Safe Hiring Practices and Pre-employment Screening Presented for the HR Screener—2003

Safe Hiring Practicesand Pre-employment Screening Presented for the HR Screener—2003 Presented by Les Rosen, Attorney at Law and President, Employment Screening Resources (ESR),Novato, Ca. Phone: 888-999-4474 E-mail: lsr@ESRcheck.com http://www.ESRcheck.com

Employee problems caused by problem employees • Safe Hiring is aimed at helping employers decide who NOT to hire • Essential function that supplements the process of identifying, recruiting, attracting and retaining top performers • Human assets are typically the single largest line item in a company budget • Yet, most employees selected based upon subjective criteria and interviews--average hiring decision made in 4.6 minutes at interview • More time often spent on selecting a copier-yet a bad copier cannot put you out of business

Why be concerned about Safe Hiring?-- “Parade of Horribles” • Hiring criminals can create risk of workplace violence • Statistical certainty that a person with serious criminal record will be hired without safe hiring and screening-- 10% rate of criminal records among those screened • Per 1998 DOJ study, about two million violent incidents at work a year including 1,000 homicides, 600,000 assaults, 42,000 rapes/sexual assaults and 23,000 robberies • One in every 37 US Adults have been incarcerated at one time, and the recidivism rate is 67% within three years of release from prison • Past criminal conduct is frequent common denominator in episodes of violence or criminal conduct • Theft, Fraud and Embezzlement - cost $50 Billion

“Parade of Horribles” (2) • Fraudulent credentials: Up to 40% of resumes contain material lies or omissions about education, past jobs or qualifications • Businesses Week called it, “ResumeGate.” • Lawsuits: Negligent Hiring, Retention, Promotion or Supervision Wrongful termination • Brand destruction – “just one bad apple” • Stock devaluation (e.g. Veritas when discovered CFO faked MBA) • Lost customers and workplace disruption

Employee Turnover Cost • Average firm spends 36 percent of revenue on human capital expenditures • A 25% turnover rate can mean firm is spending 9% of revenues on turnover • Direct costs are separation costs (including possible litigation) and replacement costs • Indirect costs can be loss of productivity, knowledge, know how and disruption

Workplace Violence • Literally millions of incidents--Per 1998 DOJ, about two million violent incidents at work a year including 1,000 homicides, 600,000 assaults, 42,000 rapes/sexual assaults and 23,000 robberies • Even a threat of violence is very serious • American business looses over $55 BILLION dollars in lost wages as a result of missed worked days per US Dept. of Justice study (1994) • Past criminal conduct is common denominator in incidents of workplace violence

Employee turnover cost • Average firm spends 36 percent of revenue on human capital expenditures • A 25% turnover rate can mean firm is spending 9% of revenues on turnover • Direct costs are separation costs (including possible litigation) and replacement costs • Indirect costs can be loss of productivity, knowledge, know how and disruption

Embezzlement • Embezzlement can occur when there is opportunity+motivation+rationalization • Embezzlement is a crime of violating trust--criminal cannot get access to assets unless they gain your trust • The problem--embezzler can have same traits as best worker in order to accomplish crime • Pre-employment screening key solution • Background checks can discourage embezzler from applying and may uncover either criminal records or a negative reference (although some past employers may not give information)

Workplace Theft • Employee dishonesty costs over $50 BILLION annually (US Dept. of Commerce) • One-third of business failures are direct result of employee theft (US Chamber of Commerce) • Over 42% of inventory shrinkage is due to employee theft

Litigation Exposure • Every Employer has legal duty to exercise due diligence in hiring • An employer can be sued for negligence if they hire someone who they knew, or in the exercise of reasonable care should have known, was dangerous or unfit for the particular job. • Per recent California survey, employers lose 60 percent of negligent hiring cases with verdicts average about $3 million • Average settlement is $500,000 and attorney fees

Why Employers are at a Disadvantage in Litigation • Cases will normally have some sort of serious harm (death, assault, rape, sodomy, child molest, theft, embezzlement, Identity theft) • Employers have ability, duty and resources to prevent harm through due diligence • Jurors are often employees themselves • A jury uses the “reasonable person” standard • Unless employer has a compelling reason why injury not their fault, employers usually lose • Employers cannot claim too costly or difficult

Problem--Gut instinct Alone does not Work • Cannot detect potentially bad hire by detecting lies at interview • Studies show that even though people believe they can detect liars, only 50-50 chance at best • Per recent study, even trained law enforcement officers are only right about half the time • Body language, eyes, voice, etc are NOT reliable - applicant may be nervous while a liar tell the lie so often it comes across as true

The Catch 22--No National Criminal/Credentials Database • Problem: contrary to popular belief, there is no national database available to private employers to check criminal records or false credentials • Fingerprint checks from FBI only available when mandated by law (e.g. teachers/child care workers) • Primary method for obtaining criminal records is to physically look at each relevant courthouse! • Over 10,000 courthouses in America with court records in over 3200 jurisdictions • Although criminal searches are crucial for due diligence, they are subject to human error as well

Safe Hiring Program • The solution is a Safe Hiring Program • Series of policies, practices and procedures designed to minimize the probability of hiring a dangerous, questionable or unqualified candidate • Critical elements are the Application, Interview and Reference Checking process - costs employers nothing • Pre-employment screening discourages applicants with something to hide, encourages honesty, demonstrates due diligence and helps to hire based upon facts and not just instinct

Pre-employment Screening • Techniques used to tell employer who NOT to hire, as opposed to other techniques aimed at locating a candidate who is the best “fit’ and best qualified • Must be integrated in entire hiring process • Using a screening firm on a finalists is only one aspect of safe hiring • Safe hiring is a process, not an event

Goals of a Safe Hiring Program • Purpose is to mitigate the risk involved in the largest single line item of most firms • A safe hiring program helps employer to:1. Discourage applicants with something to hide 2. Encourage honest interviews 3. Demonstrates due diligence 4. Eliminate uncertainties

ROI on Screening • Per Small Business Administration, every dollar invested in screening can save $5 to $16 in reduced absenteeism, improved productivity and lower turnover • Value of preventing the “Parade of Horribles.” • Calculate ROI using turnover calculators

Not a probe into a person’s private life Not big brother or a sign of mistrust Not an in-depth FBI type report Looking for red flags or indicators Not a guarantee that every applicant with a significant problem will be identified, but a powerful tool used with resume review What It Is Not

The critical pre-hire process (9:30-10:10) • The Application, Interview and Reference checking process

The Catch 22--No National Criminal or Credentials Database • Problem: Even though safe hiring is a necessity, no easy tool. • Contrary to popular belief, there is no national database available to private employers for criminal records or credentials • The National Crime Information Center (NCIC) is restricted to law enforcement • Fingerprint checks only available when authorized by federal or state law (e.g. teachers, or child care workers) • Even the NCIC has a significant error rate and “hit” reports can be confusing

Must Search Each Relevant Courts • The primary method for obtaining criminal records is to physically go to each relevant courthouse and look!! • Over 10,000 courthouses in America with court records in over 3200 jurisdictions in two court systems--State and Federal • Some jurisdictions contain multiple municipal or justice courts • Errors possible if jurisdictions missed or mistake make by human researcher

The AIR Process • First line of defense is the AIR Process--Applications/Interview/References • Firms utilizing best practice in the AIR process have a low rate of criminal record hits • Safe Hiring is an integrated approach across the organization and the hiring process • Depending upon criminal record checks may not be due diligence since criminal records searches are imperfect and subject to human error

1. Application Process-Require Consent for Screening • Discourages applicant with something to hide • Encourages an honest applicant to disclose a previous problem--a mistake honestly admitted may have less impact • If employers uses a third party agency, need a separate standalone disclosure document per federal Fair Credit Reporting Act (FCRA) and California law

2. Applications are a Best Practice • Resumes often not complete or clear • To applicant, a resume is a marketing tool • Applications ensures uniformity • Also, requires applicant to 1. provide all necessary information and, 2. prevents employer having impermissible information

3. Question about Past Convictions • CRITICAL: Specifically ask if person has been convicted of a crime, or has pending charges • Use broadest legal language for both felonies and misdemeanors (but not overboard—do NOT ask about arrests or open ended “waffle questions” were applicant can argue did not lie) • Leaving out misdemeanors is a BIG mistake (although there are some limitations in California) • Conviction does not automatically bar applicant • REASON: Nationally, approximately 10% of job applicants have a relevant criminal record

4. Need Critical Language • Need statement that any fraudulent statement or material omissions grounds to terminate the process, or employment no matter when discovered • May also include other essential language (employment at will/arbitration/non-discrimination policies,etc) • Also ask for past addresses

5. Look for Red Flags on Applications • When there is a problem employee, there was usually a red flag on the application: • Applicant does not sign application • Applicant leaves criminal questions blank (the honest criminal syndrome) • Applicant self-reports offense • Applicant fails to explain why left past jobs • Applicant fails to list past supervisors or details of past employment • Excessive cross-outs and changes • Incomplete information • Applicant fails to explain employment gaps

6. Interview Process-the Five Questions • Away ask these five question (during housekeeping stage of interview)- • Since applicant signed a consent and believes you are doing checks, powerful incentive to be truthful

Five Questions • 1. We do background checks on everyone we make an offer to. Do you any concerns about that you would like to discuss? (Good applicants will shrug off) • 2. We also check for criminal convictions for all finalists. Any concerns about that (make sure question reflects what employer may legally ask in your state) • 3. We contact all past employers. What do think they will say? • 4. Will past employer tell us that e.g. you were tardy, did not perform well etc. • 5. Use interview to ask questions about any unexplained employment gaps

Training Video (10:10-10:30) • Safe Hiring Video

The Legal Aspects of safe hiring (10:45-11:15) • The Fair Credit Reporting Act (FCRA) • Effect of state FCRA laws • EEOC and Discrimination law • Invasion of Privacy • Defamation

Purpose of FCRA • First passed in 1970 primarily to address issues involving credit • Purpose to promote confidentiality (privacy), accuracy and relevancy of information • Substantially amended in 1996 (effective 9/30/1997) • Regulates the activities of: 1 Consumer Reporting Agencies (CRA's); 2. users of consumer information (i.e. employers); 3. furnishers of consumer information, and 4. gives rights to consumers affected by reports on them • Fundamentality FCRA controls information about consumers by regulating information that certain third parties assemble and evaluate and then disseminate • Not limited to just Credit Reports-includes all sorts of information bearing on a consumer including public records

Sources of Information • Text FTC: http://www.ftc.gov/os/statutes/fcra.htm • FTC Web site (with prescribed notice to consumers, users and furnishers); http://www.ftc.gov/os/statutes/fcrajump.htm • FTC Staff Letters-Advisory (not the force or effect of law) • Older commentaries, informal letters opinions and Congressional record • 2003-FTC has opened up FCRA for comments • General: www.ESRcheck.com • Special California rules: http://www.esrcheck.com/web/articles/AB655-California.html

The FCRA in Four Easy Steps • 1. Employer must certify will follow the law (not discriminate, use for employment only) • 2. Obtain written release and standalone disclosure • 3. Adverse Action letters: Pre-adverse action-copy of report and statement of rights so applicant can object if information inaccurate or incomplete. Entitled to post –adverse action letter if decision is final • 4. Beware of special state rules • See Special Report in Materials on Complying with the FCRA in Four Easy Steps

Employer Certifications • Prior to providing a consumer report or investigative consumer report for employment purposes, employer must first certify to the CRA in writing that it will follow the FCRA rules concerning disclosure/authorization/notice and adverse action notices, and not use information in violation of any state/federal discrimination law • CRA will typically provide such a form • New screening industry association is forming that may eventually standardize the employer certification language

Disclosure and Authorization Issues • Excess verbiage rule-can combine disclosure/authorization BUT cannot put excessive language on form that detracts from clear meaning • Waiver rule-Per FTC letter (Hauxwell) cannot make consumer waive rights under FCRA (some firms use a waiver to the extent permitted by law) • Date of birth issue on forms • Screening firms use many different forms-new association may suggest standard form • “One-time” Disclosure/Authorization good for future screening with limits

Investigative Consumer Report • Per section 606(a) & (b), special disclosure rules • Applies if a screening firm goes beyond asking for FACTS and request OPINIONS • 606(a)-Employer must disclose that an ICR may be obtained and consumer has right to additional disclosures and a copy of a Statement of Rights • Must be mailed or delivered not less then 3 days after report requested (usually part of the form provided to new employees at beginning of process)

Investigative Consumer report (2) • Per Section 606(b), upon written request of consumer, employer must make a complete and accurate disclosure of the nature and scope of the investigation no later then five days from request • Per Hauxwell letter, because of the ambiguity of the section, an employer could either provide the Sec. 606(a) “Summary of Rights” at the outset, or wait until an applicant’s 606(b) request • As practical matter, in pre-employment situation, this is handled in the forms provided by the CRA

State Laws: California Trends • At least 20 states have consumer laws that are arguably broader than the Federal FCRA • CA first state to apply FCRA type rules on employers who obtain public record themselves (AB 655 in 2002) • Law passed in response to Lewis case out of Ohio, where FCRA loophole allowed employer that obtained information directly to “blackball” applicant without notification • Required employers to turn over all information to consumer in order to close loophole where FCRA does not apply to private employers • Amended September 2002 with AB 1068 and AB 2868

Privacy/Defamation • Employer can be sued for invasion of privacy if screening invades a zone of privacy without justification and/or employer utilizes overly intrusive tools • Balancing issue-weighing the consumer's privacy interest against employer’s legitimate needs and the technique used • Recommendation: Follow FCRA procedures (content, notice) even if performed in-house • FCRA is the Gold Standard for Privacy • Can also be sued for intentional/ negligent infliction of emotional distress and defamation

EEOC and State rules • EEOC prohibits inquires that discriminate on the basis of a protected classified and not a validly related to job performance or a bona fide occupational qualifications (BFOQ) • Cannot discriminate on basis of age, sex, religion, national origins, race, etc • See Chart on acceptable and unacceptable questions • Many states have their own laws • Americans with Disability Act (ADA) –ability to perform essential job function with or without reasonable accommodation (the current use of legal drugs is NOT a medical condition)

Legal Questions • Cannot screen or seek anything could not ask in interview • Follow the Fair Employment Guidelines in your state • Cannot unduly invade privacy • Treating candidates the same-may want to consider standard form or structured interview so that all candidates have the same questions asked

Guidelines for employment inquiries • Is it job related (e.g. a valid predictor of job performance)? • Does it discriminate against a protected groups (sex, age, marital status, race, physical impairment, etc)? • Does it indirectly discriminate? • Does it violate a statutory (substantive) right? (e.g. no arrest data) • Does it violate a procedural right? (e/.g. FCRA)

Verifying Past Employment (11:15-12:15) • Critical to verify employment to determine where a person has been (even if you only get dates and job title) • Looking for unexplainedgaps AND for locations to search for criminal records • If can verify person gainfully employed last five-ten years, less likely spent time in custody for serious offense • Just attempting and documenting effort demonstrates due diligence • Can also verify education/credentials

Past Employment Issues • All employers want references, but few will give them due to fear of being sued for DEFAMATION • Good applicants are often unable to get the recommendations they deserve • Problem applicants move on to unsuspecting employers with their past behind them

Difference Between Verification and Reference • Verification refers to Factualmatters, such as start and stop dates, job title and possibly salary • Reference checking refers to job performance--Qualitative matters

Why Need Verification • Demonstrate accuracy of resume • Even if former employer will only verify basic data, attempting to obtain a reference Demonstrates Due Diligence • Looking for Employment Gaps

Why Need References • Information v. Instinct • Past can be Prologue--unlikely that an employee will perform better for you than a previous employer • Protects important financial investment • Promotes better fit • Legal protection against negligent hiring

Legal Protection • Many states have laws that protect employers • Employers given some degree of legal protection from defamation if • 1. Other employer initiates contact • 2. Information job related • 3. Good faith belief truthful

Is an Employer Really Protected? • Many labor lawyers argue that the risk of defamation lawsuit still outweighs benefits in giving reference • No legal duty to give reference information or even verification • No clear definition of what “truthful” or “job related” means

Safe Hiring Practices and Pre-employment Screening Presented for the HR Screener—2003