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December 2010 Vol. 10, No. 12
1. Bankruptcies and Background Checks
A new decision by the United States Court of Appeals for the Third Circuit has clarified the issue of whether a private employer can legally consider a job applicant's bankruptcy under U.S bankruptcy law in making an employment decision. The Court ruled that when it comes to private employers, Congress intentionally only protected current employees from discrimination under bankruptcy law, and that job applicants were not protected. However, employers should still approach the use of bankruptcy records with great caution.
In the case, the plaintiff applied for employment at a retail store and it appeared that he would be hired. However, after a bankruptcy was discovered, the retail store refused to hire him due to the bankruptcy.
The job applicant filed a lawsuit on the basis that under federal bankruptcy law, a consumer filing bankruptcy was entitled to a fresh start, and that an employer could not discriminate against him based upon a bankruptcy.
The Court noted that there were two sections of federal law concerning bankruptcy and employment. Under 11 U.S.C. Section 525(a), Congress specifically stated that a governmental unit could not deny employment based upon a bankruptcy. (Note: U.S.C. stands for United States Codes, where federal laws are found. They are divided into titles, with Title 11 covering bankruptcy).
Congress later added a section 525(b) covering private employers that read:
(b) No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title..."
The section concerning private employers did not specify that a private employer could not deny employment due to bankruptcy.
The job applicant argued that the term "discriminate with respect to employment" was board enough to protect job applicants as well as current employees. In addition, even though section 525(b) does not refer specifically to job seekers, such an interpretation is consistent with the reasoning of the section which intends to give someone a fresh start and not let the bankruptcy prevent employment. The applicant further argued the omission of the verbiage concerning denial of employment when it came to private employers was just an error in drafting.
The Court disagreed and noted that Congress clearly wrote the law to so that the government may not "deny employment," but specifically declined to add the same language to the section concerning private employers. The Court reasoned that if Congress wanted to extend the same protections to consumers seeking jobs with private employers, then Congress could have used the same language used it used in section 525(a) in regards to government employment.
The Court noted that the United States Supreme Court has established a rule of statutory interpretation that "where Congress included particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusive or exclusion."
In other words, Congress is presumed to know what was in 525(a), and could have used the same language in 525(b) in regards to private employers but chose not to.
One district court in New York ruled in a previous case that bankruptcy could not be used. The Court of Appeals disagreed, indicating there was overwhelming authority based upon cases that ruled bankruptcy laws did not protect job applicants that applied to private employers, and that a court could not simply assume that there was an error in language. The Court ruled that where the language is clear, a Court's duty is to enforce a statute according to its language.
This is an important case on this issue since a decision by a Court of Appeal carries much greater importance then district court decisions. The decision is binding on the states in the jurisdiction of the Third Circuit, which includes Delaware, New Jersey, and Pennsylvania. (Other federal Appeals Courts have the power to rule otherwise, and if that happened, the United States Supreme Court can step in and announce a national rule.)
However, this case should not be seen as opening the floodgates for widespread use of bankruptcy information. The case was litigated on just the basis that the actions were discriminatory under bankruptcy law. A job applicant could potentially file a claim of discrimination under Title VII if it can be shown that the use of bankruptcy creates a disparate impact on the basis of race, creed, color, nationality, sex, or some other prohibited criteria.
As with all pre-employment screening tools and assessments, bankruptcy should only be used if there is a business justification, meaning essentially that the tool is a valid predictor of job performance, and does not have a discriminatory impact. Employers should still approach the use of bankruptcy with caution. A number of states have or are in the process of limiting the use of credit reports for employment due to concerns that it is being used unfairly.
Such concerns can also arise if bankruptcies are used unfairly in a way not related to employment or that has the impact of treating members of protected groups unfairly. Employers may want to consider whether a bankruptcy is related to a bona fide occupational qualification.
The case can be found at http://caselaw.findlaw.com/us-3rd-circuit/1548259.html.
2. Bad Credit Background Check Prompts Lawsuit Against University
A woman is suing the University of Miami (UM) in federal court on after her job offer at the college's medical school was revoked due to bad credit found on a background check, a case some hope will help ban employers from using credit histories in hiring decisions.
According to the Miami Herald, the woman's application to become a senior medical collector in the patient financial services department had already been accepted by the UM when she was notified that a car repossession and defaulted student loan found on her credit report during a background check disqualified her from the job, even after she had been through several interviews and apparently had the right experience for that job.
In addition, the woman filing the suit is African-American and some believe the use credit reports by employers discriminates against minority job applicants since more Latinos and blacks are unemployed than whites and unemployment is often the reason people cannot pay their bills, according to the report in the Miami Herald. The lawsuit is pending in court.
With unemployment still high and the economy still low, many job seekers with bad credit histories are in a "Catch-22" situation where they cannot fix their credit without finding a job but cannot find a job because they are rejected due to their bad credit. Meanwhile, employers argue that credit checks can help a company protect its assets, its clients, and prevent liability from negligent hiring claims.
While many and job seekers would like credit checks eliminated altogether by employers, a recent survey by the Society for Human Resources Management (SHRM) found that 60 percent of employers performed credit checks on at least some job applicants during the background check process and more than 1 in 10 employers ran credit checks on every job applicant.
To read more ESR News reports about the use of credit reports during employment background checks, visit: http://www.esrcheck.com/wordpress/tag/credit-reports/.
Source: http://www.miamiherald.com/2010/12/06/1960665/woman-with-bad-credit-sues-um.html
3. ESR's 4th Annual 'Top 10 Trends in Background Checks' for 2011
For the past four years, Employment Screening Resources (ESR) - a leading background check provider accredited by the National Association of Professional Background Screeners (NAPBS®) - has compiled a 'Top Ten' list of emerging and influential trends in pre-employment background screening as predicted by ESR's founder and President Lester Rosen, a recognized background check expert and author of 'The Safe Hiring Manual - The Complete Guide to Keeping Criminals, Terrorists, and Imposters Out of Your Workplace,' the first comprehensive guide for pre-employment background screening. Currently, ESR has posted trends 10 to 4 (see below):
Stay tuned to the ESR Blog as the top 3 trends will be posted in January, 2011
ESR Articles (click for more info)
The FCRA in 4 Easy Steps
Find out how to be in compliance with the FCRA
Criminal Records and Employment Applications
What questions should employers be asking?
10 Safe Hiring Tools
These tools don’t cost anything and promote a safe and profitable workplace
Negligent Hiring
What occurs when Due Diligence is not performed
Please feel free to contact Jared Callahan at ESR at 415-898-0044 or jcallahan@esrcheck.com if you have any questions or comments about the matters in this newsletter. Please note that ESR's statements about any legal matters are not given or intended as legal advice.
Employment Screening Resources (ESR)
www.ESRcheck.com
7110 Redwood Blvd., Suite C
Novato, CA 94945
415-898-0044
