November 2010

More on credit reports for hiring decisions

According to September 2010 congressional testimony by the Society for Human Resource Management (SHRM), credit checks are a useful tool to “assess the skills, abilities, work habits and integrity of potential hires.” However, SHRM states that only 20 percent of employers conduct credit checks on all applicants. Fifty-seven percent of these employers perform the checks only after contingent offers, and 30 percent after job interviews; 65 percent allow job candidates to explain their credit results before the hiring decision is made, and 22 percent accept explanations after the hiring decision.

A bill in the U.S. House, called the Equal Employment for All Act, would amend the Fair Credit Reporting Act (FCRA) to ban the use of credit checks on prospective and current employees for employment purposes, with the following exceptions:

jobs that require national security or Federal Deposit Insurance Corp. clearance;
jobs in state or local government that require the use of credit reports;
supervisory, managerial, and executive positions in financial institutions.

The states of Illinois, Oregon, Hawaii, and Washington already have passed laws to prevent employers from using credit reports in employment decisions.

|Employment Decisions, Legislation|

Massachusetts employers cannot ask about criminal history on initial job applications

As of November 4, 2010, Massachusetts employers are prohibited from asking about criminal records on the initial job application, except for positions for which a federal or state law, regulation or accreditation disqualifies an applicant based on a conviction, or if the employer is mandated by a federal or state law or regulation not to employ
individuals who have been convicted of a crime.

The new law also has two provisions that will become effective February 6, 2012. Under the first provision, an employer in possession of criminal record information must disclose that information to the applicant, prior to asking about it. And similar to the requirements of the Fair Credit Reporting Act, if an employer decides not to hire an
applicant in whole or in part because of the criminal record, the employer must provide the applicant with a copy of the record.

The second provision requires employers who conduct five or more criminal background investigations annually to implement and maintain a written criminal record information policy. The policy, at minimum, must specify procedures for (1) notifying applicants of the potential for an adverse decision based on the criminal record, (2) providing
a copy of the criminal record and the written policy to applicants, and (3) dispensing information to applicants about the process for correcting errors on their criminal record.

The law imposes penalties (including imprisonment for up to one year or a fine of up to $5,000 for an individual and $50,000 for a company) for those who request or require an applicant to provide a copy of his/her criminal record except under conditions authorized by law, and prohibits harassment of the subject of the criminal record (punishable by imprisonment of up to one year, or a fine of not more than $5,000.)

|Criminal Activity, Educational Series, Employment Decisions, Legislation|

Corporate misconduct can preclude directors from serving on other boards

Due diligence on current and prospective board directors should extend not only to the legal liability exposure but also to the possibility of losing valuable opportunities for board membership at other firms,” said Jason Schloetzer, assistant professor of accounting at Georgetown University’s McDonough School of Business and author of The Conference Board Report. “In the current litigation environment, it is particularly important for the board to demonstrate to shareholders and the judicial system that any failure to prevent or discover corporate misconduct took place in spite of the rigorous performance by the board of its oversight duties, including the establishment of a state-of-the-art compliance program.”

The Conference Board Report, released November 4, 2010, analyzed the changes in directorships held by outside board members of 113 public companies involved in shareholder class-action lawsuits that alleged misrepresentation of information to investors. The study, encompassing the period of 1996 to 2005, tracked directorship changes for three years after the start of litigation and used data from proxy statements to identify director turnover.

Within three years of litigation, 83.2% of outside directors remained on the board of the public company involved in the lawsuit, the study found. Related research showed that outside directors in firms involved in litigation did not appear to turn over any more frequently than the average among all outside directors. However, outside directors whose companies were involved in litigation experienced reduced opportunities to serve on other companies’ boards. The average number of board seats held by these individuals at other companies dropped from 0.95 in the year prior to the litigation to 0.47 three years after the suit was filed.

|Criminal Activity, Educational Series|

Supreme court ruling may ban consumer class-action lawsuits

A case that goes before the U.S. Supreme Court tomorrow, AT&T Mobility vs. Concepcion, may potentially ban consumers from filing class-action lawsuits. The basic question that will be decided is whether companies can bar class-actions in the fine print of their take-it-or-leave-it contracts with customers (and employees.)

The U.S. District Court for the Southern District of California ruled that a class-action ban violates state law and is not preempted by federal law; the U.S. 9th Circuit Court of Appeals upheld the lower-court ruling last year.

If a majority of the nine justices vote AT&T’s way, any business that issues a contract to customers — such as for credit cards, cell phones or cable TV — would be able to prevent them from joining class-action lawsuits. Class-actions allow plaintiffs to band together in seeking compensation or redress, thus giving more substance to their claims.

And the banning of class-actions may potentially apply to employment agreements such as union contracts…

|Judgment, Lawsuit|