Background Checks: What Exactly Are You Supposed To Do?Eric H. Rumbaugh, Esq.Michael Best & Friedrich LLP100 East Wisconsin Avenue, Suite 3300Milwaukee, WI 53202-4108414-271-6560ehrumbaugh@michaelbest.com

Should you conduct background checks on your employees?

What are the legal limitations on your ability to use criminal background checks?

What questions can you ask/should you ask in the application process, and what can you do with the information you receive in response to those questions?

Strategies for handling the arrested/convicted employee.

Should you conduct background checks on your employees?

Mandated by law in certain contexts (e.g. caregivers, educators).

Otherwise permissible where not mandated.

The Pros and Cons:

Pros Protecting your employees, customers, vendors,

business. Preventing claims of negligent hiring, retention,

supervision. Query: Do employers have a duty to conduct checks?

What is Negligent Hiring?

Restatement (Second) of Agency § 213. A person conducting an activity through servants or other

agents is subject to liability for harm resulting from his conduct if he is negligent or reckless in the employment of improper persons or instrumentalities in work involving risk of harm to others.

Court Rulings on Negligent Hiring

Claim v. Staffing Firm Firm placed a temporary employee as a driver with its client Company. Firm admitted that it knew of one instance in which the employee was cited for a

traffic violation. Firm did not obtain the employee’s driving record. Employee injured plaintiff in a traffic accident, and plaintiff sued Firm for negligent

hiring of the employee. Court denied Firm’s motion for summary judgment because a question of fact

existed as to whether Firm should have inquired further into the employee’s driving record.

Court Rulings on Negligent Hiring

Ponticas v. K.M.S. Investments, 331 N.W.2d 907 (Minn. 1983). Apartment complex hired employee as an apartment manager. On his employment application, employee stated that he had been

convicted of traffic crimes only. In reality, employee had convictions for burglary and receiving stolen property, as well as armed robbery, all within the previous five years.

Employer did not conduct a criminal background check. Employee used his passkey to access the apartment of a female

tenant, whom he violently raped. Court concluded that a jury could find “that it was reasonably

foreseeable that a person with a history of offenses of violence could commit another violent crime, notwithstanding the history would not have shown him to ever have committed the particular type of offense.”

Court found the employer liable for negligent hiring.

Court Rulings on Negligent Hiring

But see Guidry v. National Freight, Inc., 944 S.W.2d 807 (Tex. App. 1997). Employee truck driver had a history of sexual misconduct contained within his

military records, criminal records, and previous employment records. Employer checked the driving record of employee as required by law but never

conducted an independent investigation into his non-vehicular criminal past. While making a delivery by truck, the employee stopped to "stretch his legs,"

wandered to an apartment complex, and assaulted a woman. Court held that although the company had a duty to the driving public to employ

competent drivers, the duty did not require the company to conduct investigations into its employees' non-vehicular criminal backgrounds.

Court recognized that while the company could foresee that the driver might stop to stretch, it could not foresee the risk that the driver would commit a sexual assault while on duty, and because that type of conduct was unforeseeable, the company owed no legal duty to the victim of the driver's criminal conduct.

Court found that the employer was not liable for negligent hiring.

References

Negligent failure to criticize When to give a candid reference?

The Pros and Cons:

The Cons: Disparate impact claims.

Does screening for arrest and conviction records have a disparate impact on minorities?

Defenses: No disparate impact, business necessity (job relatedness required).

Arrest and conviction record discrimination claims (specific law in select states).

Disparate Impact

Federal cases EEOC guidance

Facially neutral policy disproportionately screens out a Title VII-protected group

Data supports finding that criminal conviction exclusions inherently have disparate impact on race and national origin

Updated EEOC guidance Will assess 1) applicant flow data; 2) workforce data; 3) criminal

history background check data; 4) demographic availability stats; 5) incarceration/conviction data; and/or 6) relevant labor market statistics

New EEOC Guidelines – Impact on Employers?

EEOC issued 52 pages of guidelines aimed at preventing discrimination based on background checks

Three factors relevant to the job-related/.business necessity defense: The nature of the offense The amount of time since the offense was committed The nature of the job

New EEOC Guidelines – Impact on Employers?

Stepped up EEOC lawsuits. What results? EEOC v. Freeman, No. 09-CV-2573 (D. Md. Aug. 9,

2013) EEOC claimed disparate impact against African-American,

Hispanics and males Freeman had very specific criteria for disqualification Over course of suit, multiple EEOC claims dropped/dismissed SJ filed – Judge blasts EEOC theory and expert witness and

grants motion

New EEOC Guidelines – Impact on Employers? (cont)

EEOC v. Kaplan Higher Ed. Corp., Case No. 1:10 CV 2882. Kaplan ran credit checks for positions with “financial stress”–

did not ask about race EEOC filed suit and as part of case, hired “experts” to judge

race of applicants based on DMV photos District Court dismissed the case

EEOC still trying to bring similar claims: Dollar General BMW

Substantial Relatedness - Wisconsin

When does a “substantial relationship” exist between a criminal charge or conviction and a job?

In Wisconsin, the rationale for the substantial relationship test, is as follows:

“…[A] convicted person, being placed in an employment situation offering temptations or opportunities for criminal activity similar to those present in the crimes for which he had been previously convicted, will commit another similar crime. This concern is legitimate since it is necessarily based on the well-documented phenomenon of recidivism.” County of Milwaukee v. LIRC, 139 Wis.2d 805 (1987)

Substantial Relatedness - Wisconsin

To see if a “substantial relationship” exists, the employer must examine:

The circumstances of the conviction or criminal charge (i.e. the elements of the offense and the surrounding circumstances, if necessary).

The requirements of the job. Whether the job provides an opportunity for commission

of a similar crime, if the person was inclined to do so.

Substantial Relatedness - Wisconsin

The substantial relationship test is an objective test, meaning that the Court will apply the test based on the relevant facts. Use it last. Use dishonesty or qualifications first.

The substantial relationship test does not depend on the facts the employer had at the time the decision was made.

The substantial relationship exception may provide a defense, even if the employer did not rely upon it in making its decision.

Substantial Relatedness - Wisconsin

Case-by-Case analysis require Pretext Analysis and Absolute Bars

Substantial Relationship Factors Level of Supervision Cameras Access to data, material Exposure to children (LIRC treatment of Children) Exposure to vulnerable populations

Direct Relatedness – New York

New York law makes it illegal for both public and private employers to deny you a job (or fire you from an existing job), or for a licensing agency to deny you an occupational license, based solely on your criminal record unless 1) there is a direct relationship between your past conviction(s) and the job you want; or 2) hiring you would involve an unreasonable risk to property or to the safety of others. Note: This law does not apply to small private employers with fewer than four employees or to law enforcement agencies. New York State Correction Law –Article 23-A, Section 752

Direct Relatedness – New York

In making a determination, the public agency or private employer shall consider: Public policy is to encourage the licensure and employment of persons

previously convicted of one or more criminal offenses. The specific duties and responsibilities necessarily related to the license or

employment sought or held by the person. The bearing, if any, the criminal offense or offenses for which the person

was previously convicted will have on his fitness or ability to perform one or more such duties or responsibilities.

The time since the occurrence of the criminal offense or offenses. The age of the person at the time of criminal occurrence. The seriousness of the offense or offenses. Information in regard to rehabilitation and good conduct. The legitimate interest of the public agency or private employer in protecting

property, and the safety and welfare of specific individuals or the general public.

New York State Correction Law – Article 23-A, Section 753

Background Checks

I am ready to begin checking criminal backgrounds, what resources are available to me to obtain this information, and which resources are most reliable?

State Court access programs State crime information bureau Third-party vendors

Question?

I want to use a third party vendor to do my background checks; are there any special considerations if I do this?

The Fair Credit Reporting Act

The FCRA applies to employers who utilize third parties to collect information on applicants/employees for a fee

Disclosure and notice requirements Definition of “Consumer Report” Broad definition of “investigative consumer report” Permitted uses Internal v. external investigation

The Fair Credit Reporting Act (Continued…)

What if you don’t want to hire someone based on information in the consumer report?

Example: Based in part on information you learn in a credit report, you decide not to hire an employee for a managerial position. Pre-adverse action disclosure Adverse action notice

Important Definitions

Consumer Report – Section 603(d) Any written, oral or other communication of any information by

a consumer reporting agency bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used in whole or in part for the purpose of serving as a factor in establishing the consumer’s eligibility for employment purposes (among other things).

Interpretations – case law or opinion letter Public record information Drug lab reports Driving record checks

Important Definitions

Investigative Consumer Report – Section 603(e) A consumer report or portion thereof in which information on a

consumer’s character, general reputation, personal characteristics, or mode of living is obtained through personal interviews with neighbors, friends or associates of the consumer reported on.

Interpretations Personal interviews Confirmation of facts – or beyond Performing own reference checks

Important Definitions

Consumer Reporting Agency – Section 603(f) Any person who, for monetary fees, dues, or on a cooperative

non-profit 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.

Interpretations State agencies Law firms

Important Definitions

Employment Purposes – Section 603(h) Means a report used for the purpose of evaluating a consumer

for employment, promotion, reassignment, or retention as an employee.

Interpretations Independent contractors

Important Definitions

Adverse Action – Section 603(k) As related to employment, means “a denial of employment or

any other decision for employment purposes that adversely affects any current or prospective employee.”

Background Checks: When does the FCRA Apply?

The FCRA applies to consumer reports prepared for an employer by an outside screening company.

When a third party compiles a report, the FCRA requires (1) that the employee/applicant is notified that an investigation may be

performed, (2) that he/she is given the opportunity to consent, and (3) that he/she is notified if information in the report is used to make an

"adverse" decision. Under the FCRA, if the employer does not hire a third party to

conduct the investigation, but compiles the report itself, many provisions of the FCRA do not apply. Again, state laws may vary.

Obligations of Users under the FCRA

Users must have a permissible purpose Congress has limited the use of consumer reports to protect

consumers’ privacy Section 604 specifies that a CRA may furnish a CR only under

the following circumstances: In response to a court order or subpoena In accordance with the written instructions of the consumer To a person who it has reason to believe…

Intends to use the information in connection with a credit transaction, or for employment purposes, or for the underwriting of insurance, or to determine license eligibility

Interpretations

Obligations of Users under the FCRA

Users must provide certification to the consumer reporting agency (CRA) Must certify the permissible purposes for which the report is

being obtained, and certify that the report will not be used for any other purpose

Obligations of Users when Consumer Reports are Obtained for Employment Purposes – Sec. 604(b)

If information from a CRA is used for employment purposes, the user has specific duties, as set forth in Section 604(b) of the FCRA. The user must: Make a clear and conspicuous written disclosure to the

consumer before the report is obtained, in a document that consists solely of the disclosure, that a consumer report may be obtained.

Obtain from the consumer prior written authorization.

Interpretations

Investigative Consumer Reports – Sec. 606

Where the CR in question is an investigative consumer report, the FCRA imposes additional obligations Disclosure

No later than 3 days after the date on which the report was first requested

Must include a statement informing the consumer of his right to request additional disclosures and the written summary of consumer rights.

Interpretations

Best Practices

Decide whether to conduct a background check Evaluate negligent hiring liability

Decide scope of check What is reasonable? What is job related? Evaluate disparate impact Don’t apply decisions for one job to all jobs

Decide whether to conduct check internally Comply with FCRA if applicable (bring checks in-house

if possible)

Best Practices (cont.)

Make sure that: State substantial/direct relationship tests are considered to

determine if a background check is appropriate Once the check has been run, that State and/or Municipal

substantial/direct relationship factors are considered when evaluating the results of the check

EEOC factors are considered Self-audit disparate impact on a periodic basis