Tag Archives: due diligence

Credit Reporting Agency Fights to Preserve Use of Credit Checks during Employment Background Checks

By Lester Rosen, President of ESR & Thomas Ahearn, ESR Staff Writer

With 15 million workers currently unemployed according to recent Department of Labor statistics, it has been argued that job applicants risk getting caught in a Catch-22 situation where they have bad credit because they cannot get jobs but cannot get jobs because they have bad credit.

As a result, states such as Oregon, Washington, and Hawaii have already limited the use of credit reports for employment screening by enacting bans on credit checks during background checks unless the information directly relates to occupational qualifications.

However, the Chicago Tribune reported that one of three major credit bureaus that collect financial information on Americans – Chicago-based credit reporting agency TransUnion  is fighting to preserve the use of credit checks during employment background checks.

TransUnion defends credit checks as a way for employers to protect themselves against theft and fraud, since employees with poor credit history may be more likely to engage in unethical or illegal behavior, especially in jobs where they are involved with finances, according to the Tribune article.

Along with the other two large credit bureaus Equifax and Experian, TransUnion helps employers, financial institutions, landlords, among others to use credit information to guide their decisions about hiring, extending credit, lending money, and housing.

Although a recent survey from the Society for Human Resource Management (SHRM) found that 60 percent of employers performed credit background checks on all job candidates or on selected job candidates, that statistic can be misleading since of the firms that use credit checks, it appears the use is generally selective. The survey revealed that 47 percent of the employment credit reports were used only on selected candidates for positions that presumably involved access to assets, cash, or sensitive information.  Only 13 percent of employers used credit background checks across the board on all job candidates.  In addition, 40 percent of employers surveyed did not conduct any credit background checks. It could be argued that the alarm over the use of credit reports has been exaggerated.

In addition, given the fact that often times past employers will not give a reference beyond dates of employment and job title, employers may well be in need of additional tools when hiring for sensitive positions. 

Critics find credit checks during employment background checks discriminatory and bills restricting the practice have been introduced in the U.S. House of Representatives and many states. Even some background check firms advise caution with credit checks.

Employment Screening Resources (ESR), a leading national online background check firm, recently released its third annual Top Ten Trends in the Pre-Employment Background Screening Industry for 2010, which identified new trends making a difference as well as old trends that have evolved as the screening industry matures.

The first of the Top Tentrends ESR tracked for 2010 is the increased focus on whether credit reports used during background checks are discriminatory. ESR advises employers to approach credit reports with caution during background checks and to articulate a clear rationale as to why a credit report is related to a particular job. Employers should also be aware of the potential for errors in credit reports since information could be incorrectly reported or the applicant may be the victim of identify theft which can lead to false data.

On the other hand, ESR warns that hiring an employee that handles money, makes financial decisions, or has access to private data without running a credit reports during background checks could result in allegations of negligent hiring if a theft occurs.

Lester S. Rosen, the CEO of Employment Screening Resources, was quoted in an article on MSNBC as saying that “if a new worker is to have access to large amounts of company cash or financial systems, it’s only prudent for a hiring manager to find out if the applicant has a pile of unpaid debts.

Rosen went on to say: “If an employer hires an embezzler and did not do a credit report in a sensitive position and the employer was then sued for negligent hiring, the argument would then be: How stupid were you for not running a credit report?”

Though many employers run credit checks on some applicants, relatively few are turned down for a job because of bad credit, according to ESR’s Rosen. “It takes something pretty horrendous in the credit report to reverse a decision that they are vested in,he says.

One more thing to keep in mind, according to Rosen, is that it is an urban myth that employers receive a “credit score,” the three-digit numerical expressions  such as FICO based on statistical analysis of a consumer’s credit files. Employment credit reports  which are different than credit reports used for lending  do not contain a credit score.

For more information on credit reports used during background checks, read a white paper prepared jointly by LexisNexis and Employment Screening Resources (ESR) , “The Use of Credit Reports in Employment Background Screening:  An Overview for Job Applicants“ at http://www.esrcheck.com/docs/credit_report_whitepaper.pdf.

Sources:

http://www.chicagotribune.com/business/ct-biz-0429-credit-checks-transunion–20100428,0,5056644.story

http://www.bls.gov/news.release/empsit.nr0.htm

http://www.esrcheck.com/wordpress/1429/shrm-surveys-reveal-3-out-of-4-businesses-conduct-reference-background-checks-and-criminal-background-checks

http://www.esrcheck.com/wordpress/1548/new-oregon-law-prohibits-use-of-credit-history-of-job-applicants-for-employment-screening

http://www.msnbc.msn.com/id/35512038/ns/business-eye_on_the_economy/

http://www.esrcheck.com/wordpress/1237/employment-screening-resources-releases-third-annual-trends-for-pre-employment-background-screening-in-2010 

 http://www.esrcheck.com/wordpress/1139/2010-trend-on-increased-focus-on-whether-credit-reports-and-criminal-records-are-discriminatory

NFL Teams Use Background Checks to Help Draft College Football Players as New Employees

It is not uncommon for employers these days to use pre-employment background checks to help them hire new employees. Recent surveys from the Society of Human Resource Management (SHRM) revealed approximately 75% of employers ( three out of four) used background checks during their pre-employment screening of job applicants.

But what if the employer happens to be a professional franchise in the National Football League (NFL) and the job applicants are college football players? Along with statistics like touchdowns and tackles on the field, do NFL teams really care what football players do off the field?

Apparently they do “ a lot “ according to the New York Times NFL blog Fifth Down, which recently quoted a column from FootballOutsiders.com detailing the lack of privacy NFL draft prospects face, online and off, in today’s Internet-fueled, 24/7 sports world.

Every detail of a prospect’s background is researched by teams and publicized by the media. The scrutiny goes beyond touchdowns and dropped passes, it continues to arrests, scandals, and brief, long-ago suspensions for “undisclosed team violations. If a player was involved in some non-noteworthy taproom scuffle, we know about it.

For NFL teams, selecting a player in the annual draft is the main process used to hire new employees. Like any prudent employer hoping to avoid wasting time and money on unfit workers, they look at the past experience qualifications or prospective employees, and perform background checks to ensure that they are making an informed hiring decision.

With millions of dollars on the line,  the first overall selection in the 2010 draft, Sam Bradford of the St. Louis Rams, is projected to get $50 million in guaranteed money. NFL teams, like any prudent employer, use background checks before selecting future employees  in this case, college football players who hope to become professionals.

How prevalent have background checks become in helping NFL teams to decide what players to pick? Two sample Draft Profile on the NFL.com website show just how important:

  • (NFL Draft Prospect A) will need a pretty in-depth background check by any team considering drafting him. He has had off the field issues at both the University of Virginia as well as at Marshall…
  • (NFL Draft Prospect B) is a transfer from Florida who has struggled on and off the field because of injuries and conduct. He will require a strong background check by any team interested in gambling on his physical talent…

NFL teams conducting background checks on college football players is nothing new. A 2003 Los Angeles Times article reported that a former private investigator working for one team had done interviews and background checks on over 400 NFL draft prospects, while several other teams relied on former police officers and even a former director of the U.S. Secret Service to perform similar background checks. Other teams used background check reports that the NFL had compiled on prospects attending the leagues’ pre-draft combine.

Whether the employer is a pro football team or a small business, or the employee is a future gridiron all-star or a potential C-level executive, background checks help to ensure a safe work environment and to avoid the costs in both time and money  of a bad hires.

For more information about background checks, visit Employment Screening Resources (ESR), a national pre-employment screening provider, at http://www.esrcheck.com.

Sources:

http://articles.latimes.com/2003/apr/20/sports/sp-nfldraft20

http://fifthdown.blogs.nytimes.com/2010/03/11/n-f-l-prospects-have-no-privacy-on-internet-and-neither-may-you/

http://www.footballoutsiders.com/walkthrough/2010/walkthrough-click-your-own-risk

http://www.nfl.com/draft/2010/profiles/darius-marshall?id=497186

http://www.nfl.com/draft/2010/profiles/nyan-boateng?id=497272

Employee Problems are Caused by Problem Employees

Question from the mailbox:  Is performing background checks worth the time and effort it takes?     

Answer:  For employers that do not perform background checks, one of the most frequently asked questions is why do it?  The short answer is that employee screening is one critical way to keep problem employees out of the workplace.  As any employer or human resources professional know, a great deal of time is spent dealing with employee problems. As Employment Screening Resources (ESR) advised  employers in the first edition of The Hiring Manual back in 2005, “problem employees usually cause employee problems.”  An employer is certainly ahead if they can try to minimize the problem employees in the first place. 

Of course, there is no perfect system to prevent bad hires.   Background checks alone are not going to keep an employer from hiring people they later regret having in the workforce.  The hiring process has a number of moving parts, but the background check is the critical final step. 

In addition, the cost if a background check will typically be less than the cost of that new employee on his or her first day on the job. That is pocket change compared to the damage one bad hire can cause. It is ironic that some firms will spend hours shopping for a computer bargain yet at the same time try to save money by not adequately checking out a job applicant, even though each hire  represents an enormous investment and potential risk.   

Nor is it difficult to set up a screening programming. Even for an overburdened HR, security, or risk management department already handling numerous tasks, outsourcing background screening can be done very quickly and effectively. ESR can set up the entire program, provide all the necessary forms in a short time and assist with legal compliance.

Defenses That Do and Do Not Work in Negligent Hiring Cases

If an employer is sued for negligent hiring on the basis that they hired someone that they either knew or in the exercise of reasonable care should have know was dangerous, unqualified, unfit or dishonest, and it was reasonably foreseeable that some of harm could occur, an employer can be sued for negligent hiring.  That is the opposite of due diligence.  If the subject of a legal action, employers do have some potential defenses in a court case, but they are far from a sure thing.

The best defense is that the employer did in fact exercise due diligence and reasonable care, but despite those best efforts, a bad hire fell through the cracks. An employer would have to show that they took a number of steps designed to avoid bad hires. An employer can review the adequacy of their hiring efforts by taking the safe hiring audit offered by ESR. See: http://www.backgroundchecktraining.com/Safe-Hiring-Audit.asp

Another defense that had been successful is that the crime or injury was too remote or unconnected from the employer’s negligence, or was not foreseeable. An example is the California case ESR recently reviewed where a plumber with a criminal record was hired, meet a woman on the job that he started dating, was terminated by the employer and then murdered the girlfriend two years later. The victim’s family’s argued that but for the negligent hiring, the two would not have met in the first place and the murder would not have occurred. The court found that the murder two years later and long after termination was not sufficiently connected to the hiring to hold employer legally responsible. See: http://www.esrcheck.com/newsletter/archives/September_2009.php#T1

Another defense that a background checks would have not have revealed anything anyway so that the employer’s failure to conduct an adequate pre-screening was not the cause of the injury.  As the old adage goes, “every dog has its first bite.”  If there was nothing for a background check to locate that was a potential a “Red Flag,” that is also a defense.

Some defenses that do not work? Employers have not been very successful in defending lawsuits on the basis that due diligence and background checks cost too much, especially considering how inexpensive it is to screen. Another argument that may not go far with a jury is that the employer did what every other employer did in their industry. The fact that all employers in an industry engage in the same practice does not mean that the employer has meet the legal duty of due diligence, since a “standard practice” is not the same as a “standard of care.” The least successful defense is the argument that the employer is also the victim as well, or that they were victimized by an applicant lying.

The bottom-line: Exercising due diligence in hiring and conducting background checks is a small price to pay to avoid the “Parade of Horribles” that can befall an employer that makes bad hiring decisions.

International Background checks

Did you know?  Given the mobility of workers across international borders, an employer’s obligation of due diligence may no longer be limited to employment screening just in the United States. A 2000 government study shows that 11.5 percent of the population consists of immigrants, and an increasing number of workers have spent part of their professional careers abroad.

Employers cannot assume that the U.S. government has conducted background checks on workers who hold visas. Government checks appear to be aimed at reviewing watch lists rather than verifying past employment or education or checking criminal records for employment purposes.

Given these issues, employers should consider background screening internationally for criminal records, employment history, and education credentials. Standard background checks conducted in the United States do not include international employment and criminal records. One caveat is that international checks typically take longer and are more costly than domestic screening, but they can be worth it if they help a company limit its exposure to future liability. Another issue is data and  privacy protection issues. 

For more information, see: http://www.esrcheck.com/international.php  ESR was the third U.S. background firm to be Safe Harbor certified for dealing with the European Union.  More information about international background checks is available in The Safe Hiring Manual.

Due diligence risk management and Employment Screening

In the April, 2009 ESR Newsletter, ESR reported on a case in Ohio where a negligent hiring lawsuit was filed on behalf of a sleep clinic patient that was sexually molested by a staff member.  http://www.esrcheck.com/newsletter/archives/April_2009.php.  The article reported that a technician was facing gross sexual imposition and sexual imposition charges for allegedly molesting five victims.  The lawsuit “accuses the sleep clinic of negligence for hiring (the worker) and failing to properly supervise him.”  

Another sleep clinic case, this time from California is now in the news.  According to a story in the Monterey County Herald, a sleep technician was accused of sexual misconduct and the case eventually resulted in a no contest plea to a battery charge.  The case even lead to a new law in California that regulated workers in sleep clinics and required them to pass background check.  See:  http://www.montereyherald.com/local/ci_13864096 

These stories demonstrate a fundamental fact of life for employers. In deciding how extensively to perform background screening, employers need to consider the risks involved.  Patients in a medical facility are highly vulnerable and therefore at greater risk. Presumably, patients at a sleep clinic are even more vulnerable since they are there to sleep.

Examples where employers may have an increased duty of care are: 

  • The workers have contact or responsibilities with groups at risk, such as the young, infirmed, or elderly.
  • Jobs such as a security guard, where a person acts under a “color of authority.”  A person who wears a uniform is even a higher risk since a person may assume they have authority and may let their guard down. 
  • Jobs with special responsibilities such as an apartment manager that has the master key to all of the apartments.
  • Jobs where a worker has access to sensitive consumer information, such as credit card numbers or Social Security numbers.
  • Jobs where by statute, there is particular sensitivity.  An example can be safety sensitive positions such as workers at nuclear plants.  Sarbanes-Oxley compliance is another area where that may create a higher duty of care.
  • Jobs where workers enter homes, or where other unique risks exist.  A person in their own home can be extremely vulnerable since they are shielded from the public and cannot obtain help easily.  In fact, an organization called the Sue Weaver Cause advocates greater due diligence where workers enter homes.  According to their website:
    “August 27, 2001, Sue Weaver was brutally raped and beaten to death by a twice convicted sex-offender hired to do service work in her home. Sue had contracted with a major department store to have the air ducts in her home cleaned.  (The department store) did not conduct criminal background checks on those workers they sent into their clients’ homes.”   For more information, see:  http://www.sueweavercause.org/  

To review the risk management considerations for your screening program, contact Jared Callahan at 415-898-0044 or e-mail him at jcallahan@esrcheck.com

California Case Demonstrates Outer Limits to Negligent Hiring Exposure

The case involved a plumber that was hired in 1999, even though the plumbing company knew the person had been convicted of domestic violence and/or arson involving the plumber’s ex-wife. Four years later, in 2003, the plumber performs a service call at the victim’s home. The plumber and the victim started a relationship that eventually turned romantic in nature.  About a month after the service call with the victim, the plumber was terminated for misuse of a company vehicle, drug and alcohol use and an allegation of threatening a co-worker.

By 2005, the victim apparently had enough and ended the relationship and applied for a restraining order against the plumber. The plumber shot and killed her and was convicted of her murder. Continue reading

Screening Vendors and Temporary Workers

A recent article in the SHRM 2008 Staffing Management Library underscores the need to screen even temporary hires.  Although many employers have well thought-out programs for their regular employees, temporary employees from staffing firms, 1099 workers or vendors pose similar risks.  The article explained why screening temporary employees is critical, and offers suggestions on how a firm can protect itself.

The article also quotes ESR President Lester S. Rosen: 

“Even if you have a person on a short-term assignment, you’re exposed,” added attorney Lester S. Rosen, president and CEO of the Novato, Calif.-based firm Employment Screening Resources. “They have the keys to the kingdom. Once they’re inside your building, they have access to your files and have the potential to do great harm.”

Rosen said that while staffing vendors “have traditionally not engaged in a great deal of screening because it slows down the placement time and adds to the cost,” they need to understand that they have “a huge risk” if they send unscreened employees to a workplace.

“They have to realize that every placement they make is potentially a game of Russian Roulette that can put them out of business,” he explained. “If you’re a staffing vendor, it only takes one bad hire to lose your reputation, lose a client and [potentially to] get sued.”

And even though an extended worker may be getting a paycheck from the staffing vendor, under “co-employment” law, employers may still be at risk of a negligent hiring suit if something goes wrong.

“If [temporary employees] cause a hostile workplace, hurt a member of the public or attack a co-worker, arguably employers are just as liable as they would be if this were a full-time, regular employee,” Rosen said.

The fact that the staffing vendor said it did background checks may not be much of a defense for an employer if the check was inadequate or ineffective. For this reason, it pays to do adequate due diligence to head off any potential lawsuits down the road.

After all, Rosen said, “Even the CIA will, every so often, hire a spy or a crook.”

The article discusses the need to evaluate the risks involved in utilizing an extended workforce and to develop an appropriate screening program.  The screening may be performed by the same firm that checks new applicants.  If done by the staffing vendor’s firm, then the employer can require that the same protocols be used that it uses internally. 

For a full copy of the article, see http://www.shrm.org/ema/library_published/nonIC/CMS_024438.asp#TopOfPage

The Basics of Criminal Records Searches

Searching for criminal records is much more complicated than it appears on the surface.  Contrary to popular belief, there is no central database available to most private employers to instantly find a person’s criminal record at one touch.  The FBI database is only available to employers that are legally authorized to submit fingerprints, the readouts can be complex and there is even the possibility of errors in those records.  With some 3200 counties in the US, screening firms have developed tools and techniques to identify potentially relevant counties to search, and nearly any county in America can be researched on site within 24-36 hours. The best practices for employers are to identify counties associated with the applicant and to search those counties by going to the courthouse. The way relevant counties are identified is first by using a tool called a social security trace that uses millions of records which show what addresses a social security number is related to. In addition, some employers also search counties where a person has worked or gone to school.  Although such searches are very accurate, as with anything depending on human beings, there is still some small margin of error possible. 

Even assuming a record is found, a professional screening firm must determine if there are sufficient identifiers to associate the record to the applicant, and even if the criminal record belongs to the applicant, numerous states have laws that restrict what can be reported. Many states do not allow the use of arrest records, and even if a state allows it, there may be EEOC considerations. Even if a screening firm can report a conviction, the employer needs to consider whether the use of the record is discriminatory.  An employer should not automatically reject an applicant with a criminal record, unless there is a business justification, taking into account such things as the nature and gravity of the act, the nature of the job and the age of the crime. 

Employers should be careful in the use of commercial databases that are advertised to search millions of records with instant results.  Those 30 second searches are NOT a substitute for a real criminal check at a courthouse and probably would not demonstrate due diligence if used all by themselves. These databases are assembled from a hodgepodge of various sources that are willing to make their data public or to sell data, such as incarceration systems, state repositories or individual counties.  These databases do not cover all states and may not be up-to-date, accurate or complete.  Certain states do not provide date of birth, which is another reason a criminal record may not come up in a database. This can all lead to both false negative and false positive results from databases. A false positive means a person is branded a criminal who is not, and a false negative means a person with a criminal record is falsely ‘cleared.’ 

The commercially available instant criminal reports are best used as a research tool only by a professional screening firm to locate other places to search.  Since they cover such a wide area, they can be very valuable in locating records that a county by county search can miss.  However, these instant databases are also a potential source of litigation against employers and screening firms, with applicants filing lawsuits for being unfairly tarnished as criminal, or victims claiming that the employer did not exercise due diligence.  Even if there is a database ‘hit,’ under the federal Fair Credit Reporting Act, the background screening firm must either reconfirm the details at the actual courthouse to ensure accuracy, or send a contemporaneous notice to the applicant at the same time, so they know that they are the subject of negative public records.  California is one state where any database ‘hit’ must be re-confirmed at the courthouse and ESR believes it is a best practice to reconfirm all database hits at he courthouse to guard against unfairly labeling someone as a criminal where their case has been dismissed, or they are the victim of identity theft or just happen to have the same last name as a perosn with a criminal record. 

Some states offer access to the state police or central state court databases.  Again, it takes a background screening expert to understand the value of such information on a state by state basis.  There is also a difference between state court searches and federal courts. 

All of this is just the tip of the iceberg.  For more details, see: http://www.esrcheck.com/services/services_detail.php

The Use of Home Operators

Some screening firms use home based operators to perform employment and education verifications.  That of course represents a big financial advantage for the screening firm.   They get cheap labor, and may even classify them as independent contractors in order to get even additional savings by not paying workers’ compensation, benefits or other costs associated with employees.    However, it does very little to help employers.  Below are the top 10 reasons NOT to utilize a background firm that sends your applicants’ personal data to home operators working from kitchen tables and dorm rooms across America.

 

  1. Privacy: A screening firm would be directly responsible for making private information viewable and printable on people’s home computers.
  2. Professionalism: A screening firm would have difficulty accurately claiming that at-home researchers are “professionals” when they are unsupervised, unregulated and acting as cheap substitutes for what is supposed to be a professional service. Ask yourself how the sound of barking dogs, crying babies and television sets in the background may strike those asked to provide verifications.
  3. FCRA Defensibility: A screening firm would  have difficulty defending the practice of using at-home researchers against a claim under FCRA section 607(b) concerning reasonable procedures for accuracy.
  4. IC Classification: A screening firm cannot classify someone as an Independent Contractor (IC) when they work only for you, when you tell them exactly how to do their job, and when they are providing the same core services provided by your in-house staff.
  5. Training/QC: A screening firm cannot train and discuss production issues in real time. It is also difficult for at-home researchers to learn from each other when everyone is working in isolation. Furthermore, since everyone works alone it is harder to enforce quality rules across the entire organization.
  6. Supervision: Unsupervised at-home researchers are very difficult to supervise. In addition, since they are paid by the completed verification, they may be more tempted to fake orders since there is no one supervising them in real-time.
  7. Reliability: A screening firm would  be dependent entirely on the researcher’s priorities, which may not be your own. They may put a hair appointment ahead of your forty new verifications that have to be called today. You want load balancing to be under your control and not secondary to at-home researcher’s personal schedules.
  8. Hidden Costs: There are hidden costs to managing and maintaining multiple remote researchers as opposed to a central pool of talent. Take, for instance, the time lost to the unreliable performance of at-home researcher’s internet connections, home computers and printers.
  9. Due Diligence: A screening firm and employer could face significant legal exposure if the  at-home researcher’s performance falls below a professional standard of care due to lack of training and supervision.
  10. Disclosure: Would you want to disclose to your applicants that the sensitive, personal data and professional service they’ve entrusted you with was being performed by unsupervised home workers?

 

ESR does not utilize any home based or offshore operators in order to  provide you with critical employment and education verifications.  All work is done in a professionally supervised call center dedicated to the highest level of customer service, privacy, accuracy and speedy turnaround time.