Employment Decisions Archives

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|

FTC halts high school diploma mill

As the request of the Federal Trade Commission (the “FTC”), on September 16, 2014, the U.S. District Court for the Southern District of Florida imposed a temporary restraining order to halt the business operations of Diversified Educational Resources, LLC (DER), and Motivational Management & Development Services, Ltd. (MMDS), and freeze their assets. The FTC’s lawsuit seeks a permanent injunction to stop the defendants’ deceptive practices and to return ill-gotten gains to consumers, which according to a preliminary review of bank records referenced in the lawsuit were more than $11,117,800 since January 2009.

The complaint alleges that the defendants violated the FTC Act by misrepresenting that the diplomas were valid high school equivalency credentials and that the online schools were accredited. The FTC charges that the defendants actually fabricated an accrediting body to give legitimacy to their diploma mill operation. DER and MMDS allegedly sold the diplomas since 2006 using multiple names, including jeffersonhighschoolonline.com, jeffersonhighschool.us, enterprisehighschool.us, and ehshighschool.org, which purport to describe legitimate and accredited secondary school programs such as “Jefferson High School Online” and “Enterprise High School Online.” The websites claim that consumers can become “high school graduate[s]” and obtain “official” high school diplomas by taking an online exam and paying between $200 and $300. In numerous instances, consumers who attempt to use their Jefferson or Enterprise diplomas to enroll in college, enlist in the military, or apply for jobs are rejected because of their invalid high school credentials.

September 19th, 2014|Employment Decisions, Fraud, Lawsuit|

District of Columbia joins ban-the-box movement

On August 22, 2014, District of Columbia’s mayor signed new legislation titled the Fair Criminal Record Screening Amendment Act of 2014 that prohibits most employers in DC from both inquiring about criminal history information during the application process and obtaining a criminal background check until after a conditional offer of employment is made to the applicant. The law, which imposes a host of other restrictions and requirements on using criminal record information for personnel decisions, will take effect following a 30-day period of Congressional review as provided in the District of Columbia Home Rule Act and publication in the District of Columbia Register.

September 19th, 2014|Employment Decisions, Legislation|

New Jersey’s new ban-the-box law goes into effect March 1, 2015

Signed into law last month, The Opportunity to Compete Act will effect March 1, 2015, preventing many private employers in New Jersey from asking job candidates about their criminal history on the initial job application. In “banning the box” for private employers, New Jersey joins the District of Columbia, Hawaii, Illinois, Massachusetts, Minnesota, Rhode Island, and cities of Philadelphia (PA), Newark (NJ), Buffalo (NY), Seattle (WA), San Francisco (CA), Baltimore (MD), and Rochester (NY)) in postponing inquiries about criminal record information until later in the hiring process, and imposing other requirements on the use of such records in employment decisions.

September 19th, 2014|Employment Decisions, Legislation|

Cities of Rochester, NY and Baltimore, MD join fast growing list of ban-the-box jurisdictions

Effective November 18, 2014, the City of Rochester, New York ordinance no. 2014-0155 will prohibit employers from requiring applicants to disclose any criminal conviction information during the application process. The employer may inquire about a criminal conviction only after the initial interview. And if the employer does not conduct an interview, it must inform the applicant whether a criminal background check will be performed, before employment is to begin. Additionally, it must wait until after a conditional job offer has been extended before conducting the criminal check or otherwise inquiring into the applicant’s criminal history. The ordinance applies to any position where the primary place of work is located within Rochester, and to any city employees (except fire or police) or vendors regardless of location. Excluded from the ordinance are criminal record inquiries that are authorized by another applicable law.

Baltimore’s Fair Criminal-Record Screening Practices ordinance, which becomes effective August 13, 2014, similarly bans private employers from inquiring about or conducting criminal checks on applicants until a conditional offer has been extended. The ordinance applies to any employer with 10 or more employees within the city of Baltimore, but excludes entities serving minors or vulnerable adults. Unlike some other ban-the-box laws, the Baltimore ordinance does not require that employers provide additional notices to applicants other than those required under the Fair Credit Reporting Act.

For more information on ban-the-box legislation,see the recently published briefing paper by the National Employment Law Project titled Statewide Ban the Box–Reducing Unfair Barriers to Employment of People with Criminal Records.

July 9th, 2014|Employment Decisions, Legislation|

Sixth Circuit affirms dismissal of EEOC’s suit regarding employment credit checks

Last month, the 6^th Circuit affirmed a lower court order granting summary judgment in favor of educational institution Kaplan (6th Cir. April. 9, 2014; No. 13-3408: EEOC v. Kaplan Higher Education Corp.) where the EEOC charged that Kaplan’s use of credit checks causes it to screen out more African-American applicants than white, creating a disparate impact in violation of Title VII of the Civil Rights Act. In granting summary judgment to Kaplan, the district court stated that “proof of disparate impact is usually statistical proof in the form of expert testimony, and here the EEOC relied solely on statistical data compiled by Kevin Murphy, a PhD in industrial and organizational psychology.” The court excluded Murphy’s testimony on grounds that it was unreliable, as the EEOC presented “no evidence” that Murphy’s methodology satisfied any of the factors that courts typically consider in determining reliability under Federal Rule of Evidence 702; and, as Murphy himself admitted, his sample was not representative of Kaplan’s applicant pool as a whole. The EEOC argued that the district court “erred” when it excluded Murphy’s testimony.

This case was decided on narrow grounds, based on its particular facts and circumstances. Accordingly, employers still should review their screening policies to ensure that credit and (criminal history) checks are consistent with Title VII as interpreted by the EEOC. Additionally, ten states (California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington) and several municipalities already have legislation that limits the use of credit reports for employment purposes

May 14th, 2014|Employment Decisions, Judgment|

Reminder that EEOC’s guide on criminal checks extends to contractors and subcontractors

The guidance issued in 2012 by the Equal Employment Opportunity Commission’s (EEOC) on using criminal checks in employment decisions was also incorporated into the directive of Office of Federal Contract Compliance Programs (the “OFCCP”). As provided in the EEOC guidance, the OFCCP discourages the use of blanket hiring exclusions against individuals with criminal records, and recommends that contractors follow the EEOC’s best practices for employers to avoid liability for discrimination. The OFCCP advises that contractors, as a general rule, refrain from inquiring about convictions on job applications, and if such inquires are made, “limit the inquiries to convictions that demonstrate unfitness for the particular position.”

May 14th, 2014|Employment Decisions|

Class actions against employers for violations of the FCRA are increasing

An auto parts company (CA USDC Case No. 2:14-cv-3470) and a hotel chain (CA USDC Case No. 3:14-cv-01089) are just the latest employers that have been slapped with class action lawsuits for alleged violations of the Fair Credit Reporting Act (the “FCRA”) charging willful non-compliance with the FCRA’s disclosure, authorization, and/or notice requirements. And the payouts in such lawsuits can be in the millions. Within the past three years, a national trucking company reached a settlement for $4.6 million, a national retail chain for $3 million and a national pizza maker for $2.5 million.

The FCRA allows an applicant or employee to bring a private right of action against an employer who negligently or willfully fails to comply with any of the FCRA’s requirements. Under the statute of limitations, an action must be brought by the earlier of (1) two years after the date of violation discovery by the plaintiff, or (2) five years after the date on which the violation occurred. The employer’s liability for negligent non-compliance is actual damages sustained by the applicant/employee, and reasonable attorneys’ fees and costs. A willful violation carries actual or statutory damages ranging between $100 and $1,000, punitive damages, and attorneys’ fees and costs.

Below are general FCRA compliance reminders to employers when procuring and using background check reports prepared by a consumer reporting agency (“CRA”):

Provide disclosure to the applicant/employee in a standalone document that a consumer report may be obtained and used for employment purposes (language must be clear, with no superfluous information or liability waiver, and separate from the employment application);
Provide to the applicant/employee a summary of rights under the FCRA and applicable state notices;
Obtain the applicant/employee’s authorization for the consumer report;
Before taking adverse action based on the report (1) provide a pre-adverse action notice to the applicant/employee along with a copy of the report, and notices of rights, if not given previously, (2) wait a reasonable period of time (at least 5 days) before taking the adverse action, and (3) after deciding to take the adverse action, provide a notice that contains the FCRA required information, such as the name, address, and telephone number of the CRA that provided the report.

May 14th, 2014|Employment Decisions, Judgment, Lawsuit|