Friday, November 2, 2007
Employment Screening Resources Online
(Reading time: Less than 5 minutes)June 2007 Vol. 7, No. 6
Employment Screening Resources (ESR) Newsletter and Legal Update
1. New U. S. Supreme Court Case Decided June 4, 2007 on “Willfulness” Under the FCRA May Have Dramatic Impact on Employers and Screening Firms in the Future
2. New Restrictions on the Use of Credit Reports
3. From the Mailroom: How do Background Checks Actually Protect Employers from a Bad Hire?
1. New U. S. Supreme Court Case Decided June 4, 2007 on “Willfulness” Under the FCRA May Have Dramatic Impact on Employers and Screening Firms in the Future
A new case from the U. S. Supreme Court relating to the application of the Fair Credit Reporting Act (FCRA) to certain insurance industry practices decided June 4, 2007, may have significant impact on employers when it comes to background checks. The case, Safeco Ins. Co. v. Burr, No. 06-84, 2007 U.S. LEXIS 6963 (June 4, 2007), dealt with the use of credit reports to set insurance rates and the obligation of insurers to send out “adverse action” notices to consumers whose rates were affected by their credit reports.
However, the case also concerned the definition of “willful” under the FCRA. That was critical since under FCRA section 616 (15 U.S.C. § 1681n), punitive damages are only allowed if there was willful non-compliance.
The Court dealt with a split among lower federal courts on what the FCRA meant by “willfulness.” Some courts had ruled that a willful violation of the FCRA meant that a business had to have actual knowledge that their conduct was in violation of the FCRA.
However, the Supreme Court ruled that a “reckless disregard” of the FCRA was sufficient. A reckless disregard can be an action entailing “an unjustifiably high risk of harm that is either known or so obvious that it should be known.” Recklessness is a higher standard than mere negligence, but a lower standard than what other lower federal courts had imposed. The net effect is that it is now easier to sue an employer or screening firm for punitive damages.
The bottom-line: Just because a screening firm or employer believes it is acting lawfully, that is NOT a protection from an allegation of “willful” violation of the FCRA and exposure to punitive damages. A screening firm or employer is now held to a higher standard of compliance. Where the line will be drawn between mere negligence and recklessness in any particular case is always a difficult proposition. The net-effect is that if a lawsuit is filed against screening firms or employers for FCRA violations, a request for “punitive” damages on a “recklessness” theory is more likely. There is also an increased possibility of class action lawsuits based upon FCRA violations because of the loosened “willfulness” definition to include recklessness. This underscores again the critical nature of legal compliance when it comes to background checks.
For a copy of the Supreme Court decision, contact Jared Callahan at 415-898-0044 or by e-mail at jcallahan@esrcheck.com.
2. New Restrictions on the Use of Credit Reports
A change in the laws for background screening in the state of Washington that goes into effect later this year underscores once again that background screening is a highly legally regulated activity and the use of credit reports in particular need to be paid careful attention.
Under the amended Washington law, employers cannot obtain a credit report as part of a background check unless the information is:
(i) Substantially job related and the employer's reasons for the use of such information are disclosed to the consumer in writing; or(ii) Required by law.
See: RCW 19.182.020
The immediate impact is that employers in the state of Washington who are utilizing employment credit reports will need to change their forms. Washington employers will also need to carefully review any job position where a credit report is requested and to be able to communicate to job applicants the reason a credit report is substantially related to a particular job.
This law underscores the sensitivity of the use of credit reports for employment purposes. As a general rule, any pre-employment assessment tool must be both a valid predictor of job performance and non-discriminatory. Credit reports have recently come under scrutiny on both counts.
Since employment credit reports do not contain actual “credit scores,” employers need to carefully consider how to utilize the information contained in a credit report to determine if the information is related to the job. Employers typically look at factors such as the income to debt ratio, to determine if an applicant who will have access to cash or assts is under financial pressure. An employer may also look to see how a person has handled their own financial affairs as an insight as to how they will handle the employer’s finances.
However, employers need to be aware that there can be errors in credit reports, or information that is not relevant to job performance, such as high debt brought about by medical bills for example.
If a pre-employment assessment tool has the impact of disproportionately excluding members of protected groups from employment consideration, then that can potentially give rise to discrimination claims. Credit reports can have an unfair impact unless its use is job related and necessary for the operation of the businesses.
The bottom-line: Even though the new law is only in effect in Washington state, the underlying message is a good one for employers everywhere. Employers utilizing credit reports should carefully scrutinize why they are being used and for what purpose to ensure the information obtained is substantially related to a position.
3. From the Mailroom: How do Background Checks Actually Protect Employers from a Bad Hire?
Every employer knows that a bad hiring decision can create a legal and financial nightmare. If an employer hires someone who turns out to be dangerous, unqualified or unfit for the job, the employer must spend time and energy to deal with the situation including termination.
A program of pre-employment screening can help employers in four essential ways:
Deterrence of Potential Problems Just having background screening can discourage applicants with something to hide. Making it clear that screening is part of the hiring process can deter potentially problematic applicants and discourage applicants with something to hide. An applicant with serious criminal convictions or falsified information on his or her resume is less likely to apply at a firm that announces pre-employment background checks are part of the hiring process.
Encourage Honesty A candidate who may have some blemish on their record may be well qualified for employment. However, employers need to be fully informed when making a hiring decision. Having a safe hiring program that includes background checks encourages applicants to be especially forthcoming in their interviews. Making it clear that background checks are part of the hiring process is strong motivation for applicants to reveal information about themselves they feel may be uncovered by a background check.
Fact-Finding Although instincts play a role in hiring, basing a decision on hard information is even better. Effective screening obtains factual information about a candidate in order to supplement the impressions obtained from an interview. It is also a valuable tool for judging the accuracy of a candidate’s application since screening limits uncertainty in the hiring process.
Due Diligence Just Implementing a background checking program helps an employer demonstrate due diligence in their hiring, and is a powerful defense in the event of a lawsuit.
Employment Screening Resources (ESR) Newsletter and Legal Update
1. New U. S. Supreme Court Case Decided June 4, 2007 on “Willfulness” Under the FCRA May Have Dramatic Impact on Employers and Screening Firms in the Future
2. New Restrictions on the Use of Credit Reports
3. From the Mailroom: How do Background Checks Actually Protect Employers from a Bad Hire?
1. New U. S. Supreme Court Case Decided June 4, 2007 on “Willfulness” Under the FCRA May Have Dramatic Impact on Employers and Screening Firms in the Future
A new case from the U. S. Supreme Court relating to the application of the Fair Credit Reporting Act (FCRA) to certain insurance industry practices decided June 4, 2007, may have significant impact on employers when it comes to background checks. The case, Safeco Ins. Co. v. Burr, No. 06-84, 2007 U.S. LEXIS 6963 (June 4, 2007), dealt with the use of credit reports to set insurance rates and the obligation of insurers to send out “adverse action” notices to consumers whose rates were affected by their credit reports.
However, the case also concerned the definition of “willful” under the FCRA. That was critical since under FCRA section 616 (15 U.S.C. § 1681n), punitive damages are only allowed if there was willful non-compliance.
The Court dealt with a split among lower federal courts on what the FCRA meant by “willfulness.” Some courts had ruled that a willful violation of the FCRA meant that a business had to have actual knowledge that their conduct was in violation of the FCRA.
However, the Supreme Court ruled that a “reckless disregard” of the FCRA was sufficient. A reckless disregard can be an action entailing “an unjustifiably high risk of harm that is either known or so obvious that it should be known.” Recklessness is a higher standard than mere negligence, but a lower standard than what other lower federal courts had imposed. The net effect is that it is now easier to sue an employer or screening firm for punitive damages.
The bottom-line: Just because a screening firm or employer believes it is acting lawfully, that is NOT a protection from an allegation of “willful” violation of the FCRA and exposure to punitive damages. A screening firm or employer is now held to a higher standard of compliance. Where the line will be drawn between mere negligence and recklessness in any particular case is always a difficult proposition. The net-effect is that if a lawsuit is filed against screening firms or employers for FCRA violations, a request for “punitive” damages on a “recklessness” theory is more likely. There is also an increased possibility of class action lawsuits based upon FCRA violations because of the loosened “willfulness” definition to include recklessness. This underscores again the critical nature of legal compliance when it comes to background checks.
For a copy of the Supreme Court decision, contact Jared Callahan at 415-898-0044 or by e-mail at jcallahan@esrcheck.com.
2. New Restrictions on the Use of Credit Reports
A change in the laws for background screening in the state of Washington that goes into effect later this year underscores once again that background screening is a highly legally regulated activity and the use of credit reports in particular need to be paid careful attention.
Under the amended Washington law, employers cannot obtain a credit report as part of a background check unless the information is:
(i) Substantially job related and the employer's reasons for the use of such information are disclosed to the consumer in writing; or(ii) Required by law.
See: RCW 19.182.020
The immediate impact is that employers in the state of Washington who are utilizing employment credit reports will need to change their forms. Washington employers will also need to carefully review any job position where a credit report is requested and to be able to communicate to job applicants the reason a credit report is substantially related to a particular job.
This law underscores the sensitivity of the use of credit reports for employment purposes. As a general rule, any pre-employment assessment tool must be both a valid predictor of job performance and non-discriminatory. Credit reports have recently come under scrutiny on both counts.
Since employment credit reports do not contain actual “credit scores,” employers need to carefully consider how to utilize the information contained in a credit report to determine if the information is related to the job. Employers typically look at factors such as the income to debt ratio, to determine if an applicant who will have access to cash or assts is under financial pressure. An employer may also look to see how a person has handled their own financial affairs as an insight as to how they will handle the employer’s finances.
However, employers need to be aware that there can be errors in credit reports, or information that is not relevant to job performance, such as high debt brought about by medical bills for example.
If a pre-employment assessment tool has the impact of disproportionately excluding members of protected groups from employment consideration, then that can potentially give rise to discrimination claims. Credit reports can have an unfair impact unless its use is job related and necessary for the operation of the businesses.
The bottom-line: Even though the new law is only in effect in Washington state, the underlying message is a good one for employers everywhere. Employers utilizing credit reports should carefully scrutinize why they are being used and for what purpose to ensure the information obtained is substantially related to a position.
3. From the Mailroom: How do Background Checks Actually Protect Employers from a Bad Hire?
Every employer knows that a bad hiring decision can create a legal and financial nightmare. If an employer hires someone who turns out to be dangerous, unqualified or unfit for the job, the employer must spend time and energy to deal with the situation including termination.
A program of pre-employment screening can help employers in four essential ways:
Deterrence of Potential Problems Just having background screening can discourage applicants with something to hide. Making it clear that screening is part of the hiring process can deter potentially problematic applicants and discourage applicants with something to hide. An applicant with serious criminal convictions or falsified information on his or her resume is less likely to apply at a firm that announces pre-employment background checks are part of the hiring process.
Encourage Honesty A candidate who may have some blemish on their record may be well qualified for employment. However, employers need to be fully informed when making a hiring decision. Having a safe hiring program that includes background checks encourages applicants to be especially forthcoming in their interviews. Making it clear that background checks are part of the hiring process is strong motivation for applicants to reveal information about themselves they feel may be uncovered by a background check.
Fact-Finding Although instincts play a role in hiring, basing a decision on hard information is even better. Effective screening obtains factual information about a candidate in order to supplement the impressions obtained from an interview. It is also a valuable tool for judging the accuracy of a candidate’s application since screening limits uncertainty in the hiring process.
Due Diligence Just Implementing a background checking program helps an employer demonstrate due diligence in their hiring, and is a powerful defense in the event of a lawsuit.
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