ESR Newsletter and Legal Update

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Screening Resources (ESR)
as well as employers, Human Resources
and Security professionals and law firms who require information on
pre-employment screening, safe hiring, the FCRA and legal
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February, 2004 Vol. 4, No. 2

Screening Resources (ESR) Newsletter and Legal Update

1. Hot Off The Press: New FCRA Section on Misconduct Investigations to Take Effect March 31, 2004 (Vail Letter Repeal)

2. The High Cost of Employee Turnover

3. International Employment Screenin

4. Safe Hiring Workshops Available for Employers in 2004

1. Hot Off The
Press: New FCRA Section on Misconduct
Investigations to Take Effect March 31, 2004 (Vail Letter Repeal)

On February 4, 2004, the
Federal Trade Commission (FTC) announced that the new amendments to the Fair
Credit Reporting Act (FCRA) concerning investigation of current employees for
suspicion of misconduct would take effect March 31, 2004. The announcement makes final an earlier
interim determination.

FCRA was amended in late 2003 by the Fair and Accurate Credit Transactions

Act of 2003 (FACT Act). Among the changes, the bill exempts third party investigations of current employees
from many FCRA notice and consent requirements when the investigation concerned
suspected misconduct relating to employment, or compliance with federal, state
or local law, certain financial regulatory rules or any existing written
policies of the employer. The new rules
are part of section 603(x) of the FCRA.

The new law effectively repealed
what has been known as the “Vail” letter. The Federal Trade Commission indicated in an opinion letter in
1999 that the full FCRA notice and disclosure rules that apply to pre-employment screening must also be followed when it comes to any investigation of current
for misconduct. This has been criticized by Human Resource, Legal
and Security experts as crippling investigations of sexual harassment claims,
as well as other misconduct such as theft or threatened workplace

style=’color:#292526′>If an adverse action is taken as a result of such an
investigation, the employee is still entitled to a
summary containing
the nature and substance of the report, but not the names of individuals that
provided information for preparation of the report.

will provide more detailed information in the future as the implications of the
new law develops.


2. The High Cost of Employee Turnover   

The direct economic cost of replacing a single bad-hiring decision can be
very expensive. The time, money and
energy spent recruiting, hiring, and training is wasted. It is estimated that
the average cost of replacing an employee is 33% to 50% of the total
compensation of a non-exempt employee, or a whopping 100% to 200% of the total compensation
of an exempt employee.

Those numbers are probably conservative if an employer adds in
the amount of time lost between the time the bad hire is identified and a
suitable replacement is trained and in position. As a general rule of thumb, employers can expect replacement
costs to be one and one half times a person’s yearly salary. That means one bad hiring decision can cost
from $10,000 to $100,000.

It is estimated that a firm spends approximately 36% of its
expenditures on human capital assets (in other words, their people). For nearly any firm in the US, labor is
either the first or second largest line item cost in a budget. Just a 25% turnover rate can mean that a
firm is spending a substantial part of its revenue on replacements. When a bad hire is replaced, a firm not only
has replacement costs, but has litigation exposure as well. An employer must also consider other costs
that are harder to quantify, such as the loss
of productivity and know-how, and the disruption of the workflow.

For these reasons, employers should
consider cost-effective hiring tools that reduce turnover and replacement, such
as pre-employment screening.


3. International
Employment Screening

Many firms are
finding that they have a need to conduct background screening on individuals
from other countries. This can occur in two situations:

1. An
American company is considering a job applicant who was born abroad, or has
been working or studying abroad, and has not been in the United States long
enough to rely solely upon checking American references and records.

2. An
American company is hiring an individual in another country to work in that
country, such as an outside sales or marketing representative.

Although international screening is a challenge, it is something
that American employers are able to do. Some of the challenges stem from
dealing with different time zones, languages and customs. It can also be challenging locating past
employers or schools internationally. In addition, many countries do not have the same access to public

There are resources available to assist employers. For example,
style=’font-size:11.0pt;’>ESR Global Services
is able to provide worldwide employment and education verifications in over 120 countries. ESR Global Services utilizes the services of fluent speakers for verifications performed in many
countries, including speakers of Russian, Chinese, Japanese, French, Spanish,
German, Dutch, Arabic and many others. See

In addition, ESR
Global Services
can provide criminal record checks for
applicants in over 100 countries. (See
href=””>ESR International Screening
for a listing of countries and details of searches.)


4. Safe Hiring Workshops Available for Employers in 2004

ESR founder and attorney
Lester S. Rosen is featured in the following presentations at locations
throughout the United States:

April 20-21, 2004–Washington,
D.C. SHRM 35th Annual Employment Management Association (EMA)
Conference and Exposition.
Topic: “Safe Hiring
Audit-Implementing and Measuring Due Diligence in Your Hiring.”

April 13, 2004–Houston, TX
How to Avoid Hiring Criminals and Problem Employees.”
Gulf Coast
Symposium. See

April 6, 2004–Oakland, CA “Privacy
in the Workplace.”
Seminar sponsored by Lorman Seminars (

March 23, 2004–San Jose, CA “Identify
Theft: How Individuals and Businesses Can Protect Against Fraud and New Legal
Obligations of Employers.”
San Jose EAC (breakfast

March 10, 2004–Stockton, CA “Crimes,
Criminals and Human Resources.”
San Joaquin Human Resource
Association (SJHRA) at Noon. See

February 24, 2004–San Francisco, CA “Drugs, Sex and Murder–An Introduction to Safe Hiring and Pre-employment
Screening in California.”
(A three-hour workshop sponsored by
he NCHRA–details to be announced)

February 19, 2004–Newark/Fremont,
CA “Drugs, Sex and Murder–An Introduction to Safe Hiring and
Pre-employment Screening in California.”
(A three-hour workshop
sponsored by he NCHRA-details to be announced)


Please feel free to
contact Jared Callahan at ESR at 415-898-0044
or 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.


Screening Resources (ESR)

Grant Avenue, Suite 7

Novato, CA 94945


Employment Screening
Resources (ESR
Rated Top Background Screening Firm in First Independent Industry Study

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