Background Screening

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On June 11, St. Louis County officials signed an executive order, effective immediately, that would “ban the box” and ensure that St. Louis County will no longer ask job applicants for criminal histories in their initial employment applications.  Other jurisdictions in Missouri with ban-the-box laws include Jackson County, Columbia, and Kansas City.

“A parolee’s failure to find full-time employment becomes, quite frankly, a serious public safety issue for every county resident,” St. Louis County Executive Steve Stenger told the St. Louis Post-Dispatch. “Without a decent job, ex-prisoners are far more likely to struggle with substance abuse. And they are far more likely to engage in criminal activity.”

The executive order provides that “employment decisions will not be based on the criminal history of a job applicant unless demonstrably job-related and consistent with business necessity, or unless state or federal law prohibits hiring an applicant with certain convictions for a particular position.”

Currently, more than 150 cities and counties nationwide as well as 32 states have passed ban-the-box legislation that delays questions about criminal records of job applicants until later in the hiring process. Eleven of those states have required the removal of criminal history questions from job applications for private employers.

Troutman Sanders will continue to monitor related legislative developments concerning employment background screening and employee hiring.

On May 31, the Fourth Circuit Court of Appeals affirmed a $150,000 sanctions award against three consumer attorneys and their law firms for bad faith conduct and misrepresentations.

The opinion reads like a detective story and lays out, in the Court’s own words, “a mosaic of half-truths, inconsistencies, mischaracterizations, exaggerations, omissions, evasions, and failures to correct known misimpressions created by [consumer attorneys’] own conduct that, in their totality, evince lack of candor to the court and disrespect for the judicial process.”

The litigation arose from a payday loan that plaintiff James Dillon obtained from online lender Western Sky.  Later, Dillon engaged attorneys Stephen Six and Austin Moore of Stueve Siegel Hanson LLP and Darren Kaplan of Kaplan Law Firm, PC who filed a putative class action against several non-lender banks that processed loan-related transactions through the Automatic Clearing House network.  Defendant Generations Community Federal Credit Union promptly moved to dismiss Dillon’s lawsuit on the basis of the loan agreement’s arbitration clause.  In response, Dillon challenged authenticity of the loan agreement and a two-year-long dispute ensued during which the district court refused to send the case to arbitration based on Dillon’s authenticity challenge; Generations appealed the district court’s decision; and the Fourth Circuit vacated it and remanded the case for further proceedings on the arbitration issue.  Significantly, when questioned by both the district court and the Fourth Circuit, Six maintained authenticity challenge and represented that he had drafted the complaint without the loan agreement and that Dillon’s claims do not rely on the loan agreement.

Six’s representations regarding the contents of the complaint were problematic given the complaint specifically referenced the loan agreement and its terms.  Evidence uncovered during arbitration-related discovery showed that Dillon possessed the loan agreement all along and, crucially, that he supplied his counsel with a copy of the agreement a week before the complaint was filed.  The latter piece of evidence was discovered only as a result of forensic examination of Dillon’s computer.  Once this evidence came to light, Dillon responded to Generations’ requests for admissions that the loan agreement was authentic.

Generations moved for sanctions against Dillon’s attorneys.  Instead of admitting their wrongdoing, Kaplan argued that there was never any challenge to authenticity, and Six argued that he still doubted authenticity even though he signed Dillon’s admissions that the loan agreement was authentic.  Invoking its inherent authority to punish bad faith behavior, the district court sanctioned Six, Kaplan, and their law firms jointly, ordering them to pay the defendants $150,000 in attorneys’ fees.  Moore was held liable jointly for only $100,000 of the total amount due to his lesser role in the bad-faith conduct.  The lawyers appealed.

The Fourth Circuit summarily rejected their arguments that neither the rules of ethics nor the Federal Rules of Civil Procedure required them to disclose the copy of the loan agreement before discovery commenced.  “These arguments miss the point.  Counsel are not being sanctioned for their failure to disclose the Dillon copy of the Western Sky loan agreement.  Rather, counsel are being sanctioned for raising objections in bad faith—simultaneously questioning (and encouraging the district court to question) the authenticity of a loan agreement without disclosing that the Plaintiff provided them a copy of that loan agreement before the complaint was filed.”

Discovery in consumer litigation is often asymmetrical and focuses on defendants’ obligations.  This opinion is a good reminder that the rules apply to plaintiffs too and that the courts will not condone a “crusade to suppress the truth to gain a tactical advantage.”

On Wednesday, May 23, from 3 – 4 pm ET, Troutman Sanders attorneys, Alan Wingfield, Wendy Sugg, and Meagan Mihalko presented a webinar discussing employment-purpose background screening laws. The federal Fair Credit Reporting Act imposes technical paperwork requirements on employers desiring to obtain background screenings, and many millions of dollars have been paid in individual and class actions based on alleged failures to comply. State analog laws to the FCRA impose their own procedural requirements. State and local “ban the box” laws regulate when and how an employer can request and use background reports on potential hires. The federal Equal Employment Opportunity Act has been used by regulators to attack employer screening policies that allegedly have a discriminatory effect against protected groups. Some states and localities regulate the type of background information, particularly criminal history, that can be collected and used. Meanwhile, tort law remains ready to impose large damages on an employer who is found, after the fact, to have not conducted an adequate background check on employees. Rather than digging deeply into a single legal aspect of background screening, this webinar is designed to give a holistic overview of the entire legal landscape affecting employment-purpose background screening. Companies and professionals who are charged with developing effective compliance strategies for their background screening activities need to have the entire legal context in mind, and our webinar is designed to survey that context and provide guidance for compliance.

To access the recording, click here.

 

On Wednesday, May 23, from 3 – 4 pm ET, Troutman Sanders attorneys, Alan Wingfield, Wendy Sugg, and Meagan Mihalko will present a webinar discussing employment-purpose background screening laws. The federal Fair Credit Reporting Act imposes technical paperwork requirements on employers desiring to obtain background screenings, and many millions of dollars have been paid in individual and class actions based on alleged failures to comply. State analog laws to the FCRA impose their own procedural requirements. State and local “ban the box” laws regulate when and how an employer can request and use background reports on potential hires. The federal Equal Employment Opportunity Act has been used by regulators to attack employer screening policies that allegedly have a discriminatory effect against protected groups. Some states and localities regulate the type of background information, particularly criminal history, that can be collected and used. Meanwhile, tort law remains ready to impose large damages on an employer who is found, after the fact, to have not conducted an adequate background check on employees. Rather than digging deeply into a single legal aspect of background screening, this webinar is designed to give a holistic overview of the entire legal landscape affecting employment-purpose background screening. Companies and professionals who are charged with developing effective compliance strategies for their background screening activities need to have the entire legal context in mind, and our webinar is designed to survey that context and provide guidance for compliance.

One hour of CLE credit is pending.

To register, click here.

On May 2, Kansas Governor Jeff Colyer signed a “ban the box” order applicable to state government positions but not private businesses or state contractors.  Kansas agencies will no longer ask job applicants whether they have a criminal record during the initial application process. The state legislators argued that asking about criminal records on applications unfairly stigmatized individuals with records years – even decades – after their convictions and made it more difficult for individuals released from prison to be employed.

Applicants may still be asked about criminal history later in the hiring process, and applications for jobs where individuals with felonies are specifically prohibited from working will also continue inquiring about the applicant’s criminal history.

“It provides applicants with the opportunity to explain their unique facts and circumstances and what has happened to them and how their lives have changed,” Colyer said.  Colyer indicated that he was in favor of expanding the “ban the box” law to private businesses, but enactment would be up to the Kansas legislature.

Currently, Kansas has no “ban the box” law, unlike thirty-one other states.  Eleven of those states have required the removal of criminal history questions from job applications for private employers, and more than 150 cities and counties in the United States have a “ban the box” ordinance.

Troutman Sanders will continue to monitor related legislative developments concerning employment background screening and employee hiring.

On May 1, the city council of Wilmington, North Carolina unanimously approved a new “ban the box” ordinance for city employees.  The ordinance mandates that candidates for employment will not be asked about their criminal history nor have a criminal background check conducted until a decision has been made to offer the candidate employment. According to Wilmington officials, the new ordinance will ensure people with criminal arrest or conviction records will not be unduly denied employment or discouraged from being employed by the city.

The ordinance also enacted seven-year lookback periods on misdemeanor assault, all sexual offenses, homicide, and financial crimes as automatic disqualifiers.  It also added language allowing applicants to provide evidence of mitigation of any misdemeanor or felony (other than sexual) that has been fully disposed of for more than seven years to proceed in the application process.

Wilmington is now one of more than 150 cities and counties in the United States to enact a “ban the box” ordinance.

Troutman Sanders will continue to monitor related legislative developments concerning employment background screening and employee hiring.

In a first-of-its-kind ruling, a federal judge in the Eastern District of Pennsylvania held that Philadelphia’s ban on questioning job applicants about their salary history violates the First Amendment’s freedom of speech clause.  However, the judge ruled the city could stop employers from using salary history to determine pay.

The City of Philadelphia (the “City”) enacted an ordinance targeting wage inequality that put women and minorities at a disadvantage.  The ordinance was signed into law on January 23, 2017 and was to take effect on May 23, 2017.  The ordinance contained two parts: an inquiry provision which prohibited an employer from asking about a prospective employee’s wage history, and a reliance provision which makes it illegal for an employer to rely on wage history to determine an employee’s pay.  In enacting the ordinance, the City claimed that allowing employers to formulate job offers based on historically lower salaries for women and minorities perpetuated the wage gap.

The Chamber of Commerce for Greater Philadelphia filed suit on behalf of itself and several of its members, arguing that both provisions of the ordinance violated the First Amendment’s free speech clause.  The Chamber sought a preliminary injunction to stop the ordinance from going into effect, which had already been delayed pending the lawsuit.

District Judge Mitchell S. Goldberg conducted a thorough constitutional analysis of each provision, tackling the inquiry provision first.  He initially determined the ordinance targeted commercial speech because “a wage history inquiry occurs in the context of negotiating a job.”  Next, he addressed what level of scrutiny to apply.  Because the ordinance could not pass muster under intermediate scrutiny, the Court did not need to determine whether strict scrutiny should apply instead of intermediate scrutiny.  The application of intermediate scrutiny turned on the determination of whether the ordinance advanced promoting wage equity, the governmental interest asserted.  Although promoting wage equity was not in dispute, the parties disputed the ordinance’s ability to advance that interest.

To pass constitutional muster, the City would need to show that the inquisition into wage histories perpetuated the wage gap and that the ordinance could close the wage gap.  However, the evidence presented by the City chiefly served to drive home the existence of the wage gap (not its cause), followed by conjecture that a ban on asking about salary history would diminish the wage gap.  It offered no empirical evidence to back up its claim, nor did its evidence “address the possibility that disparate wages could also be based on factors having nothing to do with discrimination.”  In its role of determining “whether the legislature had drawn reasonable inferences based on substantial evidence,” the Court found the evidence insubstantial.

Because the City could not show that prohibiting employers from asking about salary history would help alleviate the wage gap, it ran afoul of the First Amendment.  Therefore, the court struck down the provision.

Unlike the inquiry provision, the reliance provision was not subject to First Amendment scrutiny because it did not “implicate the spoken or written word.”  The Court rejected the Chamber’s argument that relying on an applicant’s wage history to determine their wage communicates that applicant’s value, bringing it under the umbrella of the First Amendment.  Likewise, the Court rejected the Chamber’s other constitutional challenges based on vagueness, due process, and the Commerce Clause.

Although the court struck down the ban on questions about an applicant’s salary history, employers in Philadelphia should tread lightly regarding applicants’ salary histories.  The law still prohibits relying on salary history, and an employer who asks about salary history may have a difficult time unhearing the answer and opens itself up to claims that it relied on that answer.

Since Philadelphia passed its salary history ban, other cities and states have followed suit.  New York City and San Francisco and the states of California, Delaware, Massachusetts, and Oregon are among those banning employers from inquiring into past wages.  Judge Goldberg’s opinion could set the stage for additional challenges to these bans throughout the nation.

The case is The Chamber of Commerce for Greater Philadelphia v. City of Philadelphia, et al., No. 17-cv-1548 in the Eastern District of Pennsylvania.  A copy of the opinion can be found here.

Troutman Sanders will continue to monitor developments in salary history bans.

A district court in Ohio dismissed a plaintiff’s claims under the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq., because he could not show that the report caused him an injury or that the background screening company failed to maintain reasonable procedures to ensure accuracy.

Plaintiff Thomas Black brought a putative class action against General Information Solutions (“GIS”) under the FCRA arising out of a background check in conjunction with an employment application. The employer hired GIS to perform a background check on Black, and GIS assigned this task to one of its vendors. The vendor, and subsequently GIS, reported a felony robbery conviction. However, the robbery charge had not resulted in a conviction and had been dismissed.

Black originally faxed his dispute to the wrong number, so GIS never received it. When Black sent the dispute to the correct number, GIS immediately conducted an investigation and only seven days later deleted his entry and issued a corrected report. The employer was still filling positions and requested references from Black. However, Black never provided the verifiable references. The employer provided testimony that Black would have been considered if he had provided the references.

In considering GIS’ motion for summary judgment, the Court raised the issue of standing sua sponte. Because Black missed out on a job opportunity based on his own failure to provide the requested references, the Court found that it was “apparent that Mr. Black has provided no evidence to show that he suffered any such harm as a result of GIS’ alleged violation of the FCRA.” With no injury resulting from the report, he did not have standing to bring a suit. This lack of injury also prevented him from proving all of the elements of his claim under § 1681e(b), since a plaintiff must prove that a report caused an injury in order for them to recover.

Importantly, the Court also determined that GIS was not liable for a willful violation under §1681e(b), despite an inaccurate report, because it had “very effective procedures in place to ensure the accuracy of the consumer reports.” Specifically, the Court looked at GIS’ and the vendor’s “remarkably low” dispute rates, the responsiveness to the dispute, and the lack of evidence of similar disputes. Moreover, GIS trained its employees on FCRA compliance and assessed the quality of its reports. Although the vendor’s researcher failed to follow the procedures in this instance, the “failure of one individual investigator to follow the established procedures . . . is not sufficient to create liability against the background check company.”

This decision shows the importance for employers to maintain proper hiring procedures. Creating and implementing effective procedures can allow for a company to escape liability even if an individual employee fails to follow those procedures. It also highlights the Sixth Circuit’s standard requiring plaintiffs to suffer a real injury if they want to bring suit in federal court.

Cindy Hanson of Troutman Sanders LLP represented GIS in its successful defense of this case.  The case is Black v. General Info. Sols., LLC, Case No. 1:15-cv-1731 in the Northern District of Ohio. The Court’s opinion can be found here.

A plaintiff’s putative class action suit in the Southern District of Ohio under the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq., has been thrown out because she could not show that the employer’s initial assessment or grading of her eligibility for the position was an adverse action.

On June 2, 2014, plaintiff Deloris Reid applied for a job with grocery retailer Kroger. Reid disclosed that she had been convicted of a misdemeanor assault a year earlier. She then interviewed with the store’s Administrative Assistant, Nancy Austin, who contacted Reid several days later and offered her a position contingent on her passing a background check.

Kroger utilized General Information Solutions, Inc. (“GIS”) to provide background checks and to assign “preliminary grades” based on a matrix provided by Kroger. Kroger maintained the ability to review the preliminary grades before making a decision on whether to hire an applicant.

About three weeks after Reid submitted her application, GIS returned the background check, which indicated that Reid had previously been convicted of felony assault on June 11, 2013. Kroger reviewed Reid’s background report and confirmed GIS’ initial grade of “Not Clear for Hire,” triggering GIS to send a pre-adverse action letter.

Reid disputed her report with her contact at the store, Austin, who claimed she could not help her. Reid then disputed the report directly with GIS. GIS investigated the matter and determined that the charges had been reduced to a misdemeanor, and provided a corrected report to Kroger. However, Reid was still ineligible for hire based on the temporal proximity of her misdemeanor assault conviction, and GIS sent a final adverse action notice.

In her suit, Reid claimed that Kroger violated the FCRA by taking an adverse action without providing her with a copy of her initial background check and description of her FCRA rights. Reid based this on the claim that her initial grade was in fact an adverse action because her offer of employment was effectively revoked.

The Court rejected this argument, finding instead that the grade was only preliminary, relying on the fact that Kroger’s preliminary grade was subject to change. In rejecting Reid’s claim that the dispute process was “illusory,” the Court found that the evidence showed that Reid remained under consideration for employment pending the resolution of her dispute. Moreover, Reid remained ineligible for hire even after she successfully disputed the information in her background report.

Additionally, the Court gave little credence to Reid’s argument that the employee at the store telling her she could not help her demonstrated the illusory nature of the dispute process. “The FCRA does not require users of consumer reports, like Kroger, to make individual employees, like Ms. Austin, available to assist applicants, like Ms. Reid, with their disputes,” the Court reasoned. Such a requirement goes beyond the obligations imposed by the FCRA.

Plaintiffs’ attorneys have been advancing this theory that any negative grading constitutes an adverse action. However, this Court showed that it is not willing to accept such a theory. To avoid liability on such claims, however, employers need to show that the dispute process is meaningful. Kroger prevailed on summary judgment because it could show that Reid’s job remained available through the dispute process.

A copy of the court’s opinion can be found here.

On April 3, both the City and County of San Francisco amended the Fair Chance Ordinance (“FCO”) – their existing ban-the-box law – to align it with the new, corollary California law (AB 1008) that took effect on January 1, 2018. San Francisco’s new amendments take effect on October 1, 2018.

The amendments to the existing FCO include:

  • Removing the restriction that employers, housing providers, contractors, and subcontractors may inquire about, require disclosure of, and base housing and employment decisions on convictions for decriminalized behavior that are seven years old or less. There is no seven-year limitation in the amended FCO.
  • The FCO will now apply to employers that employ five or more persons (previously it was 20 or more).
  • A first violation can result in a penalty of up to $500, whereas previously none was assessed.
  • A second violation can result in a penalty of up to $1,000 (previously up to $50). Subsequent violations can result in penalties of up to $2,000 (previously up to $100).
  • If multiple people are impacted by the same procedural violation at the same time, the violation would be treated as one violation for each impacted person (previously treated as a single violation rather than multiple violations).
  • Penalties must be paid to the person impacted by the violation, not the City/County of San Francisco.
  • The right to sue is no longer limited to the City Attorney. Any employee or applicant whose rights have been violated can sue.
  • Employers are now prohibited from inquiring about, requesting disclosure of, or utilizing a person’s conviction history until after a conditional offer of employment has been made (the previous measure limited inquiry until after either a live interview or conditional offer).

Troutman Sanders will continue to monitor related legislative developments concerning employment background screening and employee hiring.