Employment Decisions Archives

Proposed federal bill bans credit checks in employment decisions

Introduced by Senator Elizabeth Warren (D-Mass) on December 17, 2013, the “Equal Employment for All Act” (S. 1837), would amend the Fair Credit Reporting Act to prohibit employers from requiring or suggesting that applicants disclose their credit history, from procuring a consumer or investigative report, and from disqualifying employees based on a poor credit rating, or information on a consumer’s creditworthiness, standing or capacity. Positions that require a national security clearance or “when otherwise required by law” are exempt from the prohibition. Ten states (California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington) already have enacted legislation that limits the use of credit reports for employment purposes.

|Employment Decisions, Legislation|

New law bans California employers from asking about dismissed criminal records

Effective January 1, 2014, SB 530, will ban most California employers from asking employees or applicants about arrests that did not result in conviction (except for arrests for which the individual is still awaiting trial) or about participation in a pretrial or post trial diversion program. Generally, the new law prohibits most employers from asking applicants to disclose, or use as a factor in employment decisions, any information concerning a conviction that has been judicially dismissed or ordered sealed.

|Employment Decisions, Legislation|

E-Verify has new safeguard to combat identity theft

On November 18, 2013, the U.S. Citizenship and Immigration Services (the “USCIS”) announced a new E-Verify safeguard that enables USCIS to “lock” a Social Security number that appears to have been misused, protecting it from further misuse in the E-Verify process.

If an employee attempts to use a locked Social Security number, E-Verify will generate a “tentative non-confirmation” status. The employee will then have the opportunity to contest the result at a local Social Security Administration (‘SSA”) field office. If an SSA officer confirms that the employee’s identity matches the number, the non-confirmation will be converted to “employment authorized’” status.

|Employment Decisions|

Reminder to New Jersey employers to provide required CEPA notice

New Jersey employers with 10 or more employees are reminded of their annual obligation to provide to their employees, in both English and in Spanish, the required notice under the Conscientious Employee Protection Act (the “CEPA”). The notice may be distributed in hard copy or electronic format, but having only a poster or a policy in a handbook does not fulfill an employer’s notice obligation under the CEPA.

Enacted in 1986, this anti-retaliation statute is known as New Jersey’s Whistleblower’s Act. The goal of the CEPA is to encourage whistleblowers to report wrongdoing to their employers without fear of reprisals. Overall, CEPA provides a broader range of protections and remedies than other similar statutes, such as the federal False Claims Act.

|Educational Series, Employment Decisions, Legislation|

From hair styles to criminal records, increased employment regulations to continue

Recent enforcement efforts by the Equal Employment Opportunity Commission (the “EEOC”) combined with some local and state “ban-the-box” laws are causing trepidation among employers who must not only consider, but also apparently hire, applicants with a criminal history and unprofessional hairstyles.

The EEOC recently filed a lawsuit in Alabama alleging that an insurance claims company violated Title VII of the Civil Rights Act by discriminating against an African-American applicant because she wore dreadlocks. The EEOC’s position is that the company’s policy of requiring a professional/business look “focuses on the racial bias that may occur when specific hair constructs and styles are singled out for different treatment because they do not conform to normative standards for other races.”

The EEOC has also pushed its position that considering criminal convictions in hiring decisions can be racially discriminatory, issuing its well-publicized guidance and filing lawsuits against employers that use background checks. Based on EEOC’s logic, Massachusetts and Hawaii already have adopted “ban the box” laws that apply to both private and public employers, and on January 1, 2014, similar measures will take effect in Rhode Island and Minnesota. The cities of Buffalo, NY, Newark, NJ, Seattle, WA, and Philadelphia, PA, also have passed similar legislation affecting private employers. Many more states and municipalities have “ban-the-box” laws that apply only to public employers. (Generally, “ban-the-box” legislation calls for the removal of the criminal history box/question on the job application, and prohibits employers from asking about criminal records in the initial application process.)

Win or lose, the EEOC is unlikely to let up, and the trend of increased employment regulations will continue into 2014, according to legal commentators. Employers should review their policies and procedures at least annually to ensure that they meet EEOC’s guidelines, comply with all federal, state and local laws and regulations, are fair and consistent and aligned with the business model.

|Employment Decisions, Judgment|

New law prohibits North Carolina employers from asking about expunged records

Effective December 1, 2013, employers in North Carolina will not be able to ask job applicants about arrests, criminal charges, or convictions that have been expunge SB 91 prohibits inquiries into expunged matters both on applications and during interviews, and was enacted to clear the public record of any arrest, criminal charge, or conviction that was expunged so that the subject is legally entitled to withhold all information about it from potential employers and others. Notably, employers will still be allowed to ask about arrests, criminal charges, or convictions that have not been expunged and can be found in public records.

|Criminal Activity, Employment Decisions, Legislation|

Issuers should ensure that investors are not criminals

The JOBS Act requires that issuers wishing to engage in general solicitation take “reasonable steps” to verify the accredited investor status of purchasers. Rule 506(c) sets forth a principles-based method of verification which requires an objective determination by the issuer or its representatives that the steps taken are “reasonable” in the context of the particular facts and circumstances of each purchaser and transaction. But perhaps a question whether the investor is a felon should be added to the list.

A case decided in 2011 by California’s Court of Appeal, Second District, suggests that indeed it may be prudent for issuers to ensure that investors are not criminals. The plaintiff in this case intended to purchase units in a limited liability company, but was rejected after the mezzanine lender would not accept the plaintiff as a member due to his status as a former felon. The plaintiff subsequently sued the lender, alleging a violation of the Unruh Civil Rights Act. After a dismissal by a trial court, the case was appealed, resulting in a conclusion that (1) status as a felon is not a personal characteristic similar to those enumerated in the statute; (2) criminal convictions raised legitimate questions about the honesty and trustworthiness of the plaintiff, and the lender had legitimate business reasons justifying its decision; and (3) the potential consequences of allowing the plaintiff’s claim would improperly involve the courts in second-guessing a lending institution‘s expertise in determining loan and investment criteria. As lenders are absolved from potential liability under the Act, issuers who unwittingly accept convicted felons as investors may be jeopardizing their funding.

|Employment Decisions, Fraud, Legislation|

Grace period for E-Verify compliance ends November 5, 2013

Now that E-Verify services are back online, employers must create an E-Verify case for each employee hired during the shutdown (October 1-17, 2013) no later than November 5, 2013. When prompted by the E-Verify system to explain why the case was initiated late (a violation of the three-day E-Verify rule), employers should select “other” from the drop-down menu and enter into the text field “federal government shutdown.” See the USCIS E-Verify instructions page for handling specific situations.

|Educational Series, Employment Decisions|

EEOC fails to prove disparate impact in another case involving background checks

In August 2013, a Maryland federal judge dismissed without a trial a putative suit filed by the Equal Employment Opportunity Commission (the “EEOC”) against event-promoter Freeman for alleged discriminatory background screening practices. Calling the EEOC’s expert report “an egregious example of scientific dishonesty,” the court granted a summary judgment to Freeman based on its findings that the EEOC’s expert testimony was unreliable, and would not support a claim of disparate impact. According to the court’s opinion, the EEOC failed to establish an element of its case when it made no effort to analyze Freeman’s multi-step screening policies to identify the specific practices that caused the alleged disparate impact. The court went on to say: “By bringing actions of this nature, the EEOC has placed many employers in the ‘Hobson’s choice’ of ignoring criminal history and credit backgrounds, thus exposing themselves to potential liability for criminal and fraudulent acts committed by employees, or, on the other hand, incurring the wrath of the EEOC for having utilized information deemed fundamental by most employers.”

The EEOC most likely will appeal the decision, as it has done in another high-profile background check case in Ohio, where in January 2013 the court similarly ruled that the EEOC failed to prove disparate impact. Although these rulings represent a victory for the employer, the EEOC has not reversed its position, and is expected to continue its attempts to severely limit, if not eliminate, the use of criminal and credit checks by private employers.

|Employment Decisions, Judgment|

Disciplinary action serves as reminder of due diligence requirement in Reg. D offerings

A recent disciplinary action reaffirmed FINRA member firms’ obligations to conduct a reasonable investigation of the issuer and the securities it recommends in offerings made under the SEC’s Regulation D, commonly known as private placements. Regulation D provides exemptions from the registration requirements of Section 5 under the Securities & Exchange Act, but it does not exempt these transactions from the antifraud provisions of the federal securities laws. A broker-dealer thus has a duty—enforceable under federal securities laws and FINRA rules—to conduct a reasonable investigation of the securities it recommends. Moreover, any broker-dealer that recommends securities offered under Regulation D must meet the suitability requirements under NASD Rule 2310, and comply with the advertising and supervisory rules of FINRA and the SEC.

A broker-dealer’s reasonable investigation must be tailored to each Regulation D offering, as its scope will depend on factors such as the sophistication of the investors, the broker-dealer’s affiliation with the issuer, and other facts and circumstances of the offering. The investigation, at a minimum, should include background checks of the issuer and its management, the business prospects of the issuer, the assets held or to be acquired by the issuer, the claims being made, and the intended use of the proceeds.

A firm that engages in Regulation D offerings also must have supervisory procedures under NASD Rule 3010 that are designed to ensure that its personnel and representatives conduct an inquiry that is sufficient to comply with the legal and regulatory requirements; that they perform the suitability analysis required by NASD Rule 2310; that they qualify the investors’ eligibility to purchase the securities; and that they abide by the antifraud provisions of the federal securities laws and FINRA rules regarding the preparation and distribution of offering documents or sales literature. And a broker-dealer has a further duty to adequately investigate any information located during the investigation that may be considered a “red flag.”

|Employment Decisions, Fraud|