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Compliance Corder covers articles related to employment decisions due diligence.

Issuers should ensure that investors are not criminals

The JOBS Act requires that issuers wishing to engage in general solicitation take “reasonable steps” to verify the accredited investor status of purchasers. Rule 506(c) sets forth a principles-based method of verification which requires an objective determination by the issuer or its representatives that the steps taken are “reasonable” in the context of the particular facts and circumstances of each purchaser and transaction. But perhaps a question whether the investor is a felon should be added to the list.

A case decided in 2011 by California’s Court of Appeal, Second District, suggests that indeed it may be prudent for issuers to ensure that investors are not criminals. The plaintiff in this case intended to purchase units in a limited liability company, but was rejected after the mezzanine lender would not accept the plaintiff as a member due to his status as a former felon. The plaintiff subsequently sued the lender, alleging a violation of the Unruh Civil Rights Act. After a dismissal by a trial court, the case was appealed, resulting in a conclusion that  (1) status as a felon is not a personal characteristic similar to those enumerated in the statute; (2) criminal convictions raised legitimate questions about the honesty and trustworthiness of the plaintiff, and the lender had legitimate business reasons justifying its decision; and (3) the potential consequences of allowing the plaintiff’s claim would improperly involve the courts in second-guessing a lending institution‘s expertise in determining loan and investment criteria. As lenders are absolved from potential liability under the Act, issuers who unwittingly accept convicted felons as investors may be jeopardizing their funding.

October 25th, 2013|Categories: Compliance Corner for Employment Decisions|Tags: , |

Grace period for E-Verify compliance ends November 5, 2013

Now that E-Verify services are back online, employers must create an E-Verify case for each employee hired during the shutdown (October 1-17, 2013) no later than November 5, 2013. When prompted by the E-Verify system to explain why the case was initiated late (a violation of the three-day E-Verify rule), employers should select “other” from the drop-down menu and enter into the text field “federal government shutdown.” See the USCIS E-Verify instructions page for handling specific situations.

October 25th, 2013|Categories: Compliance Corner for Employment Decisions|Tags: , , |

New Jersey enacts law for social media password protection

Continuing a nationwide momentum of restricting employers’ access to personal social media content of applicants and employees, in August 2013, New Jersey passed Act 2878 joining eleven other states (Maryland, Illinois, California, Michigan, Utah, New Mexico, Arkansas, Colorado, Washington, Oregon, and Nevada) with similar laws. Dozens more states and the U.S. Congress are considering comparable legislation. New Jersey’s new law, which becomes effective December 1, 2013, prohibits employers from asking or requiring that applicants or employees “provide or disclose any user name or password, or in any way provide the employer access to a personal account through an electronic communications device.”

September 12th, 2013|Categories: Compliance Corner for Employment Decisions|Tags: , |

EEOC fails to prove disparate impact in another case involving background checks

In August 2013, a Maryland federal judge dismissed without a trial a putative suit filed by the Equal Employment Opportunity Commission (the “EEOC”) against event-promoter Freeman for alleged discriminatory background screening practices. Calling the EEOC’s expert report “an egregious example of scientific dishonesty,” the court granted a summary judgment to Freeman based on its findings that the EEOC’s expert testimony was unreliable, and would not support a claim of disparate impact. According to the court’s opinion, the EEOC failed to establish an element of its case when it made no effort to analyze Freeman’s multi-step screening policies to identify the specific practices that caused the alleged disparate impact. The court went on to say: “By bringing actions of this nature, the EEOC has placed many employers in the ‘Hobson’s choice’ of ignoring criminal history and credit backgrounds, thus exposing themselves to potential liability for criminal and fraudulent acts committed by employees, or, on the other hand, incurring the wrath of the EEOC for having utilized information deemed fundamental by most employers.”

The EEOC most likely will appeal the decision, as it has done in another high-profile background check case in Ohio, where in January 2013 the court similarly ruled  that the EEOC failed to prove disparate impact. Although these rulings represent a victory for the employer, the EEOC has not reversed its position, and is expected to continue its attempts to severely limit, if not eliminate, the use of criminal and credit checks by private employers.

September 12th, 2013|Categories: Compliance Corner for Employment Decisions|Tags: , , |

Rhode Island is the latest state to “ban the box”

On July 16, 2013, Rhode Island’s SB357 was signed into law, making it the eighth state to pass “ban the box” legislation. Effective January 1, 2014, the law, with a few exceptions, will make it an “unlawful employment practice” for an employer in the state to inquire whether an applicant has ever been convicted of a crime before the first interview. In “banning the box” for private  employers, Rhode Island follows on the heels of Hawaii, Massachusetts, and Minnesota, as well as the cities of Seattle, Buffalo, Philadelphia, and Newark. And many more jurisdictions have already “banned the box” for public employers and public contractors, and even more have some form of the legislation under consideration. Congress too is pondering its federal HR 6220 or “Ban the Box Act” introduced last July, which similar to these state and local laws, would make it illegal for an employer to ask about criminal history in an interview or on an employment application.

July 23rd, 2013|Categories: Compliance Corner for Employment Decisions|Tags: , , , |

Virginia takes workers’ privacy to a new level

Starting July 1, 2013, new Virginia Code §40.1-28.7:4 provides that “employers shall not, unless a listed exemption applies, be required to release, communicate, or distribute to a third-party, any current or former employee’s personal identifying information.”

In this context, “personal identifying information” is defined as a “home telephone number, mobile telephone number, e-mail address, shift times, or work schedule.”  Exceptions permitting the disclosure of such information include requirements of federal laws that supersede state statutes, court orders, judicial warrants or a subpoena in a civil or criminal case. Although there is no penalty, the statute establishes a public policy that endorses protection of the personal identifying information and could be used in a lawsuit against employers.

June 27th, 2013|Categories: Compliance Corner for Employment Decisions|Tags: , , , |

State and local laws for employment-related protection to ex-offenders continue to grow

A new Indiana law (House Enrolled Act 1482) that prohibits employers from asking about or otherwise considering expunged or sealed arrest and conviction records goes into effect July 1, 2013.  And a similar North Carolina law (SB 91) takes effect December 1, 2013.

The City of Buffalo too is giving ex-offenders increased employment opportunities with its May 28, 2013 ordinance which amends Chapter 154 of the Code of the City of Buffalo by prohibiting public and private employers and city vendors from asking job candidates about their criminal conviction history during the application process and prior to the first interview. And a new “ban the box” ordinance has been unanimously adopted in Seattle on June 10, 2013 that will give ex-offenders special rights in the job application process. Seattle’s Council Bill 117796 provides for administrative enforcement but affords no private right of action.

Indiana and North Carolina, and Buffalo and Seattle, are just the latest additions to the fast growing list of states and municipalities that regulate the use of criminal records in employment decisions. And pending before Congress is the federal HR 6220 or “Ban the Box Act” introduced last July, which similar to these state and local laws, would make it illegal for an employer to ask about criminal history in an interview or on an employment application.

June 27th, 2013|Categories: Compliance Corner for Employment Decisions|Tags: , , , |

New Texas law limits negligent hiring and negligent supervision suits against employers

Rather than denying employers access to potentially consequential information about a candidate’s criminal past, a new Texas law is striving to curb lawsuits against employers. Signed into law on June 14, 2013 and effective September 1, 2013, HB 1188 amends the Texas Civil Practice and Remedies Code to prohibit most causes of action “against an employer, general contractor, premises owner, or other third-party solely for negligently hiring or failing to adequately supervise an employee, based on evidence that the employee has been convicted of an offense.”

Notably, the statute provides exceptions that allow claims if the employer knew or should have known its employee was convicted of: (1) an offense “that was committed while performing duties substantially similar to those reasonably expected to be performed in the employment, or under conditions substantially similar to those reasonably expected to be encountered in the employment;” (2) a sexually violent offense; or (3) certain offenses specified in the Texas Code of Criminal Procedure, Article 42.12- Section 3g including but not limited to murder, indecency with a child, aggravated kidnapping, aggravated sexual assault, and aggravated robbery.

The protections under this statute do not apply in actions “concerning the misuse of funds or property of a person other than the employer, general contractor, premises owner, or third party by an employee if, on the date the employee was hired, the employee had been convicted of a crime that includes fraud or the misuse of funds or property as an element of the offense, and it was foreseeable that the position for which the employee was hired would involve discharging a fiduciary responsibility in the management of funds or property.”

June 21st, 2013|Categories: Compliance Corner for Employment Decisions|Tags: , , , |

CFPB’s database is now searchable by state and includes complaints about credit reporting

On May 31, 2013 the Consumer Financial Protection Bureau (“CFPB”) announced that its Consumer Complaint Database, now searchable by state, has been expanded to include credit reporting and money transfer complaints. In addition to these two new categories, the database, which can be accessed at http://www.consumerfinance.gov/complaintdatabase/, includes complaints relating to credit cards, mortgages, student loans, bank accounts and services, and consumer loans.

When submitting a complaint about credit reporting, consumers can select from five common issues, which are all searchable on the updated database: incorrect information on a credit report; problems with a credit reporting agency’s investigation; improper use of a credit report; not being able to get a credit report or credit score; and problems with credit monitoring or identity protection services.

June 20th, 2013|Categories: Compliance Corner for Employment Decisions|Tags: , , |

EEOC files suits against two employers for use of criminal background checks

The Equal Employment Opportunity Commission (the “EEOC”) announced on June 11, 2013 that it filed lawsuits against two large employers accusing them of using criminal background checks to illegally discriminate against African American workers. The EEOC alleged that the companies, by requiring contracted employees and prospective employees to submit to criminal background checks, violated Title VII of the Civil Rights Act of 1964’s prohibition against race discrimination.

“Title VII of the Civil Rights Act of 1964 prohibits discrimination against job applicants and employees on account of their race,” said EEOC Chair Jacqueline A. Berrien.  “Since issuing its first written policy guidance in the 1980s regarding the use of arrest and conviction records in employment decisions, the EEOC has advised employers that under certain circumstances, their use of that information to deny employment opportunities could be at odds with Title VII.”  The EEOC issued updated enforcement guidance on employer use of arrest and conviction records in April 2012.

June 20th, 2013|Categories: Compliance Corner for Employment Decisions|Tags: , , |
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