Reference checking: What issues should our company consider?
Employers seem to be schizophrenic when it comes to references. On the one hand, employers seek references voraciously to avoid hiring mistakes and negligent hiring claims. On the other hand, when it comes to giving references, many companies adopt a “name, rank and serial number only” policy to avoid defamation and negligent misrepresentation claims. Even with a signed authorization from an applicant, most companies will not release information beyond dates of employment, job title and salary. In a 1995 survey by the Society for Human Resource Management, it was found that 63% of HR managers refused to provide information about former employees for a fear of defamation suits. And this situation persists despite the fact that in recent years, 25 states have adopted laws providing employers protection against defamation suits for providing truthful information.

This paper discusses the relevant legal issues in order to allow you to adopt a policy that fits your business risks and profile.

The recently amended federal Fair Credit Reporting Act §610(e) provides protection for employers giving references:

“no consumer may bring any action or proceeding in the nature of defamation, invasion of privacy, or negligence with respect to the reporting of information against any consumer reporting agency, any user of information, or any person who furnishes information to a consumer reporting agency …except as to false information furnished with malice or willful intent to injure such consumer.”

Recommendations for employers regarding references:

1. Adopt a written policy for what information is to be provided.
2. Appoint a specific (and well-trained) employee(s) to respond to requests for references. Ensure that all others in the organization forward all requests to this person(s).
3. Only provide references when requested.
4. Do not give any false or misleading information about a former employee.
5. Do not misrepresent or conceal information that clearly makes someone unsuitable for the position in question.


How are criminal records searched?
Contrary to popular opinion, there is no nationwide database of criminal records that is accessible to the public. The FBI maintains the National Crime Information Center (NCIC) database. Only law enforcement and specific industries have access to this information and it is strictly illegal for others to access this database. In addition, the database requires fingerprints, can take several months to receive results and is believed to contain less than half of all criminal records.

Criminal vs. arrest records: Before discussing how criminal records are accessed, it is necessary to make a distinction between criminal records and arrest records. Crimescreen seeks criminal records for two reasons. First, criminal records are maintained by courts, as opposed to police and sheriff departments, and are therefore filed (typically) on a countywide basis. Arrest records oftentimes just cover police jurisdictions that are only a subset of a countywide search. Second, arrest records do not always result in convictions.

County criminal search: Crimescreen can perform three types of criminal record searches. The most common search is the county-level search. We search both municipal and superior courts to retrieve misdemeanor and felony convictions within an individual county. These searches typically require an in-person visit to one or more courthouses in a county.

Federal criminal search: The third type of criminal search is the Federal search performed at any of the 91 Federal Districts. Federal searches reveal violations of federal law such as bank robbery, kidnapping, interstate drug trafficking and insider trading. Federal searches are typically used for higher-level candidates.

Statewide criminal search: The second type of search is the statewide search. Statewide repositories are available to access misdemeanors and felonies in most states. (California is not one of these states.) Statewide repositories have serious limitations. Although a generalization, most repositories are out of date, require fingerprints, return results in weeks or months, do not contain all criminal records or will not release all criminal records. Nonetheless, the benefit of statewide breadth, as opposed to just a county, may outweigh the drawbacks.


What is negligent hiring?
Negligent Hiring 101: Do Your Homework - or Else

Negligent hiring suits can result in multi-million dollar awards. One lawsuit alone can cost more than a lifetime of background checks, and the benefits of background checks extend far beyond simply avoiding negligent hiring suits. The case below (Doe v. Garcia, No. 23608, 1998 Ida.LEXIS 39 (Id.Sup.Ct. March 20, 1998)) illustrates how a Crimescreen background check would have saved a hospital from a negligent hiring suit.

In 1987, Alphonsus Regional Medical Center (a hospital) hired Fred Garcia. The hiring decision was based upon (i) a personal interview, (ii) his employment application, and (iii) contacting one of his previous employers. Once on the job, Garcia sought treatment via the hospital’s Employee Assistance Program (EAP) due to his preoccupation with sex. During a therapy session, Garcia told his counselor he had been fired from his previous job for sexually molesting a patient. The EAP never disclosed this to the hospital.

While working at the hospital, Garcia approached and befriended a juvenile patient. After the boy’s stay at the hospital and Garcia’s termination from the hospital, (Garcia was terminated for encouraging the underage drinking of some other employees) Garcia sexually molested the boy.

The patient sued the hospital for negligent hiring and supervision. The lower court ruled in favor of the hospital, but the Idaho Supreme Court overturned the judgment. In addition to the Supreme Court’s ruling that the EAP should have notified the hospital, it also ruled on a negligent hiring basis.

The Court said that although Garcia’s previous employer had followed a policy of giving out only dates of employment and job title, the hospital should have requested further information. The court reasoned that if the hospital knew that Garcia had been terminated from his previous employer for sexual molestation, they would have reasonably foreseen the risk of Garcia repeating his actions. Therefore, it was the hospital’s duty to ask more questions.

Most negligent hiring cases involve employers who have failed to check criminal records. In Foster v. The Loft, 526 N.E. 2d 1309 (Mass. 1988) Foster sued a bar called "The Loft" for negligent hiring (and retention) after one of its employees, a bartender, allegedly assaulted him. The employee had been hired for a job in a customer service position that required frequent contact with members of the public. The court found that the employer had a duty to exercise reasonable care in selection and retention of its employees. The employer failed to perform a criminal background check that would have revealed a criminal record, and the evidence showed that The Loft had a wild atmosphere with a foreseeable potential for violence. Given this situation, the court concluded that the employer was liable for negligent hiring.

These cases highlight several key elements regarding the tort of negligent hiring. This tort is based upon the theory that an employer has a duty to protect its employees and customers from other employees whom the employer has reason to believe, or should have reason to believe, pose a threat to others. This duty is breached when an employer fails to exercise reasonable care in its hiring process in that information it should have sought would have revealed a foreseeable risk. More succinctly, an employer is liable if:

1. It failed to exercise reasonable care in its hiring process (i.e., negligence),
2. Such negligence was a cause of harm, and:
3. A reasonable employer should have foreseen such injury or harm.

The best type of insurance against negligent hiring claims is a background checking program.


What laws are involved in pre-employment screening?
Pre-employment screening is governed by the following primary laws:

1.The Fair Credit Reporting Act
2.Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq as amended, the Americans with Disabilities Act (ADA)

Fair Credit Reporting Act
The Fair Credit Reporting Act ("FCRA"), as amended by Public Law 104-208 (Sept.30, 1996) is the most onerous of all laws dealing with pre-employment screening. Although entitled the Fair “Credit” Reporting Act, it legislates for “consumer” reporting. Below is a summary of the law.

Consumer Report
(1) In general, The term “consumer report” means any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer eligibility for …(B) employment purposes;

Investigative Consumer Report
(h) The term “investigative consumer report” means a report or portion thereof in which information on a consumer’s character, general reputation, personal characteristics, or mode of living is obtained through personal interviews with neighbors, friends or associates…

Employment Purposes
(h) the term “employment purposes” when used in connection with a consumer report means a report used for the purpose of evaluating a consumer for employment, promotion, reassignment or retention as an employee.

Consumer Reporting Agency
A “consumer reporting agency” is an organization which, for monetary fees, engages in whole or in part in providing information on consumers for the purpose of furnishing consumer reports to third parties.

Adverse Action
(h) “adverse action” is a denial of employment or any other decision for employment purposes that adversely affects any current or prospective employee.

1.Before ordering a consumer report for employment purposes, you must:

a) make a clear and conspicuous disclosure in writing before the report is procured that a consumer report may be obtained for employment purposes and

b) obtain written authorization from the applicant for the procurement of the report. The FTC, in a Staff Opinion Letter, has opined that these may be the same document.

2. Before ordering an investigative consumer report for employment purposes, you must:

Clearly and accurately disclose to the consumer that “an investigative consumer report including information as to his character, general reputation, personal characteristics, or mode of living, whichever is applicable, may be made, and such disclosure:

(A) is made in a writing mailed, or otherwise delivered, to the consumer, not later than three days after the date on which the report was first requested, and

(B) includes a statement informing the consumer of this right to request the additional disclosures provided for under subsection (b) of this section and the written summary of the rights of the consumer prepared pursuant to section 609(c)”

3. Adverse Action - Before denying employment as a result of negative information obtained in consumer reports (whether in whole or in part)

Adverse Action is a two step process ( Consumer Credit Reporting Reform Act - 1996)

Prior to Decision/Denial: Notice that adverse action may be taken. Employer must provide a Pre-Adverse action letter, a copy of the consumer report, and a "Summary of Rights" under the FCRA.
Formal Denial of Employment: After waiting a "reasonable time"*, the employer may take adverse action by providing a written statement (denial letter) to the applicant

*the CCRRA does not place a time limit on this, but common practice among our client base, and the waiting period that Crimescreen recommends is 3 days.

Adverse Action process is the same for denying employment based on misrepresentation (the preferred method), as it is for denying employment based on a criminal conviction. Reason: the applicant must still be given the opportunity to refute the accuracy of the information in the report that led the employer to believe that the applicant misrepresented himself in the 1st place.

Summary of Americans with Disabilities Act (ADA)

The ADA severely restricts the use of workers compensation history. Evaluation of such reports should be treated cautiously in conjunction with legal counsel. EEOC and ADA Technical Assistance Manual Chap. IX, 9.3,: explains how an employer can use workers compensation history to avoid increased workers’ compensation costs. (1) To verify employment history, (2) To screen out applicants with a history of fraudulent workers’ compensation claims, (3) To provide information to state officials as required by state laws regulating workers’ compensation and second injury funds, (4) To screen out individuals who pose a “direct threat to the health or safety of themselves or others.”

The ADA and the EEOC prohibit ‘employment practices that are facially neutral in their treatment of different groups, but that in fact fall more harshly on one group than another and cannot be justified by business necessity.’ Hazen Paper Co v. Biggins, 507 U.S. 604, 609 (1993). However, even when statistical evidence supports a finding that minorities are significantly and disparately impacted (“chilling effect” on minorities) by the employer’s selection criteria, the employer can avoid liability by demonstrating that its procedures are job-related and are consistent with business necessity and risk. In that vain, employers, according to the EEOC, should consider (1) “the nature and gravity of the offense”, (2) the time that has passed since the…arrest, (3) the nature of the job held or sought.”]


Is background checking cost-effective?
Let’s just say that you can’t afford not to perform background checks. Consider these facts…

Studies show that a bad hire costs between 1 and 2 times the annual income of the position in question. Negligent hiring suits result in awards averaging more than $1 million.  Theft by employees is nearly $50 billion a year.

Or, if you prefer a more analytical approach…

The median total cost of a new hire of a professional/technical/sales position is $2,500 (Aon Consulting, 1997 Survey of Human Resource Trends). A Crimescreen background check can cost below $10 and averages about $55. Therefore, at a $55 average, if you can eliminate just 2% ($55/$2,500) of applicants you will reduce your median cost per hire.


Does our company need to perform background checks?
Some companies are at higher risk than others due to value of inventory, access to customers, stress levels, etc. Regardless, consider these facts:

Homicide is now the second leading cause of death in the workplace
The insurance industry estimates that high-tech theft losses have reached $8 billion annually
Almost 15% of workers claimed they have been attacked at least once during their careers

In addition, failure to perform a background check that would have prevented any of the above can lead to a negligent hiring claim.

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