K. Checking References

The majority of states limit an employer's ability to make pre-employ- ment inquiries regarding criminal arrests and convictions beyond a certain number of years and restrict the use of such information. Never- theless, all companies should conduct a complete background check of applicants before hiring. In fact, when companies fail to investigate an applicant's background and hire a person unfit for the position who causes harm or injury to another, they may be liable to others under a legal theory referred to as negligent hiring and retention.

Under this negligent-hiring doctrine, in most jurisdictions, employers have a duty of reasonable care in hiring individuals who, because of employment, may pose a threat of injury to fellow employees and members of the public. Negligent-hiring claims have been made against employers for murders, rapes, sexual assaults, physical assaults, personal injuries and property losses allegedly committed or caused by an unfit employee. In one case a McDonald's worker in Colorado, while on the job, sexually assaulted a 3-year-old boy. The fast-food restaurant had hired the man without a complete background check, which would have shown a history of sexually assaulting children. The family sued and a jury awarded the victim $210,000.

However, liability may not be found under the negligent hiring theory in cases where the employee's acts are not foreseeable and where the pre-employment investigation of an employee's qualifica- tions did not give rise to actual or constructive knowledge of a potential problem. For example, a union was held not liable for recommending the hiring of a cruise ship employee who committed a homosexual assault upon another seaman while both men were vacationing on shore after working together on the cruise ship because evidence of his propensity for aggressive behavior did not show up in the union's standard pre-employment investigation.

Since the law is quite complicated in this area, companies must undertake thorough pre-employment checks but consult competent legal counsel whenever a potential problem arises. This is necessary because employers can be held liable to the applicant and to employees under legal claims including defamation, intentional infliction of emotional distress and violations of the implied covenant of good faith and fair dealing when references are not investigated properly or are leaked to non-essential third parties. In one case a man terminated from an insurance company several years ago discovered that his former boss, in reference checks, had called him "untrust- worthy, disruptive, paranoid, hostile, irrational, a classic sociopath." He sued and a jury decided those characterizations were out of line, a mistake that cost the company $1.9 million.

Such cases typify the legal dilemma employers face with reference checks. When hiring, if they miss a potential problem, some courts find them negligent. But when giving references, if they say too much, they may be liable for defaming former workers. Thus, employers must be familiar with local, state and federal laws regard- ing information investigation. It is important to be aware that the majority of applicants are guilty of lies or omissions on their resumes. In fact, in a random sample of cases, investigators found ten crimes for every one acknowledged on job applications!

The first step toward protecting your company is to obtain author- ization from prospective employees either by permission to investigate information in the employment application or by a separate signed release that permits the company to contact former employers, schools, etc., to verify information supplied by the applicant. To avoid any impropriety on application forms or in pre-hiring interviews, as has been stated before, eliminate all illegal questions on the appli- cation. Obtain information necessary for insurance, physical checks, security purposes and so forth on a separate post-employment form and only begin the investigation after a favorable hiring decision has been made which is now subject to this investigation.

Counsel Comment #21: Some companies allow the person to start work for a probationary period while the investigation is taking place. Continued employment is then offered pending satisfactory results. This is a poor idea and should be avoided, if possible.

All employment applications should be verified. Former employ- ers should be contacted by telephone or in writing to determine dates of employment, job titles and responsibilities, satisfactory work performance, attendance and eligibility for rehire and reasons why the person is no longer employed. When investigating such information, be on the alert for "red flags" (i.e., periods without employment, failure to provide addresses, etc.). If an applicant has no job experi- ence, the applicant's educational background should be investigated. Schools should be asked about the applicant's attendance record and courses taken pertinent to the position applied for. In positions that require a certain educational level, transcripts need to be verified in addition to the work record. Additionally, if driving is an important function, require a valid driver's license and consider an independent investigation of the person's driving record with the State Department of Motor Vehicles.

In the event the applicant has made a false statement of material facts in the application or has a record of conviction for an offense directly related and important to the position in question, the person should be rejected for the position. Results of all investigations should be carefully guarded, particularly where damaging information is discovered. Avoid communicating such information to non-essential third parties to avoid charges of defamation or libel. Keep in mind that libel suits filed by discharged employees and job applicants now account for approximately one-third of all defamation actions and the average winning verdict in such cases exceeds $100,000, according to Jury Verdict Research Inc., a company that monitors this kind of litigation.

Investigation Of Medical Records

During the investigation process, can a company demand to see all of a worker's past medical records? Under the ADA, investigation of a person's medical history has been seriously curtailed; proceed with caution in this area.

Investigation Of Bankruptcy Records

Can an applicant be denied a job because he or she has gone bankrupt? According to the Bankruptcy Code, no private employer may terminate the employment of, or discriminate with respect to employment against an individual who is or has been a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt is or has been a debtor or bankrupt under the Bankruptcy Act, has been insolvent before the grant or denial of a discharge or has not paid a debt that is dischargeable in a case under the Bankruptcy Act.

Counsel Comment #22: If your company runs a credit check on an applicant which reveals that he/she has a poor credit history, always document other valid reasons for denying the applicant the job, if possible. However, since the law specifically forbids discrimination against those seeking or receiving the protection of bankruptcy law, you may fare better deciding not to hire an individual with credit problems than one who has declared formal bankruptcy!

When considering minority candidates, case law and the Equal Employment Opportunity Commission advise against refusing to hire based on poor credit rating because minorities often have more difficulty paying their bills. In fact, the EEOC has ruled that it is illegal to refuse to hire minority applicants (particularly Afro- Americans) with a poor credit rating since minorities are more likely to be unable to pay their bills and such a policy effectively excludes a class of applicant from the job market.

In the majority of states and under the federal Consumer Credit Protection Act, it is illegal for a company to fire a person being sued for the non-payment of a debt or when the company is instructed to cooperate in the collection of a portion of the person's wages through garnishment proceedings for any one indebtedness. Enforcement of this federal law is toughviolations are punishable by a fine of up to $1,000 and imprisonment for up to one year. Discharge for garnishment for more than one indebtedness is not prohibited, however, but such a policy may be restricted by Title VII of the Civil Rights Act of l964 when it has a disproportionate effect on minority workers. And, since many states have even more strict laws on the books in this area (i.e., some states prohibit garnishment altogether or garnishment of pensions while others only allow garnishment on delinquent spouse or child support arrears) and problems often ensue when employers receive multiple garnishment orders (which one to pay first?), always check your state's law when faced with obeying a garnishment order.

Under the federal Fair Debt Credit Reporting Act, employers are generally forbidden to use credit reports for hiring or employment decisions unless the job is security-conscious or the financial integrity of the applicant is essential to successful job performance. When such reports are made, be sure to obtain the applicant's formal written consent before seeking such information. In addition, it is a good idea to give the applicant a copy of any credit reports received, together with the name and address of the credit agency supplying it. This way the applicant may be able to explain important errors that sometimes need to be corrected on credit reports.

More companies are now asserting counterclaims seeking damages against employees for submitting fraudulent employment applications. In one case the court ordered a full trial and acknowledged that misstatements in an employment application with respect to material misrepresentations of a person's background, training and skills may have caused the employer to give the employee additional job responsi- bilities, resulting in inadequate performance. To be successful, the employer must be able to prove that the alleged fraud proximately caused asserted losses.

Counsel Comment #23: Always have job applicants sign release forms that approve reasonable background checks on credit, criminal and work histories to protect your company in this area. At the very least, companies should check work histories back five to seven years. That's beyond any government-mandated checks, such as driver's license histories for driving jobs.

What happens when you hire and then find out the person withheld material information concerning health or financial status? Can the person be fired for misrepresentation? The answer depends on the type and severity of the information withheld, and, most importantly, whether withholding the information is protected under numerous discrimination laws.

It is important to conduct your own thorough background checks for most positions so you can avoid charges that defamatory or inadequate job references were given your company by an ex-em- ployer. Always obtain written releases and indemnification from the applicant authorizing you to inquire into personal facts. Be aware, however, that even if you receive damaging information, you may not be able to refuse to hire the applicant if the unique facts suggest a case protected under discrimination laws. And stick to the facts when discussing the person's background. Don't add personal impressions. If the person was fired, you can also state truthfully that your company would never rehire the individual.

Where misconduct has occurred (i.e., a fabrication of an important fact was made), your company should consider whether discharge is appropriate under the circumstances. Arbitrators are sometimes per- suaded otherwise by a number of factors, including the employee's length of service, track record, length of time that elapsed before the misrepresentation was discovered, and other mitigating circumstances. One arbitrator proposed helpful guidelines when determining whether a falsification could be used as grounds for discharge:

1. Was the misrepresentation deliberate or willful?
2. Was it material (i.e., sufficiently prejudicial that a reasonable employer would not have hired the individual knowing the truth) to the job at the time it was made?
3. Has a sufficient period of time elapsed, making the misrepre- sentation no longer that important or significant?
4. Did the employer act in good faith (i.e., without malice) as soon as the falsity surfaced?
5. Has the employer consistently punished similar offenders in the past or is an exception being made of this person?
6. Is the employee being unfairly treated because of a personal characteristic (i.e., being a female, over 40 or member of a minority)?

TIP: Although most arbitrators and judges recognize the employer's need to receive accurate information and to punish severely by immediate discharge employees who submitted false or inaccurate information or omissions on job applica- tions, there may be times when it is prudent to consider care- fully all the facts and circumstances before a termination.

The following information summarizes a few points to keep in mind when instituting a background checking system:

• Tell the applicant what you're doing. Spell out the company's system on interviews, references and hiring procedures. Appli- cants and employees should be told how decisions are made and who is responsible for making hiring decisions.
• Ask the applicant to sign consent forms permitting your background investigation.
• Save all records and information you obtain about the applicant during each step of the selection process.
• Know the law. Conduct your screening system legally. For example, checking must be done on all candidates in the same manner so that all results are fair and accurate. An applicant's race, religion, gender, etc. must have no bearing on the investigatory process.
• Devise a formal written policy for background checks. Having a detailed internal policy in writing lets company people know what their role is in the hiring process.
• Keep all information received about an applicant confidential to protect his/her privacy rights.

Experts suggest that most applicants exaggerate about past jobs (salary or title), college degrees, job skills, and fail to include criminal arrests on application forms. To detect misrepresentations, it may be a good idea to have two people review the submitted application form; some items to watch out for include:

• Significant gaps in the applicant's employment history. Are the dates vague? If there are periods where no employment is shown, find out why.
• Any applicant's willingness to accept a drastic pay cut. There may be a logical reason for this, but employees with serious financial problems can pose problems.

  NOTE: Be aware, though, of the legality of obtaining and using financial and credit information in making hiring decisions, as discussed previously.

• Admissions of criminal behavior. If so, investigate further. Candidates who admit to what appears to be a small crime may be covering up involvement in more serious criminal activity.

  NOTE: Be aware, though, of the legality of obtaining and using knowledge of criminal convictions in making hiring decisions, as discussed previously.

• An emphasis on past jobs rather than the most recent employment.

Management should advise supervisors of the proper and syste- matic way to check references. This includes.findlaw instruction on who to call at a previous employer to verify employment. For example, speaking with the personnel department is sufficient to verify the qualifications of an hourly worker but you may wish to speak to the immediate supervisor and relevant company officers when considering hiring a high-level executive.

Counsel Comment #24: A good initial question is, "Is the person eligible for rehire?" This may help you discover more information without offending the person with whom you are speaking. Also, always scrutinize relevant military service and education records.

Counsel Comment #25: If you have decided not to offer the applicant the job on the basis of a credit investigation, but have another valid reason for the rejection (e.g., another applicant is more qualified), consider using the "better appli- cant" excuse as the reason for refusing to hire to avoid potential problems in this area.