Background Checks, Quirky Question # 80
Quirky Question # 80:
We are a bank in Washington and would like to run background checks which include credit checks on all of our applicants. Are there any problems with this across-the-board policy?
[Readers: The question below was posed to my Seattle colleague, Sarah Jung Evans. Sarah has written several of our analysis of the West Coast Quirky Questions. Sarah, who is licensed to practice both in California and Washington, is a 2000 graduate of Northwestern University and a 2003 graduate of UCLA Law School. Sarah's direct line is: 206.903.2396; her email is evans.sarah@dorsey.com. Don't hesitate to contact her if you have any questions about the issue below. Regards, Roy]
Sarah’s Analysis:
You ask whether your Washington bank can adopt an across-the-board policy requiring background checks for all of your applicants. Such an approach would expose your bank to potential liability under the state and federal statutory schemes. Let’s start with Washington.
In 2007, Washington Governor Christine Gregoire signed into law S.B. 5827. That bill states that “a person may not procure a consumer report for employment purposes where any information contained in the report bears on the consumer’s credit worthiness, credit standing, or credit capacity, unless the information is either: (i) substantially job related and the employer’s reasons for the use of such information are disclosed to the consumer in writing; or (ii) required by law.
With the passage of this statute, Washington joined four other states with similar restrictions on the use of credit reports – Hawaii, Pennsylvania, New York and Wisconsin.
The question for your evaluation is whether your across-the-board policy would violate the Washington statute. Assuming you also comply with your notification obligations under the Fair Credit Reporting Act (FRCA), you should assess how the Washington law impacts your liability with regard to obtaining the information you seek.
First, you must consider whether the credit worthiness, credit standing or credit capacity is information which is required to be gathered by law. This would not generally be the case for most positions. Given that, the next question to consider is whether the applicant’s credit information is “substantially job related.” The exact meaning of this phrase has not yet been interpreted by Washington courts. However, in a bank setting, it is generally agreed that employees such as tellers who directly handle monetary funds, are in the type of position where credit information is substantially job related. A person whose job entails purely administrative functions (with little or no discretion or handling of monetary funds) is, on the other hand, less likely to qualify.
Until the Washington courts interpret the meaning of “substantially job related,” we recommend you act conservatively and only obtain consumer reports containing credit information for those applicants whose job functions directly involve money or finances or have significant discretion with such sensitive information. Note too that the Washington law maintains an exception, making such limitations inapplicable to situations where the employer “has reasonable cause to believe” the employee has “engaged in specific activity that constitutes a violation of law.” This mimics the FCRA’s exception where employees suspected of misconduct are not entitled to the same notification procedures.
This law obviously applies to employers whose principal place of business is Washington, but may also apply to Washington residents who apply to out-of-state corporations.
Second, with respect to federal law, another area of concern relating to background checks has been noted by the EEOC. The EEOC has concluded that an employer’s requirement of a good credit record for job applicants has a forseeably disproportionate adverse impact upon minorities . However, an employer may avoid Title VII liability if the requirement is justified by business necessity. And, the EEOC has found that a bank’s practice of performing a credit check on successful job applicants did not unlawfully discriminate against minority applicants where the checks were done in a facially neutral manner and served a legitimate, job-related purpose, particularly in the employment of tellers. EEOC v. American Nat’l Bank, 21 Fair Empl. Prac. Cas. (BNA) 1595 (E.D. Va. 1979), aff’d in part and rev’d in part on other grounds, 652 F.2d 1176 (4th Cir. 1981). Thus, under either Washington or federal law, any background check for which credit is pulled should be justified by business necessity.
Finally, another important consideration is what you do with the information you receive from the background check agency? Make sure you dispose of it properly! As of June 1, 2005, it became critical for employers to properly dispose of consumer information or face liability for statutory fines and civil penalties as well as actual damages if an employee’s identity is stolen as a result of the employer’s failure to protect the information. The disposal obligations, found at 16 C.F.R. 682, were a part of the Fair and Accurate Credit Transaction Act of 2003 (FACTA) which amended the Fair Credit Reporting Act.
Employers are subject to the FTC’s jurisdiction under the FRCA when they obtain a consumer report as a part of background check. Every such employer is required to take “reasonable measures” to protect against unauthorized access to or use of the consumer information in connection with its disposal.
The standard for disposal is a flexible one, allowing entities to determine what is a “reasonable” measure. Factors to determine what is “reasonable” include: the sensitivity of the consumer information; the nature and size of the entity’s operations; the costs and benefits of different disposal methods; and relevant technological changes. The disposal rule provides several non-exclusive examples of methods of compliance, including : (a) implementing and monitoring policies and procedures that require the burning or shredding of papers containing consumer information so that the information cannot practicably be read or reconstructed; (b) implementing and monitoring compliance with policies and procedures that require the destruction or erasure of electronic media containing consumer information so that the information cannot practicably be read or reconstructed.
Failure to comply with the disposal rule can expose employers to the following liability:
- Civil fines – Fines up to $2,500 per violation can be assessed from the federal government.
- Civil liability – Employers are potentially liable up to $1,000 per employee in statutory damages.
- Actual damages – Employers are also liable for actual damages if employees’ identities are stolen as a result of the company’s failure to protect the information.
- Class action lawsuit – Employers could be subject to a class action lawsuit if multiple employees are affected.
In addition to the federal penalties associated with the disposal rule, employers can also face liability under state statutes and/or negligence claims.
Note that in December 2007, the FTC announced a settlement in its 15th case (and its first in 13 months) addressing the data security practices of companies handling sensitive consumer information. American United Mortgage Company agreed to pay a $50,000 penalty for failing to implement reasonable safeguards to protect customer information and failing to provide customers with privacy notices.
American United was the first FTC action taken pursuant to the Disposal Rule of the FACTA of 2003. The complaint filed in the Northern District of Illinois asserted that the Northbrook, Illinois-based mortgage company disposed of several dozen consumers’ personally identifying information by leaving intact hundreds of documents in a nearby unsecured dumpster, in some cases in open trash bags. Indeed, even after the FTC provided written notice to American United that disposal of documents containing consumers’ personal information in this manner created a risk of unauthorized access, “on at least two occasions, additional intact American United documents containing consumers’ personal information were found in and around the same dumpster adjacent to American United’s office.”
In addition to the fine, the stipulated judgment and order required American United to obtain an immediate third-party audit of its privacy safeguards and ongoing audits every two years for a decade. American United was also permanently enjoined from further violations of the FACTA Safeguards, Disposal, and Privacy rules. This case illustrates the potential consequences of disregarding a company’s obligations under FACTA.
Domestic Abuse and Wrongful Discharge, Quirky Question # 66
One of our employees recently advised us that she and her two children were suffering from domestic violence by her husband. She requested us to provide her time off to move herself and her children out of the abusive situation at her home. Frankly, we were somewhat skeptical so we denied her request. Not long thereafter, her husband beat up one of her children so severely that he required hospitalization. Again, she requested time off to move herself and her children, this time into a shelter. Needless to note, we felt very badly about what happened and granted her request.
About a month after returning from leave, her supervisor demoted her. A few months later, he discharged her. She is now suing our firm for wrongful termination in violation of public policy? Is this a legitimate claim in Washington? If so, what are our risks.
As you may have recognized, the situation described in this question parallels a case decided by the Washington Supreme Court on October 3, 2008. In Danny v. Laidlaw Services, the Court ruled that Washington has “a clear public policy to prevent domestic violence.” In Danny, the plaintiff and her five children had experienced ongoing domestic violence at the hands of her husband, resulting in her son being hospitalized. She requested time off from work twice and was at first refused. Following the hospitalization her son, however, the company granted her request for time off. About a month after she returned to work, she was demoted, and in December, she was terminated. She then brought a lawsuit, alleging that she was wrongfully terminated in violation of public policy.
Against this backdrop, the Washington Supreme Court held that the state’s policy of domestic violence prevention is “truly public” in nature, and that this, coupled with Washington’s Executive Order 96-05 which directs each state agency to create workplace environments that provide “assistance for domestic violence victims without fear of reproach” and notes that domestic violence causes “loss of productivity, increased health care costs, increased absenteeism, and increased employee turnover,” was sufficient to support a finding of public policy to prevent domestic violence.
The Court did not leave this public policy unlimited, however. In other words, an employee’s notification to his or her employer of domestic violence is not carte blanche to take unlimited time off from work. The Court specifically stated that in order for Danny to prevail on her claim of wrongful discharge in violation of public policy, she still must meet the remaining three essential elements of the claim: a) jeopardy; b) causation; and c) absence of justification. In this case, Danny would have to show that the time off she took was the only available adequate means to prevent the domestic violence against herself or her children or to hold her abuser accountable. Some examples of situations which would likely meet this threshold are:
Unemployment Compensation Challenge, Quirky Question # 45
We recently had an employee voluntarily resign because she found employment with our company “unbearable.” She then sought unemployment benefits. It is my understanding that an employee in Washington who quits is not entitled to unemployment benefits. Do we have grounds to challenge her claim?
In sum, if you do decide to challenge a former employee’s claim for unemployment benefits, the fact that they quit may not be enough to defeat the claim by itself. Until either the Legislature or case law provides more guidance, the likely outcome of employer objections under these circumstances is unclear.
The other question you should consider is whether it is wise to challenge the former employee’s request for benefits. Some things to think about:
(1) What risk do you run that the former employee will file some type of wrongful termination suit against your business in the future? If the former employee feels that they were fired for a discriminatory reason, but you have evidence that they were fired for misconduct, you may want to defend against the unemployment insurance claim. If you win, it shows that you have support for your position and may discourage the former employee from pursuing any other claims, and provide additional evidence to bolster your defense if they do file a lawsuit. Of course, an opposite result at the unemployment compensation stage, especially if it turns on collateral conduct (e.g., an employee claiming sexual harassment) may embolden the employee.
(2) How much is contesting the claim going to cost in lost productivity and out-of-pocket costs? The process of contesting an employee’s unemployment compensation claim can be distracting and a drain on the employer’s human resources, as many times lawyers do not represent employers at such proceedings.
(3) How likely is it that contesting the unemployment benefits will make the employee more likely to sue? An employee who receives his/her benefits may have a more favorable feeling about the employer and more quickly move on with his/her life. Your analysis of this factor will depend largely on how well you know the former employee.
Responsibility for Employee Injury, Quirky Question # 25 (West Coast Questions)
We own and operate glass container manufacturing plants around the country, including Seattle. One of our employees resides in Pennsylvania, and regularly travels around the country to work as a foreman on glass furnace rebuilds. This particular employee began working for us in the 1980s and worked exclusively for us for about five years.
Under the union contract, we pay for travel to and from the work location for all out-of-state foremen, and provide a per diem of $78 per day for every day they are employed on a project, regardless of whether they are scheduled to work. We also provide employees with rental cars.
On a Sunday when he wasn’t scheduled to work, the employee foreman was walking across the street from his hotel to hear “Music in the Park” at a nearby location. As he was crossing the street, he was hit by a car and badly injured. He filed for workers’ compensation benefits. Although we agree that this accident is a terrible tragedy, we do not think his injury is covered. He wasn’t working at the time of the accident after all. Should we dispute the claim?
Federal law and comparable statutes in 43 of the states share the language first used in the “British Compensation Act formula for determining what is a compensable workers’ compensation injury: an injury ‘arising out of and in the course of employment.’” Washington, however, has no requirement that an injury “arise out of” employment, only that the worker was within “the course of employment” when injured.
As the Washington Supreme Court in Ball-Foster Glass Container Company v. Giovanelli ruled on February 21, 2008, the case from which these facts arise, “[t]he language of the statute shows the intent of the Washington Legislature to adopt a broader and more comprehensive statute than other states.”
In line with that philosophy, the Giovanelli court held that the employee’s injury was covered by workers’ compensation pursuant to the “traveling employee doctrine.” This doctrine is also known as the “commercial traveler rule,” or the “continuous coverage rule” in other jurisdictions.
First, the Court determined that Mr. Giovanelli was in fact a ‘traveling employee’ because he was “one whose job requires travel from place to place or to a place from a permanent residence or the employee’s place of business.” As the court observed, Mr. Giovanelli’s “job assignment to Seattle required him to travel to a place away from his permanent residence.” The Court noted that the employer recognized this fact by reimbursing Mr. Giovanelli not only for his travel expenses, but for the journey to and from Seattle, and provided him a per diem during his entire stay in Seattle, including his days off.
It is well established in Washington and other jurisdictions (e.g., Utah, New Mexico, Oregon, Georgia and Texas) that traveling employees are generally considered to be in the course of employment continuously during the entire trip, except during a distinct departure on a personal errand. “The rationale for this extended coverage is that when travel is an essential part of employment, the risks associated with the necessity of eating, sleeping, and ministering to personal needs away from home are an incident of the employment even though the employee is not actually working at the time of injury.” Citing to another Washington case, the Court articulated the general rule as: “When employees are required by their employers to travel to distant jobsites, courts generally hold that they are within the course of their employment throughout the trip, unless they are pursuing a distinctly personal activity.” The Giovanelli court went further, holding that “…traveling employees are entitled to expanded coverage for travel-related injuries.”
The second issue was whether Mr. Giovanelli’s walk across the street in front of his hotel to a nearby park was a distinctly personal activity. The Court said the test of whether a worker has “left the course of employment” was “whether the employee was pursuing normal creature comforts and reasonably comprehended necessities or strictly personal amusement ventures.” Under the “‘personal comfort doctrine,’ a worker who engages in acts that minister to personal comfort does not thereby leave the course of employment unless the extent of the deviation is so substantial that an intent to abandon the job temporarily may be inferred or the method chosen is so unusual and unreasonable that the act cannot be considered incidental to the course of employment.” The doctrine applies to such acts as eating, resting, drinking, going to the bathroom, smoking and seeking fresh air, coolness or warmth.
Under Washington’s broader statute, the Court held that “[a] traveling employee is entitled to broader coverage [under the personal comfort doctrine] than a nontraveling employee … The nontraveling employee may satisfy his personal needs without leaving the comfort of home.” Accordingly, the Court held that “[i]n taking a Sunday stroll to the park on his single day off, Giovanelli did not ‘distinctly depart’ from the course of employment on a ‘personal errand.’ Neither the nature of his activity nor the manner in which he engaged in it was unreasonable or unusual. The risk of getting injured while crossing the street in front of his hotel during a walk to the park was a risk of his employment. Accordingly, he is entitled to compensation.” As the Supreme Court succinctly stated, “But for [Mr. Giovanelli's] need to lodge away from home during his job assignment, he would not have been there [crossing the street].”
This expansion of workers’ compensation insurance coverage for traveling employees may increase insurance premiums for companies like Ball-Foster Glass, but the Washington Supreme Court left that issue to the Legislature. It will be interesting to see if other jurisdictions follow Washington’s lead.
Starting the Work Day, Quirky Question # 19
Our company provides automobiles and vans to some of our employees who have to conduct product installations or repairs at customers’ work sites. Some times these work sites are closer to the employees’ homes than is our central office; some times they are farther away.
Figuring that the distances roughly balance out between the shorter and longer trips, we start paying our employees when they arrive at the customers’ locations. This approach also enables our employees to stop for coffee or food on the way to the job site without feeling that they are ripping us off. A friend at another company recently told me that this approach may cause us problems down the road.
We have been doing this a long time without any employee complaints. In fact, our installation and service employees like the fact that they can go directly to the customers’ locations rather than having to check in at the home office first. Are we missing something important?
Your question raises the issue of what constitutes compensable time prior to the commencement of the work day. Similarly, by extension, the facts you describe also raise a question about whether your employees are compensated for the time they spend driving home from their final customer’s location.
An employer’s approach to this issue (whether it involves the vehicle question you posed or other types of pre- or post-work activities) can have ramifications under the Fair Labor Standards Act (FLSA) and/or parallel state wage and hour laws. Historically, there was relatively little interest in these types of issues by the plaintiffs’ employment bar. That was then, this is now. FLSA and state wage and hour claims now are receiving incredible amounts of attention and are yielding some of the largest settlements and verdicts (many involving eight- and nine-figure sums).
I can certainly understand why your firm has approached this issue as you describe. It seems wasteful to have an employee commute 30 miles to a central office before starting his/her day, only to send that person 25 miles back in the same direction after he/she has “clocked in” at the home office. I don’t doubt that the employee would prefer to drive the 5 miles directly to the customers’ location, rather than spending an hour-plus in the car. Similarly, I am sympathetic to the concerns you articulate regarding the employee’s desire to stop for food or a beverage on the way to the job site, without feeling that he/she is exploiting your company.
Nevertheless, in a recent decision by the Washington Supreme Court, that state’s high court rejected the approach your company has been following. In the case of Stevens vs. Brink’s Home Security Inc., No. 79815-0 (Wash. October 18, 2007), the court ruled that the alarm installation employees who drove directly from their homes in company-provided vehicles were entitled to compensation for their commuting time (both before and after the time spent with customers) pursuant to Washington’s Minimum Wage Act (MWA).
Interestingly, the defendant in the Stevens case offered its employees two options: a) they could drive to the central office and pick up a company vehicle at the start of the day, returning it at the end of the day; or b) they could retain the company vehicle and go directly to the job site from their homes. With respect to the second option, the employees were compensated for drive time in excess of 45 minutes. A class of employees, all of whom had selected the second option, brought the lawsuit, seeking overtime compensation for the time spent driving to the worksite and driving home from the worksite, regardless of the length of the commute.
For Washington employers, barring distinguishing factors, drive time in a company vehicle (whether going to the first job of the day, or returning home at the end of the day), is compensable and should be included in employers’ calculations when determining employees’ overtime eligibility. For your company, and employers in other states, the Stevens analysis provides some useful insights and guidance. To what extent are your firm and other employers “controlling” the use of the company vehicles? Do the employers prohibit all passengers, or would it be permissible for an employee driving the vehicle to drop a child off at school or a spouse off at work, on the way to a jobsite? Are employees permitted to run errands with the company vehicles, either at the beginning or the end of the day? How do employees learn where they will be assigned to work on a particular day and do they have to engage in any preparatory activities before arriving at the job site? Do employees have contact with the home office on the way to the job site and, are they sometimes told to report elsewhere for work? Depending on how these and similar questions are answered and depending on the similarities between other states’ statutes and the language of Washington’s MWA, your company and other firms may be confronting unanticipated overtime liability.
I recommend that you evaluate your policies and practices carefully in this area and consider whether it would be prudent to alter your approach. Note, too, as referenced above, that there are a number of other contexts where the commencement and end of the official work day has been litigated. Often, these situations implicate the donning and doffing of protective or other types of specialty clothing or equipment. As I’ve stated in other blog analyses, however, these are questions that I’ll reserve for another day.
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