Establishing the Employment Relationship: A Legal Perspective on Important Do’s and Don’ts

1. Establishing the Employment Relationship: A Legal Perspective on Important Do’s and Don’ts September 19, 2006 Robert M. Shea Morse, Barnes-Brown & Pendleton, P.C. (c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

2. Focus on trends/issues in three areas: • Background Checks • Offer Letters • Non-Compete Agreements (c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

3. Background Checks • Percentage of employers conducting background checks rising steadily Survey of Boston-Area Businesses (by The Survey Group) • Approximately 80% of employees have formal policies • Up 15% in two years CORI requests have increased from 400,000 (annually) in 1998 to 1.5 million in 2004 Business of doing background checks is now a multi- billion dollar industry (c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

4. Why are background checks increasing? • Bad hire decisions are costly • Employee turnover • Recruitment costs • Wasted management time • Loss of productivity • Employee theft • Employment-related litigation (c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

5. Claims by other employees • Harassment • Assault • “Negligent hire” • Safety issues • Workplace violence • Terrorism (c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

6. What types of background checks are being conducted? • Criminal background checks • Sex offender checks • Social Security traces • Driving record • Credit report • Employment verification (c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

7. What types of background checks are • being conducted? • Education verification • Business reference verification • Personal reference verification • License, credential and certification verification • Military record (c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

8. What are employers legal obligations? • Anti-discrimination law – Don’t make inquiries, directly or indirectly, “the response to which would likely disclose the applicant’s protected class status” • Protected classes – race, color, religious creed, national origin, sex, sexual orientation, age, ancestry, or disability • MA Law also prohibits inquiries regarding workers’ compensation histories and certain types of criminal records (c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

9. Fair Credit Reporting Act (“FCRA”) • Designed to ensure accuracy and protect privacy of consumer report information • “Consumer report” – any communication containing information about a person’s personal or credit characteristics, character, reputation and/or lifestyle that is generated by a consumer reporting agency • “Consumer reporting agency” – a business that assembles such reports for other businesses. Generally, any 3rd party that performs background checks for ERs is a consumer reporting agency (c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

10. FCRA Requirements • Disclosure and consent • Provide required documents prior to any adverse action • Notice after adverse action • Disposal of consumer report information (c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

11. FCRA only applies to consumer reports obtained from 3rd parties • FCRA does not apply to background checks performed by “in-house” personnel • Issue – use of internet search firms. Does FCRA apply? (c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

12. Criminal Offenders Record Information (“CORI”) • CORI requests have risen dramatically • CORI includes arrests and other non-conviction records starting at age 18 • Last year, in response to concern over broadened use of CORI, new rules impose “FCRA-like” obligations when using CORI (c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

13. New CORI Requirements • Adopt a written CORI policy • Notify applicant/employee that adverse action may be based on CORI report • Provide copies of CORI report and employer’s policy to applicant/employee • Provide a copy of CHSB’s informational summary to applicant/employee • Provide an opportunity to challenge accuracy and relevance of CORI report (c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

14. Offer Letters Why important? • Establish expectations – nature/term of employment, position, duties and compensation. • View as an enforceable contract • Provide important protections to employers (c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

15. Elements of a good offer letter • Definition of position and reporting structure • Duty of loyalty / anti-moonlighting • Compensation • At-will statement • Severance, if applicable • Any requirements of non-compete, other restrictive covenants (c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

16. Representation that employment does not conflict with current/prior employment • Conditions • IRCA • Background check • Entire understanding • Expiration of offer (c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

17. Noncompetition Agreements Enforceable?Yes, when: • Necessary to protect ER’s legitimate business interests • Reasonable in time and scope • Consistent with public interest • Supported by consideration (c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

18. What business interests are protectable? • ER’s relationships with customers (“good will”) • Trade secrets and other confidential business information ERs cannot prevent ordinary competition (c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

19. ERs should take a well-considered and consistent approach Ask: Will this EE control customer relationships and/or have access to confidential business information? Will EE be in a position to harm ER’s business if leaves and use good will or confidential information? Is non-compete necessary? Or would non-solicitation and/or nondisclosure restrictions be sufficient? (c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

20. Scope of restrictions must be reasonable • Duration • Geographical (c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

21. Issues • Dilution / inconsistent enforcement • Restriction imposed “post-hire” • Is continued employment adequate consideration? • Effect of changes in position (e.g., promotion) • Assignment • Forum selection • Attorneys’ fees (c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

22. Questions?? (c) 2006 Morse, Barnes-Brown & Pendleton, P.C.