Introductions. Overview. FCRA Litigation Is Powerful

Transcription

1 HR attorneys have been buzzing that pre-employment screening litigation has become the new wage and hour, AKA the bread and butter for employment lawyers. The Background Checks: Best Practices for Compliance webinar discusses the greatest risks in the HR sector, specifically the risks posed by employment screening and best practices for mitigation. Introductions You ll be hearing from Elizabeth McLean, GoodHire s FCRA attorney and compliance analyst. She graduated from University of North Carolina School of Law with Honors and holds an advanced FCRA certification from National Association of Professional Background Screeners. Please note, that any information shared in this presentation should not be taken as legal advice. Please consult your own counsel if you have legal questions related to your practices and compliance with all applicable laws. Overview The presentation will discuss: An overview of the two most litigated issues in employment-related background screening. States trend to restrict the use of credit history in the pre-employment context. EEOC s attitude toward employment screening and how it can result in unintentional discrimination against your applicants. Ban-the-box: what it is and ways you can stay compliant with the new laws that are being cranked out monthly. FCRA Litigation Is Powerful Let s start off with an overview of the most prominent risks posed by pre-employment screening. Most of you probably look into your job candidates backgrounds before hiring them, and it s important to know that if you use a third party to run a background check, you re going to have to follow some federal and, perhaps, state laws that regulate pre-employment screening. The Fair Credit Reporting Act, which will be referred to as the FCRA from this point forward, is a federal law that sets out requirements for employment screeners like GoodHire. These screeners are referred to under the statute as consumer reporting agencies. The FCRA also sets out requirements for the parties that use the reports produced by those screeners. That means, it sets out rules that employers must follow. Now, it s important to note that the FCRA only applies when an employer uses a third party screener to perform a background check. If an employer sends its own employees down to the county court house or uses internal staff to investigate applicants through online court databases, then that employer doesn t have to worry about the FCRA. Again, that s because the FCRA only applies when a consumer reporting agency furnishes the background check to the employer. Based on the evidence over the past few years, it appears that plaintiffs attorneys are more familiar with the rules of the FCRA than the employers are. Huge companies that are staffed with very bright attorneys have been hit over and over again in class action lawsuits that allege violations of the statute GoodHire.com 1

2 The danger of an FCRA violation is the availability of statutory damages. For each violation of the statute, an employer can be forced to pay up to $1,000. Imagine you re a large company, with an online application. You have thousands of applicants a year, and provide an electronic background check consent form to each. If that form isn t compliant, you can be looking at a payout of $1,000 per applicant, plus attorney s fees. This causes a lot of big name employers to settle these lawsuits. So it creates a vicious cycle. Plaintiffs attorneys smell blood in the water. They know employers are more likely to cave in and settle when a class action lawsuit provides for statutory damages, and so they file more lawsuits. What exactly can get you sued and how to make sure you don t join the list of businesses hit with an FCRA lawsuit. There are two go-to violations that job applicants and employees use in these lawsuits. These are: 1. an employer s failure to provide a compliant background check disclosure and authorization, which is just a fancy way of saying consent form; and 2. an employer s failure to follow the adverse action process. And that s just a three step process required anytime an employer intends on taking unfavorable action against a job candidate or employee based on the results of a background check. #1 Risk: Non-Compliant Disclosure The FCRA states that an employer cannot obtain a background report unless a clear and conspicuous disclosure has been made in writing to the consumer in a document that consists solely of the disclosure. What does this mean? It means you have to inform your applicants in writing that a report will be run for employment purposes, and you have to do so in a very clear way. You shouldn t provide this disclosure within a job application. You shouldn t provide it in small font. You shouldn t sandwich it between information related to the duties of the job. The disclosure MUST be provided in a document that contains only information about the background check. You CAN obtain authorization, or a signature, on this same page, but you should not include any information here that s unrelated to the background check. Many of the lawsuits filed against employers on this basis allege that the disclosure was not clear and conspicuous, and was not provided in a standalone document due to the presence of extraneous language. For example, Nine West was sued because its consent form contained information related to work hours and at will-employment. Many companies are also sued because of the presence of a single release of liability clause. It seems silly that a class of applicants could be awarded statutory damages for these things, because if we re honest about it, they don t suffer any real harm as a result. But these are what have been called hyper technical violations of the FCRA and they are real threats. So make sure that you review your background check consent forms. Make sure they aren t included in the middle of an application package. Make sure the disclosure does not contain a release of liability or any information unrelated to the background check itself. And if you d like to be really proactive, you might consider removing any state law disclosure from the consent form, too, and putting that in a separate document. There are a number of states that require specific notices be provided to applicants prior to running a background check. Until recently, most employers and CRAs included these state law notices in the same document as the disclosure and authorization. And it made sense. The rights were related to the background check, so you d think that they couldn t be considered extraneous. Well, at the end of 2015, a lawsuit was filed alleging an employer s inclusion of these notices in the same document as the consent form was a violation of the FCRA. Thinking it ridiculous, the defendant, Leland Stanford Junior University, tried to get the suit dismissed, but the judge denied the motion, stating this was a valid claim. We ll wait to see how this one turns out, but it illustrates how eager the plaintiffs bar is to file FCRA lawsuits based on consent forms. #2 Risk: Adverse Action Violations The second most popular FCRA claim alleges a violation of the adverse action process. If an employer has obtained a background check from a CRA and intends to take unfavorable action against an applicant based on that check, it MUST follow what s called the adverse action process. The law is very clear here and sets out three steps that must be followed by the employer. 1. Send out a pre-adverse action notice. This is just a letter that informs the applicant that the background check is under review and a decision is pending. You have to provide a copy of the background report and what s called a Summary of Rights along with the notice. The Summary of Rights is a document provided by the Consumer Financial Protection Bureau, and you can find it on their website GoodHire.com 2

3 2. After providing the pre-adverse notice, you must wait 5 business days. 3. After waiting 5 days, if you still want to reject the applicant, you must send the final adverse action notice. This notice must inform the applicant of the adverse action (denial of employment), and notify the applicant that the decision was based, at least in part, on the background check. The notice must also contain the contact information for the CRA that performed the background check and a statement that the CRA was not the decision maker. Finally, the notice must inform the applicant of his or her right to request a free copy of the report within 60 days, and of the right to dispute inaccurate information. If any of these requirements aren t included in the notice, you re in violation of the statute. So you want to review these notices and audit them annually to make sure they are compliant with what the law currently requires. Most of the time, lawsuits alleging adverse action violations are based on the employer s failure to either send the pre-adverse notice or wait 5 days in between the first and last notice. The good news is that this process is very simple and easy to follow. As a best practice, you should keep a record of all pre-adverse and post-adverse action notices sent along with the dates sent. If you are handling the process yourself, and you haven t contracted with your CRA to send the notices on your behalf, you may even want to consider sending these notices by certified mail. New Laws Restrict Credit Check Use Let s touch briefly on credit reports and how they tie into pre-employment screening. A credit report is a consumer report, just like a background check. The federal regulations on using credit reports and criminal background in the pre-hiring context are the same. The FCRA applies. This means you must get that compliant disclosure and authorization and you must follow the adverse action process if you take unfavorable action against an applicant based on their credit report. But credit reports are starting to create more compliance challenges for employers because states are passing their own laws that regulate their use for employment purposes. Like most employment screening laws, these state-level credit reporting restrictions vary by location. But the common theme in the states that have enacted credit report restrictions is that the use of credit history is PROHIBITED unless the employer or employee falls into a special category. These categories are usually those where an applicant would handle large amounts of money, work in a managerial capacity, have access to trade secrets, or work in a field where government regulations require credit reports be run. This is the case in the banking industry. So the takeaway here is to research your state s laws and make sure you re familiar with any credit report restrictions in place. There are also city laws that might regulate your use of applicants credit history New York City has a very stringent law in place called the Stop Credit Discrimination in Employment Act (SCDEA) that prohibits most employers from running credit reports on their applicants. To illustrate how important compliance is, an employer found in violation of that credit restriction can be fined up to $250,000. Other locations provide for civil penalties, injunctive relief, and there are some states that even provide an applicant a private right of action, which is another way of saying they can sue you in court for damages. Research your state s laws and consult your counsel if you have questions. No Uniform Rules Regulating Timing A lot of employers are confused as to when they can legally run a background check on an applicant or employee. And that confusion is completely understandable because there is no uniform rule regulating when an employer can screen an employee. The timing of a background check depends on a number of various factors. If you are in the pre-hire stage, you ll want to consider 2 laws: The FCRA and ban-the-box laws. 1. The FCRA allows you to run a background check for employment purposes at any point in time, as long as you obtain consent of the applicant. However, there are a lot of ban-the-box laws popping up across the country that provide more protection to job applicants. In locations with ban-the-box laws, which we will discuss in further detail at the end, there is usually a requirement that the background check be delayed until after the first interview or until after a conditional offer is made. So from a federal law standpoint, you re golden. Get consent, and you can run a background check on an applicant. But from a state law or local law standpoint, you ll want to make sure you re not restricted in your timing. I highly recommend visiting the National Employment Law Project s website and using their ban-the-box guide to see if you are located in a jurisdiction with a ban-the-box law in place. They have a comprehensive guide that lists all BTB laws across the country and their requirements, and they update it pretty frequently GoodHire.com 3

4 2. If you have made a conditional offer OR have already formally hired a candidate, again, the FCRA allows you to run a background check at any point as long as you obtain consent. Many employers also insert what s called an evergreen clause into their disclosure and authorization form that states they may run subsequent background checks on the employee throughout the duration of employment. These have been upheld as valid in most states. There s a gray area in the law in California that suggests employers in that state must get consent for each report and evergreen provisions are not valid. And in New York, if you are running a background check that includes references, then you must get a separate consent for that check as well. But generally, you can do post-hire monitoring on employees without having to get new consent each time. You just have to make sure you put the evergreen language into that first consent form. Please note that drug tests can only be performed after a conditional offer is made to a candidate. Most employers have a formal drug testing policy in place for their applicants and employees, but it is mentioned because it s a screen many employers are performing in the hiring context. Worth noting is a special exception to the FCRA that allows an employer to run a post-hire background check on an employee WITHOUT obtaining consent. This can only be done if the report is run as part of an investigation into employee misconduct. It s not an exception that s widely used. HOT: Increased Enforcement of Title VII Let s look at the Equal Employment Opportunity Commission and discuss the trends there. It s been a really bumpy ride for the Commission over the past year or so. They ve succeeded in a number of cases, some of them very high profile. One religious accommodations claim even reached the U.S. Supreme Court. Since 2012, the Commission has been focused on increasing its enforcement efforts against employers who they believe have violated Title VII of the Civil Rights Act of This is the statute that prohibits employer discrimination based on race, color, religion, sex, or national origin. There are two types of discrimination in Title VII claims. There s disparate treatment discrimination, where an employer intentionally discriminates against a protected group. And there s disparate impact discrimination, where an employer s actions result in unintended discrimination against a protected group. When it comes to background screening, the EEOC has alleged disparate impact discrimination against employers whose screening policies result in disproportionate adverse treatment toward a protected group. Usually this group is a racial minority. Their 2012 enforcement guidance specifically states With respect to criminal records, there is Title VII disparate impact liability where the evidence shows that a covered employer s criminal record screening policy or practice disproportionately screens out a protected group and the employer does not demonstrate that the policy or practice is job related for the position and is consistent with business necessity. Their two high profile cases of late resulted in very different outcomes. In EEOC v. Freeman, the Commission alleged that the use of background checks and credit checks led to disparate impact discrimination for which there was no business necessity. The 4th Circuit Court of Appeals threw out their case and chastised them for their lack of evidence and sweeping claims. It was pretty embarrassing for the Commission and the media was not friendly to them, either. They got a LOT of backlash over this case. This caused many people to believe the EEOC would take their foot off the gas pedal and lighten up on background screening discrimination cases. But that s not what happened. No Relief From Disparate Claims In September of 2015, the EEOC won a huge victory against BMW. They alleged the company s background screening policy resulted in disparate impact discrimination, and after rounds of litigation, BMW entered into what was effectively a settlement. They had to pay $1.6 million in damages to the class of claimants who were terminated from their jobs at the car factory as a result of the background screening policy. This was a huge win for the Commission and allowed them to save face after the Freeman case. I think they will be fueled by the win and continue to try cases based on background screening policies. This means you need to follow best practices so that you aren t contacted by the EEOC GoodHire.com 4

5 Best Practices: Avoid EEOC Attention First, remember that background screening policies resulting in discrimination can be compliant as long as the employer can demonstrate business necessity and job-relatedness. In order to demonstrate this, an employer should consider the the Green Factors. These are called the Green Factors because they were announced in a case named Green v. Missouri Pacific Railroad. If you consider the nature and gravity of the offense, the time elapsed since the offense and the nature of the job sought, and you determine the applicant is still not a good fit, then you can document this process and protect yourself from a Title VII suit. Secondly, you should consider performing individualized assessments for your applicants with criminal records. This means asking them for more information about the offense, getting some real context, and affording them the opportunity to explain. By considering this additional information, it s less likely the EEOC will find that your policy was overly broad and unrelated to business necessity. You should also consider limiting the scope of your background screenings years is average, but many employers request all criminal record information that is available. By considering records that are very dated, an employer attracts more attention and it becomes more difficult to demonstrate that your policy is based on necessity. Misdemeanors from 20 years ago aren t going to be very relevant if the applicant has had no criminal conduct since that time. Finally, go ahead and remove the criminal conviction inquiry from your job applications. Many states have adopted ban-the-box laws that require employers to remove this question from their applications, and it s just a matter of time before your jurisdiction catches up. It s better to go ahead and remove it now than having to rush to do so after a law has been passed in your state. It s proactive and it also detracts EEOC attention. HOT: Ban-The-Box Speaking of Ban-the-box, here is an overview of what it is. Ban-the-box is a movement geared toward giving ex-offenders a better chance at employment. These laws typically require employers to remove the box from their employment applications which asks applicants about their conviction history. The hope is that the protections given under ban-the-box laws will reduce the recidivism rate. 14 states have passed ban-the-box legislation and 6 of these currently impose restrictions on private employers. So don t think that because you re a privately owned small business that you don t have to worry about this trend. It s important to understand just how different ban-the-box laws are, and that they vary by state and city. Some legislation restricts only public employers, some restricts both public and private employers. Some legislation merely prohibits employers from asking for criminal record history on the application and other states go further and require employers wait until after the 1st interview or after a conditional offer to inquire into criminal history. And further yet, some locations require employers to send specific notices or reasons as to what led to an adverse action. HOT: State-Level Ban-The-Box Legislation The included chart summarizes the state-level ban-the-box legislation. If more details about city-level requirements or more information about ban-the-box requirements generally, I really encourage you to check out NELP.org. Their ban-the-box guide is absolutely incredible and is very frequently updated. So if you are wondering if you re located in a location that requires ban-the-box compliance, consult that guide as a first step. Avoiding Ban-The-Box Violations Ban-the-box is a legal area that s still developing, and it s going to continue to have more pervasive effect throughout the county. It s a best practice to go ahead and remove that prior conviction question from your applications now. It will save time later on and will also deflect EEOC attention. If you must keep the question on your application, at least provide room for the applicant to explain any convictions and provide relevant information. This could help establish an individualized assessment defense to a Disparate Impact Title VII claim. Finally, just try to stay on top of legislation. Using google alerts allows you to get daily updates about ban-the-box, EEOC, and FCRA developments delivered to my . It sounds simple, but receiving that news daily helps pick up on the important changes in the background screening industry as they happen GoodHire.com 5

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