are not reliable indicators -13© Employment Law Alliance

No National Criminal or Credentials Database • Beware of using cheap databases as a substitute for due diligence • No national database available to private employers to check criminal records or false credentials • Fingerprint checks from FBI only available when mandated by law (e. g. , teachers/child care workers/banks, etc. ) • Private databases are NOT official government databases • Primary method for obtaining criminal records is to physically look at each relevant courthouse! -14© Employment Law Alliance

Basics of Screening in the U. S. S – Sources of information are public records (e. g. , criminal records), private records, and verification of credentials – not viewed as an invasion of privacy or unusual C – Consent in writing under U. S. Fair Credit Reporting Act (FCRA) and state laws R – Rationale (screening encourages honesty, demonstrates due diligence, and helps in hiring based on facts and not just instinct) E – Even-handed (similarly situated people treated similarly – issue of discrimination against protected groups) E – Effectiveness – no single tool can be relied upon but need a series of overlapping tools N – Not an FBI check or Big Brother watching, but a valuable due diligence employment tool -15© Employment Law Alliance

Scope of Screening • Criminal searches based on where applicant has lived, worked, or studied • Sexual offender records • Driving records • Past employment/education verification • Licenses and credentials • Various disbarment lists • Credit reports • Internet searches (Facebook, search engines, business connection sites, etc) -16© Employment Law Alliance

The FCRA in Four Easy Steps • Fair Credit Reporting Act (FCRA) controls screening • Employer must sign certification • All screenings done with consent and standalone disclosure • Pre- and post-adverse action letter • Also state FCRA type rules • New statute of limitations – now 5 years under FCRA in certain situations -17© Employment Law Alliance

Specific State Laws • Numerous states have specific laws governing preemployment screening procedures and the use of information in their state, in addition to the Fair Credit Reporting Act (FCRA) • For example, California has its own set of rules that must be followed with special forms and procedures • Some states have a 7 -year limit on reporting criminal records by a screening firm -18© Employment Law Alliance

EEOC Implications of Criminal Records and Scoring Procedures • EEOC rules govern criminal conviction and arrests • E-Race Initiative: more emphasis by the agency • EEOC filed case against national employer in September 2009 alleging discriminatory use of criminal records and credit reports • EEOC Investigations: broad approach by the agency • Per EEOC, cannot automatically disqualify an applicant based on a criminal conviction without a business justification, taking into account the nature and gravity of the offense, nature of the job, and time elapsed -19© Employment Law Alliance

EEOC Implications of Criminal Records and Scoring Procedures • New laws in New York, for example, underscore the importance of no automatic decisions • Arrests cannot be used – need to locate and evaluate underlying behaviors if possible • If person lied, the falsehood can be grounds to deny employment • Be careful using automated scoring system (red, orange, and green lights) -20© Employment Law Alliance

Policy on Convictions/Arrests • Employer maintains a safe workplace and will conduct strict review of any applicant with a criminal record, but no automatic disqualification • Go through individualized process, taking EEOC factors into account • Remember, people who have made mistakes, but have repaid society can still be good employees • Nevertheless, due diligence requires the right person in the right job -21© Employment Law Alliance

Credit Reports • Credit reports are a potential issue under EEOC rules • Credit report can invade privacy and potentially be discriminatory unless employer takes measures to ensure their use is fair, accurate, and relevant • Need to clearly establish job-related reasons why a credit report is a valid predictor of job performance • Typical reasons? • Debt-to-income ratio • Inability to handle own finances • Limitations on using bankruptcy – must be cautious with applicant whose report shows bankruptcy filing -22© Employment Law Alliance

“Googling” Job Applicants • Background Checks • Facebook • My. Space • Linked. In • Friendster • Flickr • Twitter • etc. , etc. -23© Employment Law Alliance

Who’s Searching? • Survey of 350 employers in October 2007 by Vault. com found that 44 percent of employers use social networking sites to examine the profiles of job candidates and 39% have looked up the profile of a current employee. • Reuters survey in 2008 found that 22% of hiring managers were searching social networking sites. -24© Employment Law Alliance

Why Search? • In 2002, reportedly 44% of job applications included some lies; in 2006, the New York Times reported that 56% of resumes contain a falsehood • References from previous employers are hard to get and sometimes untrue • Embarrassing facts that would never be revealed elsewhere can be discovered before hiring • Discover litigious employees • Discover drug and alcohol abuse • See how well potential employee fits in -25© Employment Law Alliance

How Many People Are We Talking About? • Facebook has 110, 000 accounts • My. Space has 106, 000 accounts and boasts 230, 000 new users per day • Linked. In has 24, 000 accounts • Friendster has 70, 000 accounts -26© Employment Law Alliance

Too Much Information • • • Disability Race Ethnicity Religion Age Military Status Pregnancy/caregiver status Sexual orientation Prior lawsuits -27© Employment Law Alliance

Google, My. Space, Facebook, etc. • Can expose employer to discrimination claims if internet search reveals protected data such as nationality, race, religion, age, or medical issue • Is there a reasonable expectation of privacy based on the terms of use and generally accepted standards? • Identifiers and authenticity – is it really your applicant? • Can you consider off-duty conduct? • Issue of appearance, grooming, or religious affiliations revealed by photos • What should employers and applicants do? -28© Employment Law Alliance

Workers Compensation Records • Under Americans with Disabilities Act, cannot discriminate on the basis of a medical issue where the worker is able to perform the essential function of the job with or without reasonable accommodation • Employers need to be very careful about using workers’ compensation claims as a hiring tool • If used, records may be obtained only post-offer, and then, only in limited circumstances • Cannot be used to eliminate any applicant who has ever filed a claim -29© Employment Law Alliance

Genetic Information Nondiscrimination Act • GINA creates restrictions on acquiring genetic information from applicants • Genetic information includes genetic tests, genetic tests of an individual's family members, and family history of particular diseases • Compare with ADA restrictions -30© Employment Law Alliance

Vendors, Independent Contractors, and Temps • Firms that would never hire a criminal often allow vendors, independent contactors, and temps on premises with no idea who they are • Non-employees can have access to computer systems, trade secrets, customer lists, etc. • For temps, need to review with staffing firm their due diligence standards -31© Employment Law Alliance

Red Flags on the Application • • • Does not sign application or release Leaves criminal questions blank Self-reports offense Fails to identify past employers or supervisors Does not explain why left past jobs or has employment gaps • Explanations for employment gaps or leaving past jobs do not make sense • Makes excessive cross-outs and changes -32© Employment Law Alliance

Critical Questions for All Applicants 1. We do background checks on everyone to whom we make an offer. Do you have any concerns that you would like to discuss? 2. We also check for criminal convictions for all finalists. Do you have any concerns about that? (Questions should reflect what employer legally can ask in your state) 3. We contact all past employers; what do you think they will say? 4. Will any past employer tell us anything less than positive about your work? 5. If there any unexplained employment gaps, why? -33© Employment Law Alliance

Past Employment Checks • Critical to verify past employment (even if you get only dates and job title) • Look for unexplained gaps and locations to search for criminal records; there are over 10, 000 courthouses in the U. S. ; you need to know where to search • An applicant who was gainfully employed in the last 5 - 10 years is less likely to have spent long periods in custody • Attempting background checks and documenting your effort demonstrate due diligence -34© Employment Law Alliance

International Screening • Growing trend – employers responsible for international checks • Part of due diligence, if applicant has spent time abroad or past employment or education is outside U. S. • Many resources available to check international employment, education, and credentials • Ability to do international criminal checks is still developing • Terrorist databases are available (but have limitations) -35© Employment Law Alliance

Audit Your Hiring Practices • Audit your hiring practices – take a Safe Hiring Audit • Hire an employment screening firm to assist, if necessary • Consult your ELA attorney. Do not create a document that can be used against you in litigation. -36© Employment Law Alliance

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