AUDIO CONFERENCE ON
“BACKGROUND CHECKS AND THE FAIR CREDIT REPORTING
ACT: KEY ISSUES FOR NORTH AMERICA EMPLOYERS”
April 8, 2015
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Background Checks and the Fair Credit Reporting Act: Key Issues for North America
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Background Checks and the Fair Credit Reporting
Act: Key Issues for North America Employers
Wednesday, April 8, 2015
Speakers
Moderator
Henry M. Perlowski, Partner
Arnall Golden Gregory
Atlanta, GA
[email protected]
2
Speakers
Erin Kuzz, Partner
Sherrard Kuzz
Toronto, Ontario
[email protected]
Montserrat C. Miller, Partner
Arnall Golden Gregory
Washington, DC
[email protected]
3
Speakers
Jeffrey S. Siegel, Partner
Morgan, Brown & Joy
Boston, MA
[email protected]
Mary Ellen Simonson, Partner
Lewis Roca Rothgerber
Phoenix, AZ
[email protected]
4
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
Fair Credit Reporting Act
• 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
6
The FCRA and Employers
• 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.
7
Consumer Reports
• 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.
8
FCRA Requirements for EmploymentRelated Determinations
• 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;
9
FCRA Requirements for EmploymentRelated Determinations
• 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.
10
FCRA Requirements
• 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.
11
FCRA Requirements
• 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.”
12
FCRA Requirements
• 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
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free copy of the consumer report within 60 days.
Hiring a Background Screener
• 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)
14
Enforcement
• Private litigation – individual and class action
claims
• Federal agencies:
15
Litigation
• 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.
16
Litigation
• 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)
17
Ban the Box
•
•
•
•
What is this?
Who is covered and applicability?
Penalties
Best practices and applicability to overall
background screening program
18
Selected Topics in State Law
Background and Credit Checks
Jeffrey S. Siegel
Morgan, Brown & Joy
19
State Laws Create Additional Obligations
for Employers
• 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.
20
State Laws Create Additional Obligations
for Employers
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.
21
States that Ban Credit Checks Except for
Limited Circumstances
California
Maryland
(CA Labor Code § 1024.5)
(MD Labor Code § 3-711)
Colorado
Nevada
(C.R. S. § 8-2-126 )
(N.R.S. 613.570)
Connecticut
Oregon
(C.G.S. § 31-51tt)
(O.R.S. § 659A.320)
Hawaii
Vermont
(H.R.S. § 378-2.7)
(21 V.S.A. § 495i)
Illinois
Washington
(820 ILCS 70/10)
(R.C.W. 19.182.020)
22
States that Ban Credit Checks (cont’d)
• 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.
23
Credit Checks under State 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.
24
Credit Checks under State Law (cont’d)
• 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.
25
Using Criminal Records for Employment
Decisions under State Law
• 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.
26
Select State Laws for Criminal
Background Checks
• 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
27
Select State Laws for Criminal
Background Checks
• 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
Select State Laws for Criminal
Background Checks
• 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.
29
Select State Laws for Criminal
Background Checks
• 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.
30
Select State Laws for Criminal
Background Checks
• 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
31
years of background check.
Massachusetts CORI Reform
• 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.
32
States that Restrict an Employer’s
Access to Social Media Passwords
•
•
•
•
•
•
•
•
Arkansas
California
Colorado
Illinois
Louisiana
Maryland
Michigan
Nevada
• New
Hampshire
• New Jersey
• New Mexico
• Oklahoma
• Oregon
• Rhode Island
• Tennessee
•
•
•
•
Utah
Virginia
Washington
Wisconsin
33
Use of Criminal History Records for
Employment-Related Background
Checks
Mary Ellen Simonson
Lewis Roca Rothgerber
34
EEOC Guidance – April 2012
• “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.”
35
Enforcement Activity
• 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.
36
EEOC v. Freeman,
961 F. Supp. 2d 783 (D. Md. 2013)
• 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!
37
EEOC v. Freeman,
961 F. Supp. 2d 783 (D. Md. 2013)
• 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!
38
EEOC v. Freeman (cont’d)
• 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 “cherrypicked” 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.”
39
EEOC v. Freeman (cont’d)
• Fourth Circuit recently affirmed on appeal.
EEOC v. Freeman, 778 F.3d 463 (4th Cir.
2015).
40
Key Takeaways from Freeman
• 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.
41
EEOC v. Peoplemark,
732 F.3d 584 (6th Cir. 2013)
• Facts:
– EEOC investigated Peoplemark, a temporaryemployment 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.
42
EEOC v. Peoplemark,
732 F.3d 584 (6th Cir. 2013)
• 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.
43
Key Takeaways from Peoplemark
• 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.
44
EEOC’s Investigation of Pepsi
• 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.
45
Key Takeaways from Pepsi
• 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.
46
Ongoing Enforcement Efforts
• 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.
47
Ongoing Enforcement Efforts
• 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.
48
Ongoing Enforcement Efforts
• 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.
49
Practical Tips
• Despite EEOC’s track record, criminal
background checks continue to be a hotbutton 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.”
50
Practical Tips
• 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.
51
Practical Tips
• 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.
52
Key Issues Facing Canadian
Employers Relating to Background
Checks and Critical Differences
across the Border
Erin Kuzz
Sherrard Kuzz
53
Finding the Right “One”
• Opportunities and challenges in hiring
– Privacy considerations
– Human rights issues
– Background checks
54
Too Much Information?
• 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
55
Protection of Personal Information
• Some jurisdictions have safeguards for
protecting personal employee information.
• Examples of personal information an
employer may collect, use, and store during
hiring:
56
Protection of Personal Information
• Personal Information Protection and
Electronic Documents Act (PIPEDA)
– Federally regulated companies (i.e., banking,
telecommunications, transportation sectors)
for all information collected (includes
employee information)
57
Protection of Personal Information
• 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 provinciallyregulated employers.
58
Protection of Personal Information
• 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)
59
Background Checks
• 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
60
Reference Checks
• 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
61
Credit Checks
• 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.
62
Credit Checks
• 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
63
Credit Checks
• 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
64
Criminal Record Checks
• 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”
65
Criminal Record Checks
• 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)
66
Social Media Checks
• 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
67
Drug and Alcohol Testing
• 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!
68
Best Practices
• 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
69
Please contact our speakers for more
information
Erin Kuzz
Sherrard Kuzz
Toronto, Ontario
[email protected]
Jeffrey S. Siegel
Morgan, Brown & Joy
Boston, MA
[email protected]
Montserrat Miller
Arnall Golden Gregory
Washington, DC
[email protected]
Mary Ellen Simonson
Lewis Roca Rothgerber
Phoenix, AZ
[email protected]
70
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