EEOC Issues Guidelines Addressing the Use of Background Checks in Employment

By: Heather M. Sager

The EEOC (the “Commission”) recently issued guidelines addressing the use of background checks in employment.  Generally speaking, a “background check” or “consumer report” is something that is obtained from a reporting agency and reflects a consumer’s credit, character, reputation, standing, lifestyle, or the like, and is used (in this context) for the purpose of determining employment eligibility (whether for hire, promotion, eligibility to work at a particular job site, etc.).  While the Commission had been focused on this issue to some extent since 2007, the new guidelines suggest that the EEOC plans to launch an aggressive enforcement campaign aimed at preventing perceived inherent disparate impact discrimination via the most common background check scenarios.

At the heart of the Commission’s guidelines and, indeed, currently the subject of legislative debates in many states, are “Ban the Box” recommendations.  The “Box” being referenced typically appears on an employment application as a Yes/No choice, seeking disclosure of any prior convictions or pending criminal charges.  The disclosure, if any, acts as a de facto bar to employment. The EEOC has now publicly expressed the presumption that any policy that mandates an adverse employment decision for any criminal history is inherently discriminatory.

EEOC guidance mandates what should be logical — any disclosure or “hit” on a background check should be considered on an individualized basis.  Factors the EEOC recommends considering include the nature and gravity of the offense, the age of the offense, and the nature of the job at issue.  Where an employer can point to a rational relationship between the job and the offense so as to justify disqualification from employment, the Commission will not likely find discrimination occurred.  The clearest example is disqualifying an applicant with a fraud conviction from work as a bank teller — a position in which the person would handle funds with little supervision and be responsible for reporting balances and the like.  Where businesses run in to trouble is in disqualifying applicants or employees based on a “zero tolerance” policy, or because the individual is guilty of crimes the employer finds inherently offensive, though they lack a rational relationship to the job duties at issue.  One of the most common examples is an employer’s policy of refusal to hire anyone found guilty of a “sex offense,” without further clarifying the meaning of that term.  That phrase can mean many things, including potentially having consensual sexual relations with someone just a few years younger than majority age (e.g., an 18-year old boy and a 17-year old girl in California).  Absent individualized inquiry and analysis, a blanket policy could result in unjust actions, whether putatively race-based or otherwise.

The federal Fair Credit Reporting Act (“FCRA”) further requires that detailed disclosures be given to employees before background checks are done, when any adverse action is contemplated, and again when an adverse action decision is finalized.  Separate disclosures are required if the background check will also include “interviews” (e.g., discussions with prior employers) in additional to database research.  The FCRA is very specific about the format of each of these notices. And nearly half of the United States have requirements that are stricter and even more specific than those set forth in the federal FCRA. Some even mandate particular type fonts. As with any procedural violation, class certification is often virtually guaranteed (given the absence of individualized treatment). Violations of the FCRA requirements, for example, can multiply at the rate of $100-$1000 per violation (e.g., per applicant or employee, for the entire statutory period).  It is common that businesses seldom complete all steps of the process correctly.

So, how does all this play out in the workplace?  Fixing the paperwork might be the easy part.  Most employers don’t want to spend the time or money going through individualized analyses, which the Commission says should include discussions with the subject individual to explore circumstances surrounding the offense at issue before a final decision is made.  “Zero tolerance” policies are certainly much easier (and more expedient) from an employer perspective, and companies often bank on the fact that applicants or employees with “dirty laundry” may be less likely to raise complaints about potentially unfair policies.  However, the Commission is empowered to pursue violations on behalf of an absent class — there does not have to be a proactive complainant.  At present, the EEOC is actively engaged in hundreds of claims involving alleged violations of applicant/employee rights associated with background check procedures, and we anticipate the recent Commission guidelines to encourage the plaintiffs’ bar to focus on this area of the law in the context of class actions.  In sum, this is a good time for businesses to take a fresh look at not just their paperwork, but in how they utilize the results of any consumer investigative report.

Editor’s note – Please see our other coverage of the EEOC’s guidance on use of background check’s here.

Is Your Electronic Information Protected from Employees Under the CFAA? Maybe So, Maybe Not…

By: Mark E. Furlane

In WEC Carolina Energy Solutions LLC v. Miller, 2012 WL 3039213 (4th Cir) decided July 26, 2012, the Fourth Circuit sided with the Ninth Circuit in deciding that the Computer Fraud and Abuse Act (“CFAA”) does not apply to employees and former employees who were authorized to access the employer’s electronic information.  The decision stands in contrast to the position taken by the Seventh Circuit in Int’l Airport Ctrs., LLC v. Citrin, 440 F.3d 418, 420–21 (7th Cir.2006).  The Fourth Circuit rejects the interpretation of the CFAA taken by the Seventh Circuit, which interprets the CFAA much more broadly.  The Seventh Circuit concludes that an employee’s misappropriation of electronic information from his employer is a breach of the employee’s duty of loyalty that immediately terminates his agency relationship and with it his authority to access the laptop, because the only basis of his authority had been that relationship.

WEC Carolina Energy Solutions Inc. argued that its former employee violated the CFAA’s ban on access “without authorization” by taking files from his work computer to a rival company.  The employer had argued in the District Court that by misappropriating the information, Miller voided his agreement with the company, and, therefore, he was no longer permitted to access his computer under the CFAA.  The District court rejected that interpretation of the CFAA and the Fourth Circuit affirmed.  In so ruling the Court “ adopt[s] a narrow reading of the terms “without authorization” and “exceeds authorized access” and hold[s] that they apply only when an individual accesses a computer without permission or obtains or alters information on a computer beyond that which he is authorized to access.”

The Fourth Circuit, like the Ninth and Seventh Circuits, found the crux of the issue presented to be “the scope of ‘without authorization’ and ‘exceeds authorized access,’” but the Fourth Circuit finds the Ninth Circuit argument in United States v. Nosal, 676 F.3d 854, 863 (9th Cir.2012) (en banc), the better interpretation of “authorization” as being “that an employee is authorized to access a computer when his employer approves or sanctions his admission to that computer.  Thus, he accesses a computer ‘without authorization’ when he gains admission to a computer without approval.  Similarly, we conclude that an employee ‘exceeds authorized access’ when he has approval to access a computer, but uses his access to obtain or alter information that falls outside the bounds of his approved access.  Notably, neither of these definitions extends to the improper use of information validly accessed.  (citations omitted.)”  Unlike the Ninth Circuit, however, which was willing to find that a CFAA violation could be established where an employee exceeded his authority under a company access policy, the Fourth Circuit ruling is even more restrictive than the Ninth Circuit’s view.  The Fourth Circuit “adopt[s] a narrow reading of the terms ‘without authorization’ and ‘exceeds authorized access’ and hold that they apply only when an individual accesses a computer without permission or obtains or alters information on a computer beyond that which he is authorized to access.”

Given that the CFAA has both criminal and civil liability the Fourth Circuit chose to strictly construe the language.  Even “under the Nosal panel’s approach, because [the employee] obtained information ‘in a manner’ that was not authorized (i.e., by downloading it to a personal computer), he nevertheless would be liable under the CFAA. See § 1030(a)(2)(C).  Believing that Congress did not clearly intend to criminalize such behavior, we decline to interpret ‘so’ as ‘in that manner.’”  The bottom line—the Fourth Circuit approach, “reject[s] an interpretation of the CFAA that imposes liability on employees who violate a use policy, choosing instead to limit such liability to individuals who access computers without authorization or who obtain or alter information beyond the bounds of their authorized access.”

While the lines of the split in Circuits has become more defined with WEC Carolina Energy Solutions LLC, predicting what the Supreme Court will do with that split is another story.  My money is on Judge Posner’s interpretation in International Airport Centers, partly because he is a brilliant jurist and I practice in the Seventh Circuit, but mostly because that is the interpretation that expands an employer’s arsenal of protections against cheating employees.  However, until the fat lady [U.S. Supreme Court] sings employers should continue to draft and implement a computer access and use policy for its employees that assumes that a well drafted policy violated by an employee can be enforced under the CFAA, so long as the employer can demonstrate $5,000 in damages to the employer resulted from the employee’s actions.

NLRB Chills At-Will Acknowledgements

By: Jerrold J. Wohlgemuth

Having warned employers about the legality of their social media policies under the National Labor Relations Act, NLRB Acting General Counsel Lafe Solomon has apparently turned his attention to at-will employment statements in employer handbooks and manuals.  Employers of union and non-union workforces need to pay careful attention to this development.

Many employers use standard language in their handbooks and manuals in which their employees acknowledge that their employment is at-will; that the employer may terminate the employment relationship at any time, for any reason; and that the at-will employment relationship cannot be amended, altered or modified except by a writing signed by a senior member of management.  The Acting General Counsel apparently believes that such at-will disclaimers may interfere with or chill the right of employees to engage in protected concerted activity.

In a case that did not receive extensive publicity, the General Counsel’s Office filed an unfair labor practice charge in February 2012 against Hyatt Hotels (NLRB v. Hyatt Hotels Corp., Case 28 CA-061114) in which it alleged that the at-will disclaimer in the company’s employee handbook violated Section 8(a)(1) of the Act to the extent it required employees to acknowledge that their at-will employment status could not be altered except by a writing signed by management.  The charge appears to reflect the Acting General Counsel’s belief that such an acknowledgement will have a chilling effect on the Section 7 right of employees to engage in concerted activity for the purpose of organizing to alter their employment relationship with the employer by choosing union representation.  The Hyatt case was settled before the issue was presented for a hearing.  An Administrative Law Judge issued a similar ruling in a case decided in early February against the American Red Cross; the case was resolved when the Red Cross agreed to modify its at-will disclaimer before the issue could be presented to the Board for review. (NLRB v. Am. Red Cross, 2012 WL 311334, Feb 1, 2012).

This is an important initiative on the part of the Acting General Counsel.  As we have seen in the social media context, in analyzing handbooks and policy manuals the Acting General Counsel will apply Section 7 broadly to find statements unlawful to the extent they could be interpreted in almost any fashion to chill employee rights to engage in protected concerted activity.  Accordingly, employers may want to take proactive steps to avoid NLRB scrutiny by including a disclaimer in the at-will sections of their handbooks to the effect that the at-will acknowledgment does not, and is not intended to, undermine or interfere with the employee’s right to engage in protected concerted organizing activity under Section 7 of the Act.

New Jersey’s Appellate Court Denies Employer’s Attempt to Dismiss Claims on Eve of Trial Based on Employee Agreement to Arbitrate

By: Lynne Anne Anderson and Jerrold Wohlgemuth

Can an employer litigate employment claims in court and then enforce an arbitration agreement against the plaintiff-employee on the eve of trial to avoid presenting the case to a jury?  The New Jersey Appellate Division just said, “No.”

Plaintiff Karen Cole was a nurse anesthetist employed by Liberty Anesthesia Associates, LLC to work at Jersey City Medical Center.  When her privileges were revoked by the Hospital, Liberty terminated her employment and she filed suit against both Liberty and the Hospital for retaliatory discharge under the New Jersey Conscientious Employee Protection Act (“CEPA”), and for discriminatory discharge based on her disability under the New Jersey Law Against Discrimination (“LAD”).

Cole settled her claims against the Hospital at the hearing on the Hospital’s motion for summary judgment.  Liberty did not settle with plaintiff at that time.  Instead, after defending the action for almost two years in litigation, Liberty moved to dismiss the claims against it one month later in a motion in limine filed three days before trial based on the arbitration agreement Cole had entered into in her employment agreement with Liberty.  The trial court enforced the arbitration agreement and dismissed the case on the eve of trial, and Cole appealed.

In a March 29, 2012 opinion, the New Jersey Appellate Division reversed and remanded the action for trial.  The court found that Liberty’s counsel had pursued the litigation – instead of seeking to enforce the arbitration agreement – as a deliberate trial strategy, and determined that Liberty was equitably estopped from enforcing the arbitration provision at the last minute before trial where it had failed to mention arbitration among the thirty-five affirmative defenses asserted in its Answer; failed to identify the arbitration agreement in discovery; and failed to raise the agreement in its motion for summary judgment on the merits.  The court observed that Liberty’s deliberate course of conduct was prejudicial to Cole where it had caused her not only to participate in extensive discovery, but also to prepare to try her case before a jury, which the court noted required a great deal more preparation than presenting a case in arbitration.

To read the published opinion in Cole click hereCole is reported at 425 N.J. Super 48 (App. Div. 2012).

Finding Employer’s Disclaimers Inadequate, New York High Court Rules For Employee Alleging Oral Bonus Promise

By: William R. Horwitz

The New York State Court of Appeals recently issued a decision highlighting the importance of including clear disclaimers in employee handbooks.  In Ryan v. Kellogg Partners Institutional Services, Plaintiff Daniel Ryan left an established securities firm to go to work for Defendant Kellogg Partners, a startup venture.  According to Ryan, Kellogg lured him with the oral promise of a $175,000 bonus.  When Kellogg failed to pay the bonus and then terminated his employment, Ryan filed a lawsuit asserting claims for failure to pay wages in violation of New York State Labor Law §§ 190-198 and breach of contract.

At trial, the jury returned a verdict in favor of Ryan.  With interest, attorneys’ fees and costs, the judgment totaled $379,956.65.  The Appellate Division, First Department, affirmed.

On appeal, Kellogg argued that statements in its employment application and employee handbook negated “Ryan’s alleged expectation of or entitlement to a guaranteed or non-discretionary bonus.”  The Court observed that the “Acknowledgments” section of the employment application merely confirmed that, if hired, Ryan would be employed on an at-will basis.  According to the Court, the at-will language was irrelevant because Ryan was not asserting an “alleged right to continued employment, compensation or benefits.”

The signed “Receipt” section of the employee handbook indicated that the handbook did not create “a promise of future benefits or a binding contract … for benefits or any other purpose.”  The Court explained that this language did not undermine Ryan’s claims, because the “handbook [did] not say that oral compensation agreements are unenforceable, or mention bonuses at all.”  Thus, the Court observed, “there are no statements in the handbook that bar Ryan’s recovery on his breach-of-contract and Labor Law claims for compensation alleged to be due and owing him.”  The Court of Appeals affirmed the judgment for Ryan.

At-will language in employment applications and employee handbooks is critical.  However, as the Ryan decision makes clear, employers should also be sure that policies state unequivocally that bonus decisions are left to the employer’s sole discretion.  Policies should also state that promises regarding bonuses and other terms and conditions of employment are valid only if made in a writing and signed by the employer.

How ICE Can Freeze Your Business Operations!

By: Pascal Benyamini

ICE, the U.S. Immigration and Customs Enforcement, was formed in 2003 “as part of the federal government’s response to the 9/11 attacks and its mission is to protect the security of the American people and homeland by vigilantly enforcing the nation’s immigration and customs laws.” With an annual budget of more than $5 billion and more than 19,000 employees in over 400 offices in the U.S. and around the world, ICE is the largest investigative agency in the United States Department of Homeland Security.  ICE may conduct raids or sweeps at a particular place of business. ICE can also send Notices of Inspections to employers to alert them that it will be inspecting their I-9s and hiring records to determine whether or not they are complying with employment eligibility verification laws and regulations.  ICE’s increased focus is on holding employers accountable for their hiring practices and their efforts to ensure a legal workforce.  ICE also seeks to ensure that employers are compliant with I-9 forms and hiring records.

In the event of audits or raids, employers’ non-compliance may result in civil penalties and lay the groundwork for criminal prosecution of employers who have knowingly violated the law.  According to ICE’s Assistant Secretary John Morton, “ICE is focused on finding and penalizing employers who believe they can unfairly get ahead by cultivating illegal workplaces.”  He added that ICE is “increasing criminal and civil enforcement of immigration-related employment laws and imposing smart, tough employer sanctions to even the playing field for employers who play by the rules.”

While the presence of illegal aliens at a business does not necessarily mean the employer is responsible, consulting with legal counsel is paramount to limiting your potential exposure in your hiring practices.