1

Employment Screens & Background Checks and the

Impact on Hiring and Termination Decisions

Presented by:

Jane McFetridge, Managing Shareholder - Chicago Office, Jackson Lewis

Jim McKenna, Shareholder, Jackson Lewis

Zack Raimi, Employment Counsel, Allstate

Thursday, January 8, 2015

About the Firm

Represents management exclusively in every aspect of employment, benefits, labor, and immigration law and related litigation

Over 780 attorneys in 54 locations nationwide

Current caseload of over 6,500 litigations and approximately 550 class actions

Founding member of L&E Global

2

The Ubiquity of Background Checks

According to a recent SHRM study, 92% of organizations obtain criminal background checks on job candidates.

But:o Approximately 78% have a written policy for

employees to follow regarding background checks.

o Approximately half have a policy to coordinate background checks with their legal department or legal counsel.

3

Why Do Criminal Background Checks?

Generally, to protect the workplace and the employer’s business.

To defend against claims of “negligent hiring.”o Liability may exist where “the employer knew or

reasonably should have known” that the employment of an individual would create a foreseeable danger to others.”

May be required by law for certain positions.

4

Countervailing Concerns

Unfairness of denying employment for arguably “minor” offenses

Discriminatory impact on protected groups

Frequent inaccuracies in information found in public databases

Potentially serious liability for class actions brought by the plaintiffs’ bar or the EEOC

5

Today’s Topics

Recent developments in the law of background checkso Illinois’ new “Ban the Box” law (effective 1/1/15)o Illinois’ prohibition on use of arrest records o Illinois Credit Privacy Act

Complying with the Fair Credit Reporting ActTitle VII -- Adverse impact concernsImplementing and maintaining compliant background check policies and practices

6

The “Box” Has Been Banned

The Job Opportunities for Qualified Applicants Act (820 ILCS 75), effective January 1, 2015.

The “Box” refers to the commonly used question on a job application: “Have you ever been convicted of a crime/felony?”

Illinois employers are now prohibited from inquiring into a prospective employee’s criminal background on the application form or during the early stages of the hiring process.

7

The Act in a Nutshell

With limited exceptions, employers and their agents cannot consider or inquire into an applicant’s criminal record or history until:o The individual has been determined qualified for the

position and notified of an impending interview; or

o A conditional offer of employment has been made (if the Applicant will not be interviewed).

Violations – Investigated by the Illinois DOL; progressive civil penalties.

8

Broad Coverage

The Act applies to any “Employer” considering an “Applicant.”

“Employer” defined as “any person or private entity that has 15 or more employees in the current or preceding calendar year, and any agent of such an entity or person.”

“Applicant” defined as “any person pursuing employment with an Employer or with or through an employment agency.”

9

Exceptions – Three Categories

When employer is required to exclude applicants with certain criminal convictions under federal or state law. For example:o Employees, owners and controlling parties of FDIC

insured institutions (Section 19, Federal Deposit Insurance Act)

o Child care workers (225 ILCS 10) o School workers (e.g., 105 ILCS 5/10-21.9)o Health care workers (225 ILCS 46)o Private detectives, private security contractors and

locksmiths (225 ILCS 447)10

Exceptions (cont.)

When a standard fidelity bond would be required and particular convictions would disqualify the applicant from obtaining the bond.

For paramedics licensed under the Emergency Medical Services Systems Act.

11

Enforcement and Penalties

The Illinois Department of Labor (IDOL) is vested with investigatory powers and may impose civil penalties in dour stages:o #1 – Written warning and 30 days to remedyo #2 – Penalty of up to $500 for second offense OR if first

offense is not corrected within 30 days of noticeo #3 – Penalty of up to $1,500 on third offense OR if first

offense is not corrected within 60 days of noticeo #4 – Additional penalties of up to $1,500 for every

subsequent violation OR if first offense is not corrected within 90 days of notice, additional penalties of up to $1,500 for every 30 days that passes without correction

12

Complying with the Act

Will affect the application processes of many employers.

Review job application forms to eliminate criminal background questions.

Criminal background checks/inquiries are delayed until later in the hiring process.

13

Complying with the Act (cont.)

The Act does not prohibit an employer from notifying applicants in writing – for example, on the application form – that certain criminal convictions may disqualify them from employment, whether due to:o Federal or state law, or

o The employer’s policy

14

Complying with the Act (cont.)

Act is not intended to override any existing substantive state or federal law

Employer policies as to what criminal convictions are disqualifying are not affected.

The ultimate hiring decision is not affected, only the hiring process.

15

Illinois Prohibition on Use of Arrest Records

Illinois Human Rights Act (775 ILCS 5/2-103)

Employer may not “inquire into or use the fact of an arrest” in taking any employment action.

But employer is permitted to obtain or use “other information which indicates that a person actually engaged in the conduct for which he or she was arrested.”

16

Arrest Records (cont.)

Additional protection for juvenile records

Employer must inform applicant that there is no obligation to disclose expunged juvenile records of arrests or conviction.

17

Illinois Employee Credit Privacy Act

Under the Illinois Employee Credit Privacy Act (820 ILCS 70), an employer may not:o Discriminate against an applicant or employee based

on the individual’s credit history or credit report

o Inquire about credit history

o Order or obtain a credit report

18

Exceptions to the Employee Credit Privacy Act

Prohibition does not apply to banks, insurance or surety companies, debt collectors and state law enforcement or investigative units.Credit checks are also permissible if there is a bona fide occupational requirement (as defined in statute):o Custody or access to $2,500 in cash or assetso Signatory power of $100 per transactiono Access to personal or confidential informationo Managerial position setting the direction or control over the

businesso Position requiring bonding or security

19

FCRA Requirements for Employers

20

Overview of the FCRA

Governs the collection, assembly, and use of information about consumers, including:o Credit information

o Criminal background

o Motor vehicle reports (MVR)

o Other public record information

21

FCRA Overview (cont.)

Purposes of the FCRAo Prevent misuse of sensitive consumer information by

limiting the recipients to those with legitimate need for it

o Improve the accuracy and integrity of consumer reports

o Promote efficiency of the nation’s banking and consumer credit systems

22

FCRA Overview (cont.)

Enacted in 1970

Amended in 1996 to include employers and the employment process

Amended in 2003 in the Fair and Accurate Credit Transactions Act (FACTA) to combat identity theft

23

Background Checks for “Employment Purposes”

One of the permissible purposes under the FCRA

Job applicants

Current employees

Independent contractors

24

FCRA Applies Only to “Consumer Reports”

Reports containing information culled from databases or public records by a consumer reporting agency

Defined as: “Written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer’s credit worthiness…character, personal characteristics…used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer’s eligibility for…employment purposes.”

25

Consumer Reporting Agency (CRA)

A document can be a consumer report only if it is prepared by a “consumer reporting agency.”

Defined as “any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties...”

26

Not a Consumer Report

An employer is generally not a CRA.

Information directly from the consumer is generally not a consumer report.o Information provided by job applicant

o Employer calling directly to verify previous employment or education

o Drug testing, where employer performs the drug test or gets results directly from the lab without involvement of a CRA

27

Three Requirements of FCRA Compliance

1. Pre-procurement requirements:a. Certificationb. Disclosure/Noticec. Authorization/Consent

2. Pre-adverse action requirements:a. Provide report and CFPB’s summary of rightsb. Wait

3. Post-adverse action requirements:a. Notice of adverse actionb. Information on CRA and consumer rights

28

Certification

The simplest requirement

Employer must certify to consumer reporting agency that information will be used for employment purposes and that employer will follow the FCRA’s requirements.

Otherwise, the CRA may not legally provide information to the employer.

29

Disclosure

An employer may not obtain a consumer report unless: “a clear and conspicuous disclosure has been made in writing to the consumer at any time before the report is procured or caused to be procured, in a document that consists solely of the disclosure, that a consumer report may be obtained for employment purposes.”Requires a stand-alone document.o E.g., disclosure cannot be contained in job application

Important not to clutter the disclosure with unrelated material

30

Potential Problem: Inclusion of a Release

Should not include release language in the disclosure document:o “I hereby fully release and discharge you and [CRA],

their respective affiliates, subsidiaries, directors, officers, employees, agents an attorneys thereof, and each of them, and any individual, organization, entity, agency, or other source providing information to [CRA] from all claims and damages arising out of or relating to any investigation of my background for employment purposes.”

31

Authorization/Consent

An employer may not obtain a consumer report unless: “the consumer has authorized in writing… the procurement of the report by that person.”

The FCRA’s disclosure and authorization requirements facilitate informed consumer choice about whether to permit a background check to be run.

Most common practice to have the disclosure and authorization on the same stand-alone document. o The authorization, but not the disclosure, may be

contained in the job employment application or other document.

32

Adverse Employment Actions

Under the FCRAThe most frequent issue of FCRA compliance

“Adverse action” = “denial of employment or any other decision for employment purposes that adversely affects any current or prospective employee”

In practice, this is a very broad definition.

33

“In Whole or in Part”

FCRA applies when a consumer report is used “in whole or in part” to take an adverse employment action.

Best practice to follow FCRA requirements any time a consumer report is obtained, even if there is an independent basis for the employment decision.

E.g., Dishonesty on the employment application

34

Pre-Adverse Action Notice

Before taking an adverse action an employer must:

1. Provide the applicant or employee Copy of the report Copy of CFPB’s summary of rights under the FCRA

2. Wait before taking adverse action The FCRA is silent on how long Case law requires a reasonable amount of time to allow

person to dispute inaccuracies with the CRA (not necessarily the employer)

FTC has found 5 business days to be reasonable

35

(Post-) Adverse Action Requirements

After taking an adverse action an employer must provide additional information regarding the CRA and consumer rights:o Name, address, and toll-free telephone number of the CRA o A statement that the consumer reporting agency did not

make the decision and is unable to provide the consumer the specific reasons why the adverse action was taken

o Consumer’s right to obtain from the CRA a free copy of the consumer report

o Consumer’s right to dispute with the CRA the accuracy or completeness of the information in the report

36

FCRA Litigation

Increasing number of filed cases

Statute of Limitationso 2 years from time of discovery; 5-year outside limit

Damages/Reliefo Actual damages

o Statutory damages if willful violation

o Possibility of punitive damages

o Attorneys’ fees and costs

37

FCRA Litigation (cont.)

Key issue: Willful vs. non-willful violation

Willful = reckless

Safeco Insurance v. Barr (Supreme Court 2007)o Interpretation of FCRA “not objectively unreasonable”

o No contrary “guidance” from courts of appeal or FTC

38

FCRA Class Actions

FCRA cases are often well suited for class treatment – typically there is a common practice or policyo Murray case (7th Cir.)

High potential for class exposureo Size of exposure can be enormous

Willfulness issue is especially importanto Willful violations may be necessary to obtain class

certification

39

Strategies for Defeating Class Certification

Dukes v. Wal-Mart analysiso Would apply where there was an FCRA-compliant

corporate policy and decentralized responsibility.

Unascertainability of class memberso Difficulty of ascertaining class members is not enough

to defeat certification.o Standard: Class certification can be appropriate even

it determination of class membership requires the review of numerous records, if the review is "ministerial" and does not require an inquiry into the merits of the individual claims. 

40

Strategies (cont.)

Predominance of individual issueso Farmer decision -- Liability depended on a finding that

the specific information on the report was not accurate.

Arbitration agreement with class action waivero Especially important that agreement be executed by

job applicants. Rejected applicants are frequent FCRA plaintiffs.

o Successful in the Northern District of Illinois

41

Criminal Background Checks and Title VII

42

Title VII and Background Checks

Are background checks discriminatory?

Two basic types of discrimination claimso “Disparate Treatment” – intentional discrimination

o “Disparate Impact” – facially neutral practice/requirement has discriminatory effect

EEOC’s position on criminal background checkso Usually have a discriminatory impact

o Must be job related and consistent with business necessity

43

EEOC’s view of Disparate Impact

EEOC estimates of the number of men by racial sub-group who will serve time in prison during their lifetime:o 1/106 Whites

o 1/36 Hispanics

o 1/15 African-Americans

EEOC: African-Americans = 13% of the population, but 28% of arrests, and 40% of the incarcerated population

44

EEOC Enforcement

2012 EEOC Strategic Enforcement Plan o Highest Priority: Systemic hiring discrimination, including

“facially neutral hiring practices” such as background checks

o Focus on “company-wide” relief

2012 EEOC Guidance on background checks o Targeted screeno Individualized assessment

Conclusion: Employer background checks will be increasingly subject to challenge, especially a “one-size-fits-all” criminal background policy.

45

Disparate Impact Defense – Targeted Screen

Concept: Show that policy is job-related and consistent with business necessity by reference to the so-called Green factors (8th Cir. 1975).o The nature and gravity of the offense or conducto The time that has passed since the offense or

conduct and/or completion of the sentenceo The nature of the job held or sought

In practice, whether a particular criminal conviction will disqualify an applicant depends on the crime and the job sought.

46

Disparate Impact Defense -- Individualized Assessment EEOC Guidance lists nine possible factors to consider as part of an individual assessment, including:o Circumstances surrounding the offense or conducto Number of offenseso Age at the time of the conviction or release from prison o Did the applicant perform the same type of work post-conviction

without incidents of criminal conduct?o The length and consistency of employment history before and

after the offense or conducto Rehabilitation efforts, e.g., education/trainingo Employment or character references, and other information

regarding fitness for the particular positiono Whether the individual is bonded

47

Individualized Assessment (cont.)

For the individualized assessment, the EEOC Guidance prefers notice to the individual under scrutiny and dialogue as to the factors.o Mitigating factors are listed but not limited o Applicants given the opportunity to present evidence

demonstrating their fitness, if they so choose.

Key point: If the individual does not respond to the employer’s inquiry, the employer may make its decision without the information.

In practice, the individualized assessment dialogue can be initiated as part of the FCRA pre-adverse action notice.

48

Implementing and Maintaining a Background Check

Program: An In-House Perspective

49

In-House View of How the Background Check Process Works

Applicant fills out initial application for employment. The initial application does not ask if the applicant has been convicted of a crime.o Formerly, the initial application asked whether applicant had ever been

convicted of a crime that had not been expunged.

Now, in those jurisdictions where allowed, we only ask about criminal convictions after the applicant successfully completes a first interview with the hiring manager(s).

When a contingent offer is made, HR runs background check via third-party vendor (CRA)

If a felony conviction appears, HR contacts Legal to assist with individualized assessmento Another consideration: did applicant falsify application?

50

Background Check Process (cont.)

Legal offers recommendations on how to proceedIf company intends to rescind offer, applicant is placed into FCRA process. o Pre-adverse action noticeo Adverse action notice

HR does not typically share background results with business/hiring managersAllstate does not typically run background checks on current employees

51

Insurance Industry-Specific Issues

Some industries are prohibited from hiring individuals with certain felony convictions.

Example: Insurance industryo Violent Crime Control and Law Enforcement Act of 1994o “Any individual who has been convicted of any criminal

felony involving dishonesty or a breach of trust, or who has been convicted of an offense under this section, and who willfully engages in the business of insurance whose activities affect interstate commerce or participates in such business, shall be fined as provided in this title or imprisoned not more than 5 years, or both.”

52

Insurance Industry (cont.)

Broad applicationo “Business of insurance” = all acts necessary or

incidental to the writing of insurance

o No time limit

o Waiver exception

Potentially odd results

53

Recurring Issues/Scenarios

A current employee is arrestedo The need for an independent investigation

The “moralist” cliento What to do when a decision-maker is influenced by

morality rather than the law

Outside licensing agencieso Example: insurance regulators sometimes run more

thorough background checks and have more stringent standards than employers

o Making licensing a condition of employment

54

Practical Suggestions

Written policies that follow the law

Training, training, and more training

55

Thank You!

56

Workplace law. In five time zones and 54 major locations coast to coast.