Credit Checks: Best Practice. Mitigating Risk

Transcription

1 Credit Checks: Best Practice Recommendations for Mitigating Risk

2 Rod M. Fliegel Biography Rod M. Fliegel, Shareholder Littler Mendelson Mr. Fliegel has extensive experience defending national and local employers in state, federal and administrative litigation, including class actions. Mr. Fliegel has special expertise in the intersection of the federal and state t background check laws, including Title VII of the Civil Rights Act of 1964 and the Fair Credit Reporting Act

3 Agenda Answers to Common Questions Are credit checks legal? The Legal Landscape Federal Law State Law Can we reduce the risk? Best Practices Assemble, Evaluate, Implement

4 Are Credit Checks Legal?

5 NASA v. Nelson (Jan. 12, 2011) Rejected a constitutional challenge to the collection of certain background information by the U.S. Government e as part of the process of credentialing federal contractors Decision acknowledges the legitimate interest the Government has as an employer in "employing a competent, reliable workforce" and "separating strong candidates from weak ones"

6 Rea v. Federated Investors (Dec. 15, 2010) Considered whether 525 of the Bankruptcy Code prohibits a private employer from rejecting job applicants based on a bankruptcy filing Held, the Code's reach does not extend to the hiring process and affirmed a ruling for the defense

7 Title VII Title VII nowhere says the use of credit reports by employers is restricted Title VII s prohibition on racial discrimination nonetheless may restrict the use of credit reports by employers

8 Title VII Title VII prohibits employers from making hiring decisions based on race That is, intentional discrimination Title VII also prohibits disparate impact discrimination This is our focus for today

9 Disparate Impact Framework Plaintiff must prove the selection procedure caused the disparate impact Employer must prove the selection procedure is job-related and consistent with business necessity This is the employer s affirmative defense Plaintiff must prove there is a less discriminatory alternative

10 EEOC EEOC s Advisory Guidance Views Title VII as restricting the use of credit reports under the disparate impact theory Examples: Compliance Manual, Advisory Letters EEOC s E-RACE and Systemic Discrimination Initiatives Renewed focus on barriers for job applicants

11 EEOC Enforcement Systemic Unit Investigations Nationwide Data Requests Credit Report Litigation EEOC v. Kaplan Higher Education, N.D. Ohio, Case No. 1:10- cv (ongoing) Criminal Report Litigation EEOC v. Freeman, D. Md., Case No. 09-cv (ongoing) EEOC v. Peoplemark, W.D. Mich., Case No. 08-cv-907 (completed)

12 Private Enforcement Appolon v. University of Miami, SD S.D. Fla. Case No. 1:10-cv (filed 11/22/2010) Sutton v. Berglund Construction ti Co., N.D. Ill. Case No. 1:11-cv (filed 01/10/2011) Also disparate impact lawsuits over criminal records in California and New York

13 Business Necessity Defense No recent case has considered how an employer can justify using credit reports Older cases upheld the use of credit reports Banks, fire and police departments EEOC looking to a criminal record case, El v. Southeastern Penn. Trans. Authority y( (SEPTA)

14 El v. SEPTA An empirical basis must support the employer s business necessity defense The empirical i evidence must show a correlation between the business interest furthered by the screening (e.g., job performance) and the screened for characteristic SEPTA won based on undisputed testimony from a leading criminologist

15 EEOC s October 2010 Hearings Testimony from Dr. Michael Aamodt of DCI Consulting Dr. Richard Tonowski, the EEOC s Chief Psychologist Both experts acknowledged The potential ti for disparate impact That only minimal research explores the correlation between credit history information and job-related considerations, such as performance and attendance That some research disputes the correlation

16 Association of Certified Fraud Examiners Reported in 2008 and 2010 that financial pressure is a key motivating factor behind check tampering, theft t and fraudulent reimbursement e schemes Reported in 2010 that living beyond financial means and experiencing financial difficulties were the most common warning signs displayed by workplace fraud perpetrators

17 Fair Credit Reporting Act The FCRA requires consent for vendorprovided background reports, including credit reports, and adverse action notices The Equal Employment for All Act would amend the FCRA to restrict the use of credit reports unless job-related

18 The Equal Employment for All Act (3) EXCEPTIONS- Notwithstanding the prohibitions set forth in this subsection, and consistent with the other sections of this Act, an employer may use a consumer report with respect to a consumer in the following situations: (A) When the consumer applies for, or currently holds, employment that requires national security or FDIC clearance (B) When the consumer applies for, or currently holds, employment with a State or local government agency which otherwise requires use of a consumer report (C) When the consumer applies for, or currently holds, a supervisory, managerial, professional, or executive position at a financial institution (D) When otherwise required by law

19 State Law Jurisdiction matters alot! State laws similarly prohibit race discrimination May provide more generous remedies Four states restrict the use of credit reports unless job-related: HI, IL, OR and WA Many other states t have similar il bills pending

20 Can We Reduce Risk? Assemble, Evaluate, Implement

21 1. Assemble Assemble a task force to work together to evaluate and balance operational needs and risks with Compliance Knows about the company s obligations (e.g., if publicly-held, in the financial sector, etc.) Human Resources Legal Knows about the screening program and workforce demographics Knows how to scope the risks (by jurisdiction) Provides privileged, strategic assessment

22 2. Evaluate Identify: areas of potential legal risk Anti-Discrimination Laws Are you a target for disparate impact litigation? Credit-Protection State Laws Do you do business in these states What about the states that may do so? Do you plan to do so in the near future? FCRA Compliance

23 2. Evaluate (cont.) Identify: areas of specific legal risk For which positions do you screen with credit information? What is the business case for each one? How is that documented? When do you evaluate it (pre- or post-offer)? Who decides (centralized or decentralized decision-making)? How do they decide? Applicant-supplied explanation How are the process / decisions documented? Are related pieces in place (FAQs, interview guidelines, etc.)?

24 3. Implement Buy-in from stakeholders for any refinements Consider the significance for any pending claims Implement the refinements Monitor Compliance with the refinements Overall program impact Discuss with your legal team Ongoing legal developments

25 Questions & Answers Rod M. Fliegel, Esq