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AUDIO CONFERENCE ON

“BACKGROUND CHECKS AND THE FAIR CREDIT REPORTING ACT: KEY ISSUES FOR NORTH AMERICA EMPLOYERS”

April 8, 2015

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The undersigned certifies that ______________________________________ attended the Background Checks and the Fair Credit Reporting Act: Key Issues for North America Employees Audio Conference, sponsored by the Employment Law Alliance. The program consisted of 90 instructional minutes. The program contained no credit for continuing legal education for legal ethics, elimination of bias in the legal profession or prevention, detection and treatment of substance abuse.

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Background Checks and the Fair Credit Reporting Act: Key Issues for North America Employers

Wednesday, April 8, 2015

Moderator Henry M. Perlowski, Partner Arnall Golden Gregory Atlanta, GA [email protected]

Speakers

2

mailto:[email protected]

Erin Kuzz, Partner Sherrard Kuzz Toronto, Ontario [email protected]

Montserrat C. Miller, Partner Arnall Golden Gregory Washington, DC [email protected]

Speakers

3

mailto:[email protected]:[email protected]

Jeffrey S. Siegel, Partner Morgan, Brown & Joy Boston, MA [email protected] Mary Ellen Simonson, Partner Lewis Roca Rothgerber Phoenix, AZ [email protected]

Speakers

4

mailto:[email protected]:[email protected]

An Employer’s Background Screening Responsibilities

Pros/Cons of Using an Outside Screening Company

Mitigating the Risks of Non-compliance with FCRA

“Ban the Box” Measures and their Impact on Employers

Montserrat C. Miller

Arnall Golden Gregory 5

• What is the Fair Credit Reporting Act (FCRA)? – 15 U.S.C. § 1681 – Controls the activities of: Consumer reporting agencies (CRAs)

Users of consumer reports

Furnishers of information for consumer reports

Fair Credit Reporting Act

6

• When and how can employers conduct background checks under the FCRA? – “Permissible purpose” and consumer reports;

– Use of a CRA versus an employer conducting their own background check;

– A consumer report is obtained for an “employment purpose” when used “for the purpose of evaluating a consumer for employment, promotion, reassignment or retention as an employee”; and

– The FCRA provides special protections when consumer reports are used for employment purposes.

The FCRA and Employers

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• Consumer reports can include items such as: credit, criminal history, drug testing, education, employment verification and public record information.

• Reports regarding a person’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristic, and mode of living can be consumer reports for purposes of the FCRA.

Consumer Reports

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• Before obtaining a consumer report: – Applicant/employee must be notified in writing

by a stand-alone document; – Employer must seek consent from the

applicant/employee prior to obtaining a consumer report; the consent can be an “evergreen” consent that authorizes consumer reports to be obtained throughout the individual’s employment except in VT;

FCRA Requirements for Employment-Related Determinations

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• Before obtaining a consumer report (cont’d): – Employer must provide certifications to the

CRA that it: Has notified and obtained consent from the

applicant/employee;

Will comply with the FCRA requirements; and

Will not use information in the report to violate any applicable Federal or State EEO law or regulation.

FCRA Requirements for Employment-Related Determinations

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• What is an “adverse action”? – An adverse action is a denial of employment

or any other decision for employment purposes that adversely affects any current or prospective employee made, in whole or in part, on the basis of information in a consumer report.

FCRA Requirements

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• Before taking an adverse action: – Notify the applicant/employee; – Provide a copy of the consumer report relied

on to make the employment decision; and – Include a copy of, “A Summary of Your Rights

Under the Fair Credit Reporting Act.”

FCRA Requirements

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• After taking an adverse action: – Notify the applicant/employee of employment decision; – Provide the name, address, and phone number of the

CRA that supplied the consumer report; – Include a statement that the CRA that supplied the

report did not make the decision to take the adverse action and cannot give specific reasons for the decision; and

– Notify the applicant/employee of the right to dispute the accuracy or completeness of any information furnished by the CRA and of the right to request an additional free copy of the consumer report within 60 days.

FCRA Requirements

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• Contracts • Templates • Certifications • Indemnification • Matrix (job related and consistent with business

necessity – disparate impact) • Reports (presentation of information, arrest

versus convictions, obsolescence and 7 years, state consumer protection statutes)

Hiring a Background Screener

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• Private litigation – individual and class action claims

• Federal agencies:

Enforcement

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• Settlements against employers – $2 - $4 million range for paperwork violations.

• FTC enforcement actions against HireRight, Instant Checkmate, and Info Track Information Services in past few years for alleged FCRA violations tied to employment screening.

Litigation

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• Disclosure and authorization – Stand-alone document – Individual’s consent

• Adverse action – Pre-adverse action step (consumer report and

A Summary of Your Rights Under the FCRA) – Adverse action (no private right of action)

Litigation

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• What is this? • Who is covered and applicability? • Penalties • Best practices and applicability to overall

background screening program

Ban the Box

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Selected Topics in State Law Background and Credit Checks

Jeffrey S. Siegel

Morgan, Brown & Joy

19

• In addition to FCRA, employers should be aware that most states and some cities have their own requirements regarding employee background checks. – Seattle, WA and Buffalo, NY

• State laws are often much more restrictive than Federal law.

State Laws Create Additional Obligations for Employers

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IMPORTANT: • The use of background checks is a hot issue, and

several states have bills pending to limit employers’ ability to get this information. Make sure you are aware of pending laws in your state.

• Specific professions (e.g., those who work with children or at-risk population) may have their own requirements.

• Watch out for notice provisions.

State Laws Create Additional Obligations for Employers

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California

(CA Labor Code § 1024.5)

Maryland

(MD Labor Code § 3-711)

Colorado

(C.R. S. § 8-2-126 )

Nevada

(N.R.S. 613.570)

Connecticut

(C.G.S. § 31-51tt)

Oregon

(O.R.S. § 659A.320)

Hawaii

(H.R.S. § 378-2.7)

Vermont

(21 V.S.A. § 495i)

Illinois

(820 ILCS 70/10)

Washington

(R.C.W. 19.182.020)

States that Ban Credit Checks Except for Limited Circumstances

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States that Ban Credit Checks (cont’d)

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• Common Exceptions to the Ban: remember the phrase “substantially job related.” – Managerial employees; – Employees who handle company funds (e.g.,

signatories on company accounts); – Employees with access to personal information; – Employees with regular access to large amounts of

cash; – Financial institution employees; – Otherwise authorized by state/federal law.

• Example: Colorado defines substantially related – Executive or management position involving one

or more of the following: Sets the direction or control of a business, division,

unit or an agency of the business;

Owes a fiduciary responsibility to the employer;

Has access to customers', employees' or the employer's financial information; or

Has the authority to make payments, collect debts or enter into contracts.

Credit Checks under State Law

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• Example: Colorado defines substantially related (cont’d) – A position that involves contracts with intelligence,

national security, defense, or space agencies of the federal government.

• Even if a state has not banned an employer from requesting a credit check, the law may still restrict how employers use that information.

Credit Checks under State Law (cont’d)

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• Like credit checks, the use of criminal records in employment decisions is a hot topic, and many states are adopting restrictions.

• Beware of automatic disqualifications, which may violate anti-discrimination laws.

Using Criminal Records for Employment Decisions under State Law

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• New York (N.Y. Crim. Proc. Law § 160.60; N.Y. Exec. Law §296; N.Y. Correct. Law c. 43, Art. 23-a) – Criminal record should not bar employment unless a

direct relationship exists between an offense and the job, or the person would present unreasonable safety risk to property, specific individuals, or the general public.

– List of factors to consider prior to making employment decision. Individualized inquiry

Select State Laws for Criminal Background Checks

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• New York (N.Y. Crim. Proc. Law § 160.60; N.Y. Exec. Law §296; N.Y. Correct. Law c. 43, Art. 23-a) – Certificate of Good Conduct creates a presumption

of rehabilitation. – Cannot inquire into or act on information about an

arrest not resulting in conviction or that resulted in a “favorable outcome” for the person involved, unless such inquiry is permitted by law.

– If employer requires a background check, employee must be given a copy of Article 23-A.


28

• Wisconsin (Wis. Stat. § 111.335, as amended) – Employers are generally prohibited from asking

applicants or employees about arrests not resulting in convictions, unless charges are still pending.

– Employers may not discharge or deny employment solely because of an arrest or conviction record that doesn't substantially relate to the job sought or currently held.


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• Pennsylvania (18 Pa. C.S. §§ 9101 et seq.) – Employer may consider felony and misdemeanor

convictions only to the extent they relate to the applicant’s suitability for the specific position.

– Employer may not deny employment on the basis of an arrest not resulting in conviction.

– Applicant must be notified in writing if decision not to hire was based, in whole or in part, on criminal history.


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• Massachusetts (M.G.L. c. 151B, §4) – Employers may not consider or request information

regarding: An arrest, detention, or disposition regarding any

violation of law in which no conviction resulted; A first conviction for drunkenness, simple assault,

speeding, minor traffic violations, affray, or disturbance of the peace; or

Any misdemeanor conviction five or more years old, unless employee had another conviction within five years of background check.


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• In 2012, Massachusetts reformed process for obtaining and using criminal history information – 803 CMR 2.00; 803 CMR 11.00

• New obligations include: – Register organization with MA Dept. of Criminal

Justice Information Services; – CORI policy if conduct 5 or more checks per year; – Training; – MA Acknowledgment form; – Pre-adverse action letter and process.

Massachusetts CORI Reform

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• Arkansas • California • Colorado • Illinois • Louisiana • Maryland • Michigan • Nevada

• New Hampshire

• New Jersey • New Mexico • Oklahoma • Oregon • Rhode Island • Tennessee

• Utah • Virginia • Washington • Wisconsin

States that Restrict an Employer’s Access to Social Media Passwords

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Use of Criminal History Records for Employment-Related Background

Checks

Mary Ellen Simonson Lewis Roca Rothgerber

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• “National data supports a finding that criminal record exclusions have a disparate impact based on race and national origin.”

• EEOC will “investigate Title VII disparate impact charges challenging criminal record exclusions.”

• Advises (directs) employers to develop a “targeted screen” and provide an “opportunity for individualized assessment.”

EEOC Guidance – April 2012

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• EEOC’s enforcement activity in this area has been hit-or-miss.

• More often than not, litigation has resulted in favorable outcomes for the employer.

• That said, beware – certain steps will help you to avoid being a target of the EEOC.

• Still some important pending cases.

Enforcement Activity

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• Facts: In 2009, EEOC sued Freeman, a large event-planning company, alleging the company’s use of criminal history had a disparate impact on male, African-American, and Hispanic applicants. – Side Note: EEOC sued three years before issuing

its updated Guidance. EEOC will not necessarily wait to issue guidance or clarification before bringing suit!

EEOC v. Freeman, 961 F. Supp. 2d 783 (D. Md. 2013)

37

• Facts (cont’d): – Also: EEOC’s investigation of Freeman began as

an investigation into the company’s use of employees’ credit history, and was later expanded to include the use of criminal history. Be aware that the information you provide to the EEOC during an investigation can change the scope of the investigation!

EEOC v. Freeman, 961 F. Supp. 2d 783 (D. Md. 2013)

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• District court ultimately granted Freeman’s MSJ. – Numerous examples of “material errors and

unexplained discrepancies” in expert’s statistical evidence, including one “egregious example of scientific dishonesty” in which the expert “cherry-picked” individuals from discovery materials to inflate statistics in EEOC’s favor.

– National statistics alone insufficient to support the claim, as unrepresentative of the potential applicant pool.

– Characterized EEOC’s claim as “a theory in search of facts to support it.”

EEOC v. Freeman (cont’d)

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• Fourth Circuit recently affirmed on appeal. EEOC v. Freeman, 778 F.3d 463 (4th Cir. 2015).

EEOC v. Freeman (cont’d)

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• Disparate impact claims rise and fall on statistical evidence, and courts take a critical look at this evidence.

• Contrary to position taken in EEOC Guidance, if “national data” does not reflect relevant applicant pool, EEOC probably cannot rely on such data.

• Experienced defense counsel and experts will be able to look for trends and deficiencies in data to contradict EEOC’s own statistical evidence.

Key Takeaways from Freeman

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• Facts: – EEOC investigated Peoplemark, a temporary-

employment agency, for its use of applicant’s criminal history.

– During investigation, one of Peoplemark’s senior officers incorrectly informed EEOC that Peoplemark had a company-wide policy of denying employment to felon applicants.

EEOC v. Peoplemark, 732 F.3d 584 (6th Cir. 2013)

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• Facts (cont’d): – EEOC continued to investigate and prosecute

the claim on that basis, despite having received documentation showing this statement to be incorrect.

• Sixth Circuit affirmed district court’s $750,000 award of fees and costs against the EEOC.

EEOC v. Peoplemark, 732 F.3d 584 (6th Cir. 2013)

43

• Case arose because of a misstep in communicating with the EEOC. – Ensure that all communication during an

EEOC investigation comes through defense counsel, or at least through someone familiar with employment discrimination laws and investigative procedures.

Key Takeaways from Peoplemark

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• In January 2012, EEOC announced that Pepsi Beverages agreed to pay $3.13 million to settle a potential lawsuit over its criminal background check policy.

• According to EEOC, Pepsi had a policy of denying employment to applicants who: (1) had been arrested pending prosecution, even if they had never been convicted of any offense; and (2) had been arrested or convicted of certain minor offenses.

EEOC’s Investigation of Pepsi

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• Policies and practices that appear to be facially at odds with updated EEOC Guidance pose increased risk of exposure.

• Policies and practices that incorporate Guidance are much more likely to be defensible, as evidenced by Freeman and Peoplemark cases.

Key Takeaways from Pepsi

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• Two cases remain ongoing: – EEOC v. BMW Mfg. Co., No. 7:13-cv-01583

(D.S.C.). – EEOC v. Dolgencorp LLC (Dollar General), No.

1:13-cv-04307 (N.D. Ill.).

• EEOC filed both complaints on same day in June 2013; both cases allege that company use of criminal background screening disproportionately impacted minority applicants.

Ongoing Enforcement Efforts

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• Both cases currently mired in discovery disputes. • Interestingly, the court in the BMW matter ordered

EEOC to turn over information about its own background check policies and practices. – The Freeman court also found notable that the EEOC

conducts criminal background investigations as a condition of employment for all employees.

– Dollar General has also moved to compel discovery of EEOC’s background check practices, along with EEOC’s statistical analyses proving disparate impact.


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• Could potentially help undermine an EEOC claim that an employer’s practices have a disparate impact on protected groups when EEOC itself employs the same or similar practices.


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• Despite EEOC’s track record, criminal background checks continue to be a hot-button issue. – Develop a targeted screen and implement the

individualized assessment explained in Guidance. – By implementing such measures, EEOC

“believes employers will consistently meet the ‘job-related and consistent with business necessity’ defense.”

Practical Tips

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• Documentation is key. – Have appropriate written policies and

procedures in place for use of criminal history. – Contemporaneous notes explaining

employment decisions and reasons for decisions critical to rebut charge of discrimination.

Practical Tips

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• Cooperation during an investigation is important, but don’t give away the farm. – Limit who communicates with EEOC, and do

not give more information than necessary. – This limits risk of exposure and risk of EEOC

expanding the scope of its investigation. • Experienced and competent defense counsel

will likely be able to effectively rebut EEOC’s statistical evidence.

Practical Tips

52

Key Issues Facing Canadian Employers Relating to Background

Checks and Critical Differences across the Border

Erin Kuzz

Sherrard Kuzz

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• Opportunities and challenges in hiring – Privacy considerations – Human rights issues – Background checks

Finding the Right “One”

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• Human rights legislation in Canada protects candidates in hiring process – Advertisements, application forms, interviews,

hiring decision, background checks, etc.

• Federal and provincial human rights legislation

• Balance to be struck between wants and needs versus exposure to claim

Too Much Information?

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• Some jurisdictions have safeguards for protecting personal employee information.

• Examples of personal information an employer may collect, use, and store during hiring:

Protection of Personal Information

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• Personal Information Protection and Electronic Documents Act (PIPEDA) – Federally regulated companies (i.e., banking,

telecommunications, transportation sectors) for all information collected (includes employee information)


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• Personal Information Protection and Electronic Documents Act (PIPEDA) – For provincially regulated employers: Unless province enacted “substantially similar”

privacy legislation, PIPEDA applies to personal information in course of commercial activity. o ON, MB, SK, NB, NS, NL and PEI

Likely doesn’t include administration of employment relationship for provincially-regulated employers.


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• Only three provinces have enacted “substantially similar” privacy legislation – British Columbia (Personal Information Protection

Act) – Alberta (Personal Information Protection Act) – Quebec (An Act Respecting the Protection of

Personal Information in the Private Sector)


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• What background checks do you perform and for which positions?

• Types of background checks: – Reference check – Credit check – Criminal record check – Social Media check – Drug and alcohol testing

Background Checks

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• Effective method to learn about candidates • Employers can check any source that seems

appropriate, not limited to references offered by the candidate

• Consider potential privacy legislation issues

Reference Checks

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• Generally permissible, but an employer must: – Notify the applicant in writing of credit check – Identify agency providing credit check

• Candidate may frame credit history as prohibited ground: – “Social disadvantage/condition/inclusion” or

“source of income” MB, PEI, NL, QC, AB, YT, and NWT

– In other provinces, it could also be related to newcomer status, disability, family breakdown, etc.

Credit Checks

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• Jones v Tsige (ONCA) – Created the tort of invasion of privacy

• Post Jones – Unionized employer in Alberta held liable for inappropriately conducting credit checks on employees without their knowledge or consent (2012) – Each affected employee was awarded $1,250

Credit Checks

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• Pre-employment credit checks have also been challenged in Alberta (2010) – Such credit checks for a retail employer were

not reasonable – no evidence applicant’s credit history provided reliable information about whether a job applicant would commit theft or fraud.

Alberta Information and Privacy Commissioner (2010) Investigation Report P2010-IR-001

Credit Checks

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• Some – but not all – jurisdictions prohibit discrimination due to criminal record – Federal, BC, Ontario, Quebec, Newfoundland,

Manitoba, PEI, YT, NU and NWT • The rules and extent of protection among

these provinces vary: – Charge versus conviction – “Unrelated to employment”

Criminal Record Checks

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• Ontario employers may discriminate on basis of “record of offences” unless: – Pardon/conviction has been granted – Conviction is for a provincial offence

• In the other provinces, employer may generally discriminate if there is a relationship between record and the job – What is related and/or “reasonable” discrimination

depends on job and nature of the offence (or charges)

Criminal Record Checks

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• Facebook, Twitter, Instagram – Permissible to ask for password – Make appropriate use of social media – Consider information you might find that is

irrelevant or illegal to rely on Family status, disability, union affiliation

• Have someone else not making the final decision do the check

Social Media Checks

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• Pre-employment drug and alcohol testing is generally not permissible – Testing only reveals past behaviour; it does

not predict future behaviour • Drug or alcohol addiction (whether or not

presently using), and ‘perception of addiction’ are disabilities – Be careful what you wish for!

Drug and Alcohol Testing

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• Get the candidate’s consent • Limit any checks to information that can

reasonably impact the candidate’s ability to perform the job – Critically assess usefulness of information

• Make offer of employment conditional on satisfactory background check

• If applicable, implement privacy safeguards

Best Practices

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Erin Kuzz Jeffrey S. Siegel Sherrard Kuzz Morgan, Brown & Joy Toronto, Ontario Boston, MA [email protected] [email protected] Montserrat Miller Mary Ellen Simonson Arnall Golden Gregory Lewis Roca Rothgerber Washington, DC Phoenix, AZ [email protected] [email protected]

Please contact our speakers for more information

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mailto:[email protected]:[email protected]:[email protected]:[email protected]

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