THE IMPACT OF

NEGLIGENT HIRING:

LACK OF BACKGROUND

CHECKSChrislin Flanagan, Naseem Moarefi and Neha Choudhary

HRM 400.10 Strategic Issues Human Resources

Overview

Introduction What is negligent hiring?

Company we will be researching

Different types of background checks

Discussion Why background checks important?

Problems of negligent hiring

How is HR correcting the issue

Conclusion Legal Information

How does HR remain compliant?

Introduction

I will be discussing what negligent hiring is, presenting a brief overview of the company we will be presenting findings for and providing some insight into the various types of background checks.

Next, Neha will exchange views on when a background check is necessary, identifying why negligent hiring is a problem and acknowledging what HR is doing to rectify this issue.

Lastly, Naseem will conclude our presentation with examining legal information regarding negligent hiring, the pros and cons of our topic and advise how HR remains compliant while ensuring they “steer clear” of negligent hiring claims.

What is Negligent Hiring?

By Definition, Negligent Hiring is where an employer is held liable for the tortious acts of an employee because that employer was negligent in providing the employee with the ability to engage in a particular act.

Basically, in the simplest meaning, negligent hiring is where an employee had a previous (or current) reputation or record that showed his/her propensity to misuse the kind of authority given by the employer, and this record would have been easily discoverable by the employer, had the employer exercised 'due diligence'.

*An example of this would be a sexual assault within the workplace, the employer may be liable for negligent hiring if an employee can show that the employer was aware of the harasser's termination from a previous position for the same behavior.

How is Negligent Hiring

Recognized at the State Level?Illinois

a. Negligent Hiring

i. Elements: "Illinois law recognizes a cause of action against an employer

for negligently hiring, or retaining in its employment, an employee it

knew, or should have known, was unfit for the job so as to create a danger

of harm to third persons." Van Horne v. Muller, 185 Ill. 2d 299, 311 (Ill.

1998). "An action for negligent hiring or retention of an employee

requires the plaintiff to plead and prove (1) that the employer knew or

should have known that the employee had a particular unfitness for the

position so as to create a danger of harm to third persons; (2) that such

particular unfitness was known or should have been known at the time of

the employee's hiring or retention; and (3) that this particular unfitness

proximately caused the plaintiffs injury." Id. Further, with respect to a

claim of negligent hiring or retention, the proximate cause of the

plaintiff’s injury is the employer’s negligence in hiring or retaining the

employee, rather than the employee’s wrongful act. Id.

What constitutes negligent

hiring?A good way to explain what constitutes negligent hiring in the eyes of

law is to familiarize yourself with what must generally be shown in order for a customer, employee, or other third party to prevail in a negligent hiring suit against an employer:

the existence of an employment relationship between the employer and the worker

the employee's unfitness

the employer's actual or constructive knowledge of the employee's unfitness (failure to investigate can lead to a finding of constructive knowledge)

the employee's act or omission causing the third party's injuries

the employer's negligence in hiring the employee as the most likely cause of the person's injuries

Reference Website: http://www.bizfilings.com/toolkit/sbg/office-hr/hiring-workers/importance-of-background-checks-for-new-hires.aspx

Enova Financial

The company that we will be discussing is Enova Financial. After 5 years of service in management, I left the company in May of this year. As a member of management, I worked very closely with the HR Team and still have very close contacts there.

Enova is a Global Financial Resource Company-the sister company to Cash Net USA which was launched in 2004; offering web based payday loans, installment loans and lines of credit. Currently they have about 950 employees and service a little over 2 million customers and operate in 4 countries: here in the US, the UK, Australia & Canada. Average annual revenue is about $660 million. It is the largest licensed online lender in the US.

Types of Background Checks

Some of the information inclusive in a background check may include, but is not limited to:

Driving Records Vehicle Registration

Credit Records Criminal Records

Social Security no. Education Records Court Records

Workers' Compensation Information

Bankruptcy Character References

Neighbor Interviews Medical Records Property Ownership

Military Records State Licensing Records Drug Test Records

Past Employers Personal References

Incarceration Records Sex Offender Lists

Criminal History Checks

County Criminal Records: Uncover misdemeanors or felonies among one of the more than 3,400 county courts in the US.

State Criminal Records: Learn about crimes committed throughout an applicant’s state(s) of residence from state police records or state criminal records databases (where available).

National Criminal Records: National criminal records searches can help identify crimes committed by the applicant while traveling or uncover data hidden in county databases where employers did not think to check. National criminal records searches should be used to compliment traditional local searches, as not all municipalities may participate or provide records in a timely manner. Possible records are verified at the source before being reported.

Federal Criminal Records: Search records of crimes that are prosecuted in federal court such as tax evasion, fraud and embezzlement, mail and wire fraud, and more.

Prohibited and Restricted Parties Search: These screens list individuals that you cannot hire because they are known terrorists, money launderers, narcotic traffickers, illegal weapons traders or are subject to an economic sanctions program. A handful ofgovernment agencies maintain a list of prohibited and restricted individuals and entities.

Sex Offender Registry Search: Conduct a state or nation-wide search to learn if an applicant is a registered sex offender.

Federal bankruptcy records: Identify individuals that have adjudicated cases of bankruptcy which may reveal a propensity for financial mismanagement.

Driving records: Used to identify individuals with unsafe driving records to limit corporate risk.

Civil upper and lower courts: Identify individuals that have been involved with lawsuits including product liability, breach of contract, small claims and more.

International: Employers may wish to review the foreign background of a domestic hire or conduct international searches for their global offices.

Retail Theft Database: Search more than 500,000 records of shoplifting and employee theft incidents submitted by 500 member companies. Much of this information may not be available in public records.

Discussion

Why does an employer conduct background checks?

Making the right hiring decisions for your company is critical to your business success. But getting it right isn’t easy. We all know the negative consequences of making the wrong hire – it can lower your team’s morale, hinder productivity, and even impact customer relations.

Reduce the high cost of turnover by screening in employees who stay longer.

- Reduce losses from employee theft, employee fraud, drug and alcohol abuse, absenteeism, workplace violence, and litigation.

- Avoid wasted benefits.

- Reduce training and employee development costs.

- Increase productivity through hiring employees with better work habits, attitudes, policies, and practices.

- Enhance professionalism by "screening in" appropriate workplace attitudes.

- Decrease insurance costs. Some insurance companies will give background check or drug-screening discounts to firms who take such precautions.

- Meet regulatory, insurance, and customer requirements.

Discussion Continued

Prior history is a good predictor of future performance.

Background checks are used by employers to verify the freely volunteered information provided by applicants.

1. Look for mistakes, not a mistake.

2. Careful with the credit checks.

3. Be consistent.

4. Don't forget their college career.

5. If something bad surfaces, follow up.

Reasons for Employment

Screening

NEGLIGENT HIRING lawsuits are on the rise. If an

employee's actions hurt someone, the employer

may be liable. The threat of liability gives

employers reason to be cautious in checking an

applicant's past. A bad decision can wreak

havoc on a company's budget and reputation as

well as ruin the career of the hiring official.

Employers no longer feel secure in relying on

their instinct as a basis to hire.

Why and How is this a

problem?

Child abuse and child abductions in the news

in recent years have resulted in new laws in

almost every state that require criminal

background checks for anyone who works with

children. The move to protect children through

criminal background checks now includes

volunteers who serve as coaches for youth

sports activities and scout troop leaders.

Continued

Terrorist acts of September 11, 2001, have resulted in heightened security and identity-verification strategies by employers. Potential job candidates and long-time employees alike are being examined with a new eye following September 11, 2001.

Corporate executives, officers, and directorsnow face a degree of scrutiny in both professional and private life unknown before the Enron debacle and other corporate scandals of 2002.

Continued

Federal and state laws require that background checks be conducted for certain jobs. For example, most states require criminal background checks for anyone who works with children, the elderly, or disabled. The federal National Child Protection Act authorizes state officials to access the FBI's National Crime Information Center (NCIC) database for some positions. Many state and federal government jobs require a background check, and depending on the kind of job, may require an extensive investigation for a security clearance.

Continued

Workplace violence - Statistics have shown an alarming trend of workers injuring or killing other workers.

The law requires employers to thoroughly investigate the background of job applicants to determine if candidates have propensity for violence. Employers are negligent if they fail to follow this requirement. This problem is getting worse in the United States.

Workplace violence is defined as physical assaults, threatening behavior, or verbal abuse occuring in the work setting.

Continued

Workplace violence had a negative impact on workers’ productivity and lower productivity means lower profit. Negligent hiring rules also means a higher operating expense for the employers as they have to retain an employment lawyer for consultation, pay for educating their managers about the law, and pay for the service of professional investigating agencies.

Due to such a high rate of workplace violence, employers may not even hire applicants with criminal or shady backgrounds, simply to avoid the high cost of court litigations.

What is HR doing?

Law enforcement agencies primarily rely on three screening tools in screening job applicants: an application, the interview, and the background check. The utilization of an HR staff member who is trained to effectively conduct standardized, thorough and documented background investigations could potentially save a law enforcement agency from expensive litigation, or worse, a loss of human life.

Continued

Once the application is completed,

agencies, specifically HR, must verify the

information listed, paying particular

attention to unexplained gaps in

employment, lost licenses, frequent job

changes, terminations, admissions of

criminal behavior, and potential

falsifications of any kind.

EEOC(Equal Employment Opportunity

Commission

Any time you use an applicant's or employee's background information to make an employment decision, regardless of how you got the information, one must comply with federal laws that protect applicants and employees from discrimination. That includes discrimination based on race, color, national origin, sex, or religion; disability; genetic information (including family medical history); and age (40 or older). These laws are enforced by the EEOC.

Legal Information

Fair Credit Reporting Act(FCRA)

federal law that regulates how consumer

"reporting agencies" use your personal

information.

Only used when outsourcing background checks

Some restrictions include:

Bankruptcies after 10 years

Civil suits, civil judgments, and records of arrest,

from date of entry, after seven years

Negative information(except criminal convictions)

after 7 years

Pros and Cons for Employers

Pros

Reveals false information given in resume

Protects against potential lawsuits

Cons

Costly

If not properly done can lead to lawsuits

If not conducted in the correct way can lead to penalties

Pros and Cons for employees

Pros

Employers provide safe work environment

Employers have to follow legal procedures

pertaining to employees private information

Cons

Feel it violates personal liberty

Reveals any undisclosed information from

employers

Reveals false information given to employers

Show mistakes made during youth

Examples

Pro

A man who was working for FedEx was charged with sexually molesting an 8 year old boy while employed with the company. During the hiring process, the company failed to discover that the man had previous convictions of child molestation. According to many sources, the company did not perform a thorough background check and only verified previous employment of the man. Due to the lack of a background check the man was able to slip through the cracks and hurt another innocent life.

Con

19 year old Jessica Smith, was applying for a cashier position at Office Depot in Minnesota. During her interview, the manager looked over her resume and observed that she met all the requirements for the position. He spoke with her and said that once the background check came back he would notify her. Within a week she received noticed that the background check revealed multiple arrest warrants, felonies and drug possessions in Washington state. Jessica admittedly told the manager that there must have been an error and she notified the reporting agency of the mistake. It took nearly 6 weeks to clear her name.

How HR is remaining compliant

The Fair Credit Act (FCRA)

Sign consent form separate from application

Adverse selection-denying the job applicant,

terminating or resending offer

Pre adverse action disclosure

Give report which includes the name, address, and

phone number of the employment screening company

Can dispute

Continued

Background checks are not 100% error free.

There are steps to take if you find you were a

victim of error under the FCRA.

1) File a dispute citing error with the reporting

agency.

2) Sending a letter through certified mail

addressing the error.

It can takes weeks to months to correct the

mistake.

EEOC Guidelines

EEOC(Equal Employment Opportunity Commission-is an agency that helps protect people of work discrimination. Applying the same standards for everyone, regardless of their race,

national origin, color, sex, religion, disability, genetic information(family medical history), or age(40+)

Take special care when basing employment on background problems that may be more common among people of a certain race, color, national origin, sex, or religion; among people who have a disability or among people 40+

Be prepared to make exceptions for problems revealed during a background check that were caused by a disability. For example, if you are inclined not to hire a person because of a problem caused by a disability, you should allow the person to demonstrate his or her ability to do the job - despite the negative background information - unless doing so would cause significant financial or operational difficulty.

EEOC Guidelines Continued

Before you take an adverse employment action, you must give the applicant or employee: a notice that includes a copy of the consumer report you relied on to make your decision; and a copy of "A Summary of Your Rights Under the Fair Credit Reporting Act," which you should have received from the company that sold you the report.

By giving the person the notice in advance, the person has an opportunity to review the report and explain any negative information.

After you take an adverse employment action, you must tell the applicant or employee (orally, in writing, or electronically): that he or she was rejected because of information in the report; the name, address, and phone number of the company that sold the report; that the company selling the report didn't make the hiring decision, and can't give specific reasons for it; and that he or she has a right to dispute the accuracy or completeness of the report, and to get an additional free report from the reporting company within 60 days.

Tell the applicant or employee you might use the information for decisions about his or her employment. This notice must be in writing and in a stand-alone format. The notice can't be in an employment application. You can include some minor additional information in the notice (like a brief description of the nature of consumer reports), but only if it doesn't confuse or detract from the notice.

EEOC Guidelines Continued

If you are asking a company to provide an "investigative report" - a report based on personal interviews concerning a person's character, general reputation, personal characteristics, and lifestyle - you must also tell the applicant or employee of his or her right to a description of the nature and scope of the investigation.

Get the applicant's or employee's written permission to do the background check. This can be part of the document you use to notify the person that you will get the report. If you want the authorization to allow you to get background reports throughout the person's employment, make sure you say so clearly and conspicuously.

Certify to the company from which you are getting the report that you: notified the applicant and got their permission to get a background report; complied with all of the FCRA requirements; and won't discriminate against the applicant or employee, or otherwise misuse the information in violation of federal or state equal opportunity laws or regulations.

http://www.eeoc.gov/eeoc/publications/background_checks_employers.cfm

Conclusion

So tonight you all learned about the impact of negligent hiring pertaining to the lack of background checks. You heard Chris talk about what negligent hiring is, a brief overview of the company that we will be presenting findings for and provided some insight into the various types of background checks.

You then heard Neha discussed why background checks are necessary, identified the problem with negligent hiring and acknowledged what HR is doing to rectify this issue.

Lastly, I discussed the legal issues regarding negligent hiring, the pros and cons of our topic and advised how HR remains compliant while ensuring they “steer clear” of negligent hiring claims.

We hope everyone learned something from our findings and can take away some new knowledge on the importance of background checks and negligent hiring.

Questions and Discussion