New FCRA Background Check Forms Required January 1, 2013

By: Stephanie Dodge Gournis

Effective January 1, 2013, employers must revise Summary of Rights forms they provide to prospective and current employees as required under the Fair Credit Reporting Act (“FCRA”).

The FCRA is a federal law which applies whenever a covered employer seeks information from a “consumer reporting agency” regarding an individual’s credit, character, general reputation, personal characteristics, or mode of living.  A “consumer reporting agency” is defined quite broadly under the FCRA, resulting in an employer being subject to the FCRA simply by using a third-party vendor to conduct background checks on any of its applicants/employees.

Pursuant to the FCRA, an employer is required to provide a disclosure and obtain written authorization from any applicant/employee prior to conducting a background check.  Should the employer seek to take an “adverse action” against the applicant/employee based on the background check — which, for purposes of the FCRA is defined as a denial of employment or any other decision that adversely impacts the applicant/employee (i.e., failure to hire, transfer, termination) — the employer must first provide the applicant/employee a copy of the background check and a Summary of Your Rights under the FCRA (“Summary of Rights”) form under the FCRA.  It is this Summary of Rights form that employers must revise prior to January 1, 2013.

With President Obama’s signing of the Consumer Protection Act of 2010 (signed into law on July 21, 2010) enforcement powers over the FCRA were transferred from the Federal Trade Commission (FTC) to a newly created Consumer Financial Protection Bureau (CFPB).  The CFPB has since issued regulations requiring employers to revise their Summary of Rights forms effective January 1. 2013 to reflect that information about consumers rights under the FCRA can now be obtained from the CFPB instead of the FTC.

Other notice provisions under the FCRA remain the same.  After taking adverse action against an applicant/employee based on a background check, the employer must provide the applicant/employee with notice of the adverse action, as well as the name, address and toll-free telephone number of the third-party vendor that conducted the background check, and a written statement that the third-party vendor did not make the decision to take the adverse action and is unable to provide the applicant/employee with specific reasons as to why the adverse action was taken.  The employer must also provide the applicant/employee with notice of his/her rights to obtain a free copy of the consumer report within sixty days and to dispute the accuracy or completeness of any information contained in the report.

Further, while the FTC no longer will have primary statutory authority to issue interpretive guidance under the FCRA, the agency on July 20, 2011 issued a Staff Report entitled “Forty Years of Experience with the Fair Credit Reporting Act: An FTC Staff Report and Summary of Interpretations” which compiles and updates the agency’s prior guidance under the FCRA and provides a section-by-section summary of the agency’s interpretations of the Act.  The FTC also has withdrawn its 1990 Commentary on the FCRA, which the agency admits had become obsolete as a result of statutory amendments expanding the FCRA in the intervening years.  A copy of the FTC’s new Staff Report can be found on the FTC’s website at http://www.ftc.gov/os/2011/07/110720fcrareport.pdf.  The copy of the new Summary of Rights form which employers are required to use effective January 1, 2013 can be downloaded from the CFPB’s website at http://ecfr.gpoaccess.gov/graphics/pdfs/er21dell.019.pdf.

NLRB Announces its First Formal Ruling on the Legality of Social Media Policies

By: Jerrold J. Wohlgemuth

In line with the series of guidelines issued by the Acting General Counsel over the past year, the NLRB has announced its first formal ruling on social media policies, finding that the social media policy of Costco Wholesale Corp. is unlawful because it broadly prohibits online comments “that damage the Company, defame any individual or damage any person’s reputation, or violate the policies” in the employer’s handbook.  358 NLRB No. 106.  The case represents the first ruling by the Board on the legality of social media policies, and follows the Acting General Counsel’s admonition that overbroad policy statements will be held unlawful.

The Board observed in its opinion that in the absence of a disclaimer notifying employees that the rule is not intended to restrict the right to engage in protected concerted activities, the broad prohibition on comments that might “damage the Company” is overbroad and unlawful because “employees would reasonably conclude that the rule requires them to refrain from engaging in” communications that are critical of the company or its supervisors despite the fact that the policy does not appear to address or prohibit critical comments about the company.  In this respect, the opinion appears to reflect the Board’s approach that policy statements will be judged not by what they purport to prohibit, but by whether employees could reasonably construe them as restricting their right to communicate about terms and conditions of employment.   The Board observed that context matters, however, suggesting that employers might avoid liability by inserting appropriate disclaimers in their social media policies or by tying the prohibition to specific examples of egregious conduct such as the use of profane language, abusive or unlawful statements, or comments reflecting sexual or racial harassment.

The Costco opinion highlights the fact that overbroad social media policy restrictions on negative comments will be found to be unlawful by the Board, and that imposing discipline for making such comments might expose employers to unfair labor practice charges – even for non-union workforces – and the potential for wrongful termination claims.  As referenced above, some of this risk can be managed by avoiding using overly broad restrictions, by carefully wording your policy to specifically notify employees that their protected rights are not encompassed by the policy restrictions, and by including examples of prohibited activity to provide context to the restrictions imposed.  As have the prior guideline memoranda from the Acting General Counsel, this ruling provides a reminder that all businesses should reevaluate both the language and impact of their internet/social media policies with an eye towards these potential areas of risk.

A Litigator’s Perspective on Trade Secret Protection Programs: How to Protect Your Valuable Information Against Rogue Employees

Mark E. Terman, a partner in the Los Angeles office and a member of the Competitive Advantage practice team, authoried the article “A Litigator’s Perspective on Trade Secret Protection Programs:  How to Protect Your Valuable Information Against Rogue Employees,” which was recently published on InsideCounsel.com.  Mark’s article discusses the Uniform Trade Secrets Act and its variations, as well as questions companies should consider when developing their own trade secret program.  Mark also emphasizes that companies should have a program to deter and limit trade secret misappropriation.  “A seeming axiom of trade secret and unfair competition litigation is that the more brazen and dishonest the behavior of the former employee (and perhaps their new employer), the more accommodating a court may be to a company whose proof is less than perfect. By contrast, the thinner a company plaintiff’s proof is, the more a court may accept a former employee’s argument that there is nothing secret, nor valuable in the assets even if their theft can be proven” he says.

To read the entire article click here.

Social Media: The Bane of HR Leader’s Existence and How to Manage it

Mark D. Nelson, partner in the Chicago office, authored the article “Social Media: The Bane of HR Leaders’ Existence and How to Manage it” for the fall issue of HR Pulise, the official publication of the American Society for Healthcare Human Resource Administration.  In the article Mark discusses social media concerns for health care organizations, including why a social media policy is necessary, how health care providers can avoid social media issues and NLRB standards for social media policies.  To read the full article click this link:  Mark Nelson – HR Pulse Magazine, fall 2012 issue

Federal Court Holds that FLSA’s “Fluctuating Workweek” Method Violates Pennsylvania Law

By: Maria L. H. Lewis and Dennis M. Mulgrew, Jr.

A recent decision out of the Western District of Pennsylvania, Foster v. Kraft Foods Global, Inc., Civ. No. 09-453 (W.D.Pa. August 27, 2012), highlights the challenges employers face in simultaneously complying with both local and national wage and hour regulations.  In Foster, the court held that the “fluctuating workweek” method of overtime compensation – which is expressly permitted by the FLSA – is not permitted under Pennsylvania law.

Under the fluctuating workweek method, an employer pays a nonexempt employee a fixed weekly salary, regardless of the number of non-overtime hours worked.  This method is generally used in industries in which an employee’s hours change unpredictably from week to week based on factors such as customer demand or seasonal variation – e.g., lawn maintenance companies, golf courses, or the travel industry.  In using this method, the employer benefits from significant cost savings over traditional methods of overtime calculation and the employee benefits from the stability of a fixed weekly salary.

There are five requirements for using the fluctuating workweek method.  The employee’s hours must fluctuate from week to week; the employee must receive a fixed salary that does not vary with the number of hours worked (excluding overtime); the salary must be high enough that the employee’s regular rate of pay is at least the minimum wage; the employer and employee must have a clear mutual understanding that the salary is fixed; and the employee must receive overtime compensation equal to at least one-half the regular rate for all hours worked over forty.

In Foster, the court’s analysis focused on this last requirement.  The court held that “the payment of overtime under the FWW method, at any rate less than one and one-half times the ‘regular’ or ‘basic’ rate,” is impermissible under the Pennsylvania Minimum Wage Law.  We’ll be watching this decision (if appealed) and subsequent cases closely, because if this interpretation of the Minimum Wage Act is upheld, the primary advantage to the employer in utilizing the fluctuating workweek method is eliminated.  In the meantime, Pennsylvania employers who use this method to compensate nonexempt employees should reconsider their policies, given that it may no longer result in cost savings.  Moreover, this case should serve as a reminder that, although many local wage and hour regulations are modeled after (and in some respects identical to) the FLSA, compliance with the FLSA does not guarantee compliance with local statutes.

California Joins Other States in Implementing Laws Governing Employer Access to Employee’s and Applicant’s Social Media Accounts

By: Heather M. Sager

California is poised to be on the front lines of implementing laws governing when and if employers can require applicants or employees to divulge their social media passwords and grant employer access as part of the hiring process or in the course of the employment relationship.  Last week, the California Senate voted 28-5 in favor of Assembly Bill 1844, which would prohibit employers from forcing employees and prospective workers to turn over usernames and passwords for their social media accounts and also would ban employers from discharging, disciplining or threatening to retaliate against employees or job applicants who did not comply with such requests.  Of note, the Senate’s proposed amendments clarify that employers may request personal social media information when related to an investigation involving alleged workplace misconduct or violations of the law.  The Senate also amended the bill to specify that the State’s labor commissioner is not required to investigate or determine any violations of the bill.  The proposed bill next moves to the Assembly for a vote.

This proposed California bill comes on the heels of multiple memoranda issued by the National Labor Relations Board analyzing various implications of social media in the workplace and specifically opining on what employers can and cannot review and regulate in the context of employee (and applicant) rights.  There currently are hundreds of cases pending before the National Labor Relations Board concerning social media issues — and the Board has made it abundantly clear that its jurisdiction to protect employee rights is not limited to organized (“unionized”) workplaces.

Maryland passed the first state law prohibiting employers from requiring disclosure of social media information which goes into effect October 1, 2012.  Illinois also passed a similar law on August 1, 2012 (see our prior coverage here) which takes effect on January 1, 2013.   Massachusetts, New Jersey and New York are also currently considering similar legislation.