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Scherzer Blog

Cities of Rochester, NY and Baltimore, MD join fast growing list of ban-the-box jurisdictions

Effective November 18, 2014, the City of Rochester, New York ordinance no. 2014-0155 will prohibit employers from requiring applicants to disclose any criminal conviction information during the application process. The employer may inquire about a criminal conviction only after the initial interview. And if the employer does not conduct an interview, it must inform the applicant whether a criminal background check will be performed, before employment is to begin. Additionally, it must wait until after a conditional job offer has been extended before conducting the criminal check or otherwise inquiring into the applicant’s criminal history. The ordinance applies to any position where the primary place of work is located within Rochester, and to any city employees (except fire or police) or vendors regardless of location. Excluded from the ordinance are criminal record inquiries that are authorized by another applicable law.

Baltimore’s Fair Criminal-Record Screening Practices ordinance, which becomes effective August 13, 2014, similarly bans private employers from inquiring about or conducting criminal checks on applicants until a conditional offer has been extended. The ordinance applies to any employer with 10 or more employees within the city of Baltimore, but excludes entities serving minors or vulnerable adults. Unlike some other ban-the-box laws, the Baltimore ordinance does not require that employers provide additional notices to applicants other than those required under the Fair Credit Reporting Act.

For more information on ban-the-box legislation,see the recently published briefing paper by the National Employment Law Project titled Statewide Ban the Box–Reducing Unfair Barriers to Employment of People with Criminal Records.

|Employment Decisions, Legislation|

FTC settles with 14 companies that falsely claimed participation in Safe Harbor privacy framework

On June 25, 2013, the FTC approved final orders that settle charges against 14 companies for falsely claiming to participate in the international privacy framework known as the U.S.-EU Safe Harbor, which allows U.S. companies to gather customer information in Europe and send it to the United States, beyond the EU’s legal jurisdiction, as long as certain criteria are met. Three of the companies were also charged with similar violations related to the U.S.-Swiss Safe Harbor. Under the settlements, the companies are prohibited from misrepresenting the extent to which they participate in any privacy or data security program sponsored by the government or other self-regulated or standard-setting organization. Consumers who want to know whether a U.S. company is a participant in the U.S-EU or U.S.-Swiss Safe Harbor program can check its certification at http://export.gov/safeharbor.

|Judgment|

Right to be forgotten: sweeping changes are coming

According to a June 26, 2014 article in The Wall Street Journal, GOOGL in Your Value Your Change Short position Google, Inc., started removing results from its search engine under Europe’s new “right to be forgotten,” implementing a landmark ruling by the European Union’s top court that gives individuals the right to request removal of Internet search results  for their own names.

Not to be outdone when it comes to privacy legislation, California Senate recently approved SB 1348 requiring online data brokers who sell consumer information to provide an opt-out mechanism and consumer access to the data.  The bill, which now moves to the State Assembly for consideration, gives California consumers the right to review the information maintained by a data broker and request that it be permanently removed, within 10 days. Once removed, the information cannot be reposted or sold to a third-party. Notably, the bill attempts to include consumer reporting agencies in the category of data brokers.

Although there is no actual movement on the federal level, the Federal Trade Commission (the “FTC”) urges that Congress consider enacting legislation to make data broker practices more visible to consumers and allow greater control over the immense amounts of personal information that is collected about them and shared by data brokers. In its study presented in a report issued May 27, 2014, the FTC found that data brokers operate with a fundamental lack of transparency.

|Legislation|

Insider trading enforcement actions continue as SEC’s top priority

Illegal insider trading generally occurs when a security is bought or sold in breach of a fiduciary duty or other relationship of trust and confidence while in possession of material, nonpublic information. In recent years, the SEC has filed insider trading cases against hundreds of entities and individuals, including financial professionals, hedge fund managers, corporate insiders, attorneys, and others. In 2014, examples of noteworthy cases include enforcement actions against the following:

Two husbands on March 31, 2014 – In two unrelated cases, the SEC charged two men with insider trading on confidential information they learned from their wives about Silicon Valley-based tech companies. Each agreed to financial sanctions to settle the charges.

Stockbroker and law firm clerk on March 19, 2014 – SEC charged two individuals who were linked through a mutual friend, with insider trading for $5.6 million in illicit profits based on nonpublic information that the clerk obtained by accessing confidential documents in law firm’s computer system.

Wall Street investment banker on February 21, 2014 – SEC charged an investment banker with making nearly $1 million in illicit profits by insider trading in a former girlfriend’s brokerage account to pay child support.

Chicago-based accountant – SEC charged an accountant with insider trading ahead of the release of financial results by the company where he worked. The individual made more than $250k in illicit profits.

|Fraud|

Sixth Circuit affirms dismissal of EEOC’s suit regarding employment credit checks

Last month, the 6th Circuit affirmed a lower court order granting summary judgment in favor of educational institution Kaplan  (6th Cir. April. 9, 2014;  No. 13-3408:   EEOC v. Kaplan Higher Education Corp.) where the EEOC charged that Kaplan’s use of credit checks causes it to screen out more African-American applicants than white, creating a disparate impact in violation of Title VII of the Civil Rights Act. In granting summary judgment to Kaplan, the district court stated that “proof of disparate impact is usually statistical proof in the form of expert testimony, and here the EEOC relied solely on statistical data compiled by Kevin Murphy, a PhD in industrial and organizational psychology.” The court excluded Murphy’s testimony on grounds that it was unreliable, as the EEOC presented “no evidence” that Murphy’s methodology satisfied any of the factors that courts typically consider in determining reliability under Federal Rule of Evidence 702; and, as Murphy himself admitted, his sample was not representative of Kaplan’s applicant pool as a whole. The EEOC argued that the district court “erred” when it excluded Murphy’s testimony.

This case was decided on narrow grounds, based on its particular facts and circumstances. Accordingly, employers still should review their screening policies to ensure that credit and (criminal history) checks are consistent with Title VII as interpreted by the EEOC. Additionally, ten states (California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington) and several municipalities already have legislation that limits the use of credit reports for employment purposes

|Employment Decisions, Judgment|

Reminder that EEOC’s guide on criminal checks extends to contractors and subcontractors

The guidance issued in 2012 by the Equal Employment Opportunity Commission’s (EEOC) on using criminal checks in employment decisions was also incorporated into the directive of Office of Federal Contract Compliance Programs (the “OFCCP”). As provided in the EEOC guidance, the OFCCP discourages the use of blanket hiring exclusions against individuals with criminal records, and recommends that contractors follow the EEOC’s best practices for employers to avoid liability for discrimination. The OFCCP advises that contractors, as a general rule, refrain from inquiring about convictions on job applications, and if such inquires are made, “limit the inquiries to convictions that demonstrate unfitness for the particular position.”

|Employment Decisions|

Class actions against employers for violations of the FCRA are increasing

An auto parts company (CA USDC Case No. 2:14-cv-3470) and a hotel chain (CA USDC Case No. 3:14-cv-01089) are just the latest employers that have been slapped with class action lawsuits for alleged violations of the Fair Credit Reporting Act (the “FCRA”) charging willful non-compliance with the FCRA’s disclosure, authorization, and/or notice requirements. And the payouts in such lawsuits can be in the millions. Within the past three years, a national trucking company reached a settlement for $4.6 million, a national retail chain for $3 million and a national pizza maker for $2.5 million.

The FCRA allows an applicant or employee to bring a private right of action against an employer who negligently or willfully fails to comply with any of the FCRA’s requirements. Under the statute of limitations, an action must be brought by the earlier of (1) two years after the date of violation discovery by the plaintiff, or (2) five years after the date on which the violation occurred. The employer’s liability for negligent non-compliance is actual damages sustained by the applicant/employee, and reasonable attorneys’ fees and costs. A willful violation carries actual or statutory damages ranging between $100 and $1,000, punitive damages, and attorneys’ fees and costs.

Below are general FCRA compliance reminders to employers when procuring and using background check reports prepared by a consumer reporting agency (“CRA”):

  • Provide disclosure to the applicant/employee in a standalone document that a consumer report may be obtained and used for employment purposes (language must be clear, with no superfluous information or liability waiver, and separate from the employment application);
  • Provide to the applicant/employee a summary of rights under the FCRA and applicable state notices;
  • Obtain the applicant/employee’s authorization for the consumer report;
  • Before taking adverse action based on the report (1) provide a pre-adverse action notice to the applicant/employee along with a copy of the report, and notices of rights, if not given previously, (2) wait a reasonable period of time (at least 5 days) before taking the adverse action, and (3) after deciding to take the adverse action, provide a notice that contains the FCRA required information, such as the name, address, and telephone number of the CRA that provided the report.
|Employment Decisions, Judgment, Lawsuit|

Supreme Court ruling extends SOX whistleblower protection to private contractors

On March 4, 2014, the Supreme Court in a split decision ruled that employees of private companies servicing public companies are covered by the whistleblower protections of Sarbanes Oxley Act of 2002 (“SOX”)

[U.S., No. 12-3, 3-4-14]. In this case, two employees of a private company contracted by a publicly-traded mutual fund alleged that they were terminated in retaliation for raising fraud issues about the fund. With this decision, the Supreme Court has expanded the universe of companies regulated by the SOX whistleblower provision from about 5,000 public companies to potentially millions of private ones, including the smallest of businesses. Employers of every size and type have to be prepared for potential SOX whistleblower retaliation claims if they are a contractor or subcontractor of a publicly traded company.

|Educational Series, Fraud, Judgment|

FTC and EEOC jointly publish guides on employment-purpose background checks

The Federal Trade Commission (FTC) and the Equal Employment Opportunity Commission (EEOC) have co-published two brief guides on employment background checks that explain the rights and responsibilities of the people on both sides of the desk. See Background Checks: What Employers Need to Know and Background Checks: What Job Applicants and Employees Should Know. For employers, the guidelines cover only the basics that must be considered for procuring and using employment-purpose background checks and do not attempt to explain in detail the many compliance requirements of the Fair Credit Reporting Act, and analogous state and municipal consumer reporting laws, regulations, codes and statutes.

|Employment Decisions|
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