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Compliance Corder covers articles related to employment decisions due diligence.

Vermont is the latest state to restrict credit reports in employment decisions

Effective July 1, 2012, Vermont will be the eighth state to regulate the use of credit-related information for employment purposes. Although similar in many ways to laws already enacted in California, Connecticut, Hawaii, Illinois, Maryland, Oregon and Washington, Vermont’s requirements under Act No. 154 exceed those of other state laws as they prohibit even exempt employers from using an applicant or employee’s credit history as the “sole factor” in employment decisions. Additionally, Vermont exempt employers who take adverse action based in part on a credit history must return the report to the individual or destroy it altogether. Neither the Fair Credit Reporting Act (FCRA) nor any of the other similar state laws imposes such a requirement.

Generally, the Act prohibits employers from inquiring into an applicant’s or employee’s credit report or credit history, and further bans employers from discriminating against or making employment decisions (e.g. hire, fire, alter the compensation or any other term or employment condition) based on a credit report or credit history. Notably, credit history in this context includes credit information obtained from any third party that reflects or pertains to an applicant’s or employee’s “borrowing or repaying behavior, financial condition or ability to meet financial obligations,” even if that information is not contained in a “credit report.”

The trend in restricting credit report use for employment purposes will continue as several other states and the federal government are considering comparable legislation. Soon to follow most likely will be New Jersey. In May 31, 2012, the Senate approved S455 that would prohibit employers from seeking credit checks on employees or applicants under most circumstances. A parallel bill (A2840) was introduced by the Assembly on May 11, 2012, and a similar bill (A704) in December 2011.

July 2nd, 2012|Categories: Compliance Corner for Employment Decisions|Tags: , , , , |

What’s the practical meaning of EEOC’s new criminal records guidance?

On April 25, 2012, the U.S. Equal Employment Opportunity Commission (“EEOC”) approved new enforcement guidance regarding the use of arrest and conviction records in employment decisions. The guidance builds on longstanding court decisions and requirements that the EEOC issued over twenty years ago, focusing on employment discrimination based on race and national origin.

In brief, the new guidance’s position is more aggressive, affirming that employers cannot automatically disqualify applicants with criminal records, and that their screening policies need to be consistent and structured for “individual assessment.” The guidance’s main points state that:

  • An arrest record does not establish that criminal conduct has occurred, and an exclusion based on an arrest, in itself, is not job related and consistent with a business necessity. However, an employer may make an employment decision based on the conduct underlying an arrest if such conduct makes the individual unfit for the particular position.
  • A conviction record will usually serve as sufficient evidence that a person engaged in a particular conduct. In certain circumstances, however, there may be reasons not to rely on the conviction record alone when making an employment decision.
  • A violation may occur when an employer treats criminal history information disparately for different applicants or employees, based on their race or national origin (disparate treatment liability). An employer’s neutral policy (e.g., excluding applicants from employment based on certain criminal conduct) also may disproportionately impact protected-class individuals and may violate the law if not job related and consistent with a business necessity (disparate impact liability)

The EEOC specifies two circumstances in which employers will meet the “job related and consistent with a business necessity” defense:

  • The employer validates the criminal conduct exclusion for the particular position under the Uniform Guidelines on Employee Selection Procedures (i.e., if there is data or analysis about criminal conduct as being related to subsequent work performance or conduct;) or
  • The employer develops a targeted screen considering at a minimum the nature of the crime, the time elapsed, and the particular job. The employer’s policy then provides an opportunity for an individualized assessment for those individuals identified by the screen to determine if the policy, as applied, is job related and consistent with a business necessity.

The guidance further asserts that although Title VII does not require individualized assessment in all circumstances, the use of a screen that does not include such assessment is more likely to violate its provisions. As an example of individualized assessment process, the EEOC recommends providing the applicants an opportunity to explain why they should not be denied a position due to the criminal record. The guidance also specifies the following factors that employers should assess:

  • Facts or circumstances surrounding the offense or conduct;
  • Number of charges of which the individual was convicted;
  • Older age at the time of conviction, or release from prison;
  • Evidence that the individual performed the same type of work, post-conviction, with the same or different employer, with no known incidents of criminal conduct;
  • Length and consistency of employment before and after the offense or conduct;
  • Rehabilitation efforts, e.g., education/training;
  • Employment or character references and any other information regarding fitness for the particular position; and
  • Whether the individual is bonded under a federal, state, or local bonding program.

The guidance recognizes that some employers are subject to federal statutory and/or regulatory requirements that prohibit them from hiring individuals with criminal records for certain positions. The EEOC notes that its new guidance does not preempt such federal guidelines, and explains that employers may be subject to a claim under Title VII if they scrutinize individuals to a higher degree than required under applicable federal requirements.

As in its previous version, the EEOC’s new guidance is not meant to be a deterrent to conducting background checks. But it should serve as a reminder that hiring policies and practices must be structured in compliance with the law.  

June 1st, 2012|Categories: Compliance Corner for Employment Decisions|Tags: , , |

Federal Sentencing Guidelines: a lure to organizational compliance

 

About 20 years ago, the United States Sentencing Commission (USSC) enacted the Federal Sentencing Guidelines (FSGs) for organizations with the intent to govern the sentencing of companies convicted of federal crimes. The FSGs, which have been amended several times, hold that organizations can act only through agents and, under federal criminal law, generally are vicariously liable for offenses committed by their agents.

A proactive approach to prevent, detect and report illegal and unethical activities can substantially reduce fines and punishment, in some cases up to 95% according to a commentary by the USSC. The USSC specifies that the two factors that mitigate an organization’s ultimate punishment are “the existence of an effective compliance and ethics program, and self-reporting, cooperation, or acceptance of responsibility.” In contrast, the absence of solid compliance mechanisms can increase fines and punishment, as verdict determination is based on “the organization’s involvement in or tolerance of criminal activity, its prior history, violation of an order, and obstruction of justice.”

The compliance incentives provided by the FSGs and the proliferation of new regulations mandate a cultural imperative for ethical and law-abiding conduct by all companies, large and small. High-level attention, leadership and sufficient resources must be dedicated to meet the strict requirements of a compliance program defined by the USSC as “effective.” In its manual, the USSC emphasizes the necessity of strong due diligence to prevent and detect criminal conduct. Among its guidelines, a provision in Chapter 8 notes that:

“The organization shall use reasonable efforts not to include within the substantial authority personnel of the organization any individual whom the organization knew, or should have known through the exercise of due diligence, has engaged in illegal activities or other conduct inconsistent with an effective compliance and ethics program.”

Comprehensive background investigations, whether for employment purposes, evaluation of prospective clients, existing relationships and third-parties, or for other business transactions, are essential for compelling due diligence which actualizes a masterful compliance strategy. Although various committees and officials are calling for a complete review of the FSGs which the 2005 landmark case U.S. vs. Booker held as discretionary rather than mandatory, well-developed compliance programs are here to stay.

Scherzer International is on the forefront of the quick-changing regulations regime with a portfolio of background investigation products designed to facilitate purposeful risk management and compliance protocols. Visit us often at www.scherzer.com as we continuously analyze and test new elements and incorporate them into our products if they have proven value. And stay tuned for a Dodd-Frank regulations product which we will introduce within the next few months.

November 29th, 2011|Categories: Compliance Corner for Employment Decisions|Tags: |

“Ban the box” legislation gains momentum

Across the country, municipalities and states are enacting legislation called “ban the box” which generally prohibits employers from asking job candidates about their criminal histories on applications. The legislation also makes it unlawful for a covered employer to take any adverse action against an individual on the basis of an arrest or criminal accusation that did not result in a conviction. The states of California, Connecticut, Hawaii, Massachusetts, Minnesota, and New Mexico have enacted some form of the legislation along with more than 26 cities and counties in Illinois, Maryland, Michigan, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Texas, Wisconsin and Washington. (A complete list of municipalities that have “banned the box” is posted at
http://www.nelp.org/page/-/SCLP/2010/BantheBoxcurrent.pdf?nocdn=1).

However, except for Hawaii and Massachusetts, the legislation has been limited to public employers, or public employers and vendors and contractors serving public entities. The city of Philadelphia, which is the most recent addition to this growing list, is the first municipality to pass a law that covers private employers with 10 or more employees. Below are some jurisdictional highlights of the enacted legislation:

  • Hawaii and Massachusetts private and public employers cannot consider felony convictions that are more than 10 years old. And in Massachusetts, employers are not permitted to consider misdemeanor convictions that are more than five years old.
  • Hawaii and the cities of Chicago, Hartford, and Cincinnati allow an employer to ask about an applicant’s criminal record only after a conditional offer of employment has been extended.
  • Chicago, San Francisco, and Boston require a public employer denying employment on the basis of a conviction to justify its decision based on EEOC’s guidelines which include the nature and gravity of the crime, the time that has passed since the conviction, and the relativity of the crime to the position.

Proponents of “ban the box” are confident that the legislation will be a significant factor in lowering recidivism rates, as it will allow applicants to demonstrate their skills and qualifications prior to disclosing criminal histories. And many experts say that such laws will expand beyond the borders of the United States in the very near future.

October 17th, 2011|Categories: Compliance Corner for Employment Decisions|Tags: , , , , |

More states are restricting credit reports for employment purposes

Connecticut has joined five other states (Hawaii, Illinois, Maryland, Oregon, and Washington) that, with some exceptions, prohibit the use of credit reports in employment decisions. Effective October 1, 2011, S.B. 361 will ban many employers from using credit information in determining whether to deny employment to an applicant, terminate an employee, decide compensation, or evaluate other terms and conditions of employment. Financial institutions, as well as employers who are required to obtain credit reports under federal or state law, are excluded from the Act’s provisions

There are certain exceptions to the S.B. 361 prohibitions. Employers may request or use credit reports when such information is related to a “bona fide purpose that is substantially job-related.” The bona fide purpose exception generally applies to positions involving money handling or other sensitive job duties. If an employer requests or uses credit information for a bona fide purpose, it must disclose its intent to do so in writing to the employee or applicant.

As in Connecticut’s S.B. 361, employers in the other states that have passed employment-related credit report restriction laws need to ensure that their hiring, retention, and promotion practices fall within the guidelines of their legislation.

September 13th, 2011|Categories: Compliance Corner for Employment Decisions|Tags: , |

Risk-based approach to employment screening rates high on value chain

In today’s world just about every company knows that an effective employment screening program is invaluable for hiring qualified individuals, reducing turnover, deterring fraud and other criminal actions, and avoiding or mitigating litigation.

Recognizing that a “bad” hire is a threat to the bottom line, many companies, from investment bankers to law firms, are taking a risk-focused approach to background investigations and deciding what is appropriate or how much should be done to ensure organizational success. For example, obtaining a credit report or checking civil records for an entry-level applicant with low risk responsibilities may be of limited use, while reviewing such record histories for someone who will handle money or have access to sensitive information may be imperative in assessing his/her suitability for a position of trust.

Best practices in both the government and in the private sector indicate that a risk designation should be determined for every position, based on its description of duties and responsibilities. The risk grade should be commensurate with the employee’s assigned trust level, financial accountability, access to sensitive and confidential information and critical data systems, autonomy, discretionary authority, and potential opportunity for misconduct.

To be effective and non-discriminatory, employment screening policies need to specify a uniform set of background investigation elements for all position/assignment levels, including new hires, temporary workers, interns, transferred and promoted employees, contractors and volunteers.

SI has a full suite of employment background investigation products. Please visit our website at https://scherzer.co/ to learn more or order an investigation.

September 13th, 2011|Categories: Compliance Corner for Employment Decisions|Tags: , , |

Controversy abounds in employment decisions based on social media searches

In May 2011, the Federal Trade Commission (FTC) ruled that companies providing social media information to employers – and employers who use the reports – must follow the same Fair Credit Reporting Act (FCRA) regulations that apply to more traditional sources. The FTC also stated that postings on any social media site can be saved by on-line background screening companies for up to seven years.

According to the FTC’s letter dated May 9, 2011 to a company that sells information from social networking sites for employment purposes, such a company is considered a Consumer Reporting Agency (CRA) and thus must take reasonable steps to ensure the accuracy of the information obtained from online social networks (as well as other sources) and positively identify it with the subject. It also must comply with other FCRA provisions, such as providing a copy of the report to the subject and maintaining an established protocol if the subject disputes the reported information. As with “traditional” background investigations, employers who use a report prepared by a CRA must certify to the CRA that the report will not be used in violations of federal or state equal employment opportunity laws or regulations. Additionally, both the CRA and the employer have a legal obligation to keep and dispose of the reports securely and properly. (For more information, see the FTC blog, “The Fair Credit Reporting Act & Social Media: What Businesses Should Know.”)

Social media legal experts and various literature point to a multitude of issues and risks faced by both the CRA and the employer who uses social media checks, which include, but are not limited to:

  • Problems under FCRA section 607(b) in exercising “reasonable procedures to assure maximum possible accuracy” of the information.
    Since the information on social media sites is self-reported and can be changed at any time, it is often difficult if not impossible to ascertain that the information is accurate, authentic and belongs to the subject. Online identity theft is not uncommon, as are postings under another person’s name for the purpose of “cyber–slamming” (which refers to online defamation, slander, bullying, harassment, etc.)
  • Information may be discriminatory to job candidates or employees, or in violation of anti-retaliation laws.
    Social sites and postings may reveal protected concerted activity under the National Labor Relations Act (NLRA,) and protected class information under Title VII of the Civil Rights Act and other federal laws, such as race, age, creed, nationality, ancestry, medical condition, disability, marital status, gender, sexual preference, labor union affiliations, certain social interests, or political associations. And while the information may have no impact on the employment decision, the fact that the information was accessed may support claims for discrimination, retaliation or harassment.
  • Accessing the information may be in violation of the federal Stored Communications Act (SCA).
    To the extent that an employer requests or requires an employee’s login or password information, searches of social networking sites may implicate the SCA (18 U.S.C. § 2701) and comparable state laws which prohibit access to stored electronic communications without valid authorization. A California court recently ruled that the SCA also may protect an employee’s private information on social networking sites from discovery in civil litigation.
  • Assessing the information may violate terms of use agreements and privacy rights.
    While certain social media sites have stricter privacy controls than others, most if not all limit the use of their content. The terms of use agreements typically state that the information is for “personal use only” and not for “commercial” purposes. Although the definition of “commercial” in connection with employment purposes is interpretive, most legal experts indicate that employment screening fits that scope.
  • Information may be subjective and irrelevant to the employment decision.
    Blogs, photos and similar postings often do not provide an objective depiction of the subject or predict job performance. The California Labor Code, for example, specifically provides that an employer is prevented from making employment-related decisions based on an employee’s legal off-duty conduct. Employers may use such information only if the off-duty conduct is illegal, if it presents a conflict of interest to the business or if it adversely affects the employee’s ability to do his/her job. And the evidence of such activities must be clear.

The popularity of employment-related background checks that include social media searches is growing rapidly. But the unreliable and unverifiable information from these sources is a potential landmine of legal liabilities.

August 8th, 2011|Categories: Compliance Corner for Employment Decisions|Tags: , , |

Challenges of international background investigations

Many transactions today, whether they involve an employment hiring decision or a new business relationship, are cross-border or have an international component. The need for effective risk management both in the U.S. and abroad has vastly expanded in recent years with the passing of legislation and increased enforcement actions. Behind just about every business decision, there is a widening range of stakeholders — from regulators to shareholders to board members — who expect that the due diligence process will minimize unlawful activities.

International background investigations, which are essential for a comprehensive approach to due diligence, present special challenges since each country has its own laws, customs, and procedures. Language barriers, name variations and transliterations, limited information and technology, broad definitions of crimes, and proliferation of fraudulent educational and accreditation institutions, are just some of the factors that add to the complexity of these investigations.

As a general rule, in most European countries, criminal records are not available to the public. In Asia, public accessibility to most court filings is limited. In South America, public records vary greatly from country to country. South Africa provides some disclosure of police records and warrants to the public, along with   civil filings. Canada’s public records availability differs by province, and only a few permit criminal records release. India and Australia have the most searchable records, similar to the U.S.

For employment purposes, the Fair Credit Reporting Act (FCRA) imposes certain obligations for international background screening performed by a U.S. Consumer Reporting Agency (CRA), including mandating reasonable procedures to ensure the accuracy of the information it reports. If a public record such as a criminal conviction is found, the CRA must ascertain that the information is correct, up-to-date, and reported in a way that does not violate data or privacy protection rules.

In 2000, an agreement between the U.S. Department of Commerce and the European Commission established privacy and data protection guidelines, the “Safe Harbor Principles,” to enable U.S. companies to satisfy a requirement under European Union law for adequate protection of personal information transferred from the European Economic Area (the 25 member states of the European Union plus Iceland, Liechtenstein and Norway.) In addition to these principles, the Gramm-Leach-Bliley Act (GLBA) requires financial institutions and businesses that receive personal information to establish safeguards for the handling and disclosure of that information. And the Fair and Accurate Credit Transactions Act (FACTA), a federal legislation, also contains provisions to help reduce identity theft and obligates the proper disposal of personal consumer information.

The cost of an international background investigation typically is higher than domestic searches, and varies with each country, the type of information that needs to be obtained and the purpose of the investigation. When performed by a reputable firm with qualified foreign contacts, an international background investigation can reduce negligent hiring liability, and prevent a catastrophic investment or reputational damage.

July 25th, 2011|Categories: Compliance Corner for Employment Decisions|Tags: , , |

U.K. Bribery Act now slated to take effect July 1, 2011

After receiving widespread criticism for the lack of guidance and compliance clarification, the U.K. Bribery Act of 2010 (Bribery Act) originally scheduled for implementation in April 2011, is now set to take effect July 1, 2011. The act’s jurisdiction extends to commercial organizations incorporated or formed in the U.K. or “which carr

[y] on a business or a part of a business in the U.K. irrespective of the place of incorporation or formation.” Determination of such existence will be made by the U.K. courts and will require “a demonstrable business presence.” The official guide states that an organization will not be deemed to be carrying on a business in the U.K. merely by virtue of having its securities listed on the London Stock Exchange or by having a U.K. subsidiary.

Unlike the anti-bribery provisions of the U.S. Foreign Corrupt Practices Act (FCPA), which focus primarily on corruption involving non-U.S. government officials, the Bribery Act  widens its scope to prohibit domestic and international bribery across both private and public sectors. And while the FCPA allows exceptions for facilitation payments (generally small payments to lower-level officials for “routine government actions,”) the Bribery Act does not. These payments were illegal under the previous legislation and the common law, but the difference under the Bribery Act is that non-U.K. organizations are broadly subjected to these restrictions for the first time.

The Bribery Act specifically criminalizes the offering, promising or giving a bribe (active bribery) and the requesting, agreeing to receive or accepting a bribe (passive bribery) to obtain or retain business or secure a financial or other advantage. It also contains a provision whereby an organization that fails to prevent bribery by anyone associated with the organization can be charged under the Bribery Act unless it can establish the defense of having implemented preventive “adequate procedures.” The official guide recommends the following six principles as foundation for developing “adequate procedures” to prevent bribery:

  • Proportionality – Actions should be proportionate to the risk, nature, size and complexity of the organization.
  • Top-level Commitment – Board of directors, owners, officers or equivalent top level- management should establish and promote a culture where bribery is never acceptable and be committed to preventing bribery, both within the organization and with anyone associated with the organization externally.
  • Risk Assessment – Various risk exposures, both internal and external, such as country of operation, business sector, types of transaction, new markets, and business partnerships should be evaluated and documented on an ongoing basis.
  • Due Diligence – Proportionate, risk-based approach to due diligence procedures assessing existing and proposed relationships should be taken to ensure trustworthy associations and mitigate identified bribery risks.
  • Communication – Appropriate channels of communication, awareness and training, both internal and external, on anti-bribery policies and procedures should be implemented and evaluated on a regular basis.
  • Monitoring and Review – Anti-bribery policies and procedures should be monitored on an ongoing basis and amended as quickly as possible when activities and risks change.

The penalties for violating the Bribery Act are severe, with individuals facing up to 10 years in prison and organizations facing unlimited fines. Violations also may result in damaging collateral consequences such as director disqualification, ineligibility for public contracts, and asset confiscation.

 

May 9th, 2011|Categories: Compliance Corner for Employment Decisions|Tags: , , , |

Maryland resident charged with making false statements on federal job applications

The Department of Justice reported yesterday that Karen M. Lancaster, of Upper Marlboro, MD, has been charged with four counts of making false statements, three counts of submitting false documents and one count of engaging in a concealment scheme in connection with her multiple job applications to U.S. federal government agencies.

According to the indictment, Lancaster was employed in various positions with the U.S. Department of Defense (DoD) from 1991 until March 2005. She subsequently was notified by DoD that she was being fired due to performance failures. In October 2006, according to the indictment, Lancaster reached a settlement with DoD whereby she was allowed to resign, retroactive to March 2005.

Between 2006 and 2008, Lancaster applied for jobs at the U.S. Departments of State, Commerce and Defense, as well as with the SEC. The indictment states that as part of the application processes, Lancaster allegedly submitted documents that falsified and concealed information about her criminal history, employment history and suitability for employment with the federal government. Specifically, Lancaster allegedly concealed and falsified informatabout her prior arrests, charges, convictions and prison terms, the unfavorable circumstances under which she had resigned from prior federal employment, the roles and responsibilities she had at previous federal jobs; and her salary history.Lancaster will be arraigned on March 25, 2011, in U.S. District Court in Alexandria. The maximum penalty for each count of making a false statement, submitting a false document and engaging in a concealment scheme is five years in prison. Lancaster also faces a maximum fine of $250,000 per count.

The Department of Justice notes that an indictment is merely an accusation, and a defendant is presumed innocent unless proven guilty in a court of law.

March 17th, 2011|Categories: Compliance Corner for Employment Decisions|Tags: , , |
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