The Federal Trade Commission (“FTC”) recently issued guidance discussing certain disclosure and authorization requirements that employers must satisfy prior to obtaining background screening reports for prospective employees.  If your company obtains background information to screen prospective employees, now is a good time to make sure you are complying with the Fair Credit Reporting Act (“FCRA”).

Under the FCRA, background screening reports are either “consumer reports” or “investigative consumer reports” when they are used for employment purposes and include information bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living. Notably, the definition of “consumer report” also includes oral or other communications, and is not limited to written communications.

If your business uses background screening reports to assist with hiring decisions, remember, the FCRA requires the following steps:

  1. Prior to obtaining a background screening report about a prospective employee, employers must inform the person that they plan to get the report, and obtain the individual’s written permission allowing the employer to do so.
  2. If the background screening report discloses information that may cause the employer to not hire the prospective employee, the employer must notify the individual of the report’s findings and provide them with a copy of the report. The employer must then give the prospective employee a sufficient amount of time to review the report so they can contest any findings that might be incorrect. Although the law is silent on what constitutes “sufficient time,” the FTC has generally found that five business days satisfies this requirement.
  3. If the employer eventually chooses not to hire the prospective employee based in whole or in part on information provided in the background screening report, the employer must give notice to the prospective employee that says they were not hired due at least in part to the result of the background screening report.

One of the biggest sources of litigation with respect to background check reports recently has been over the disclosure and authorization requirements. The disclosure must be in a clear and conspicuous format that prospective employees will understand. Employers must also get the prospective employee’s written permission prior to getting a background screening report. Per the FCRA, employers may either separate the disclosure and authorization or combine the two into a single document.

The disclosure must be in a stand-alone format, meaning it cannot be in an employment application or a part of a lengthy onboarding packet. Employers can include some minor additional information in the disclosure, such as a brief description of the nature of consumer reports, but only if such information does not confuse or detract prospective employees from the substance of the disclosure.

The FTC guidance provides some examples of the types of provisions that should not be in a disclosure or authorization request:

  • Employers should not include language that purports to release them from liability for conducting, getting, or using a background screening report.
  • Employers should not include a certification by the prospective employee that all information in his or her job application is accurate.
  • Employers should remove any language that purports to require prospective employees to acknowledge that the employer’s hiring decisions are based on legitimate non-discriminatory reasons.
  • Employers should remove overly broad authorizations that allow the release of information that the FCRA does not allow to be included in a background screen report – for example, bankruptcies that are more than 10 years old.

According to the FTC guidance, a disclosure statement (including a combined disclosure and authorization) containing complex legal jargon, additional acknowledgements, or waivers of liability makes it more difficult for prospective employees to understand the main purpose of such documents. Additionally, including other acknowledgements or releases of liability is beyond the scope of what the FCRA permits in the disclosure statement, and the inclusion of such provisions may cause employers to run afoul of the statute. If employers have additional waivers, authorizations, or disclosures that they wish to give to prospective employees, they should present them in a separate document rather than in the FCRA disclosure and authorization.

Failure to comply with the FCRA is not without consequences. Indeed, employers who do not act in accordance with the FCRA are subject to civil penalties under the statute. Willful non-compliance may result in damages up to $1000, court determined punitive damages, and the recovery of costs and reasonable attorney’s fees in successful actions to enforce liability.  The FCRA also contemplates negligent noncompliance.  Employers who are negligently non-compliant with the FCRA can be liable for any actual damages sustained by the consumer, as well as the recovery of costs and reasonable attorney’s fees in successful actions to enforce liability.

Employers who conduct background screenings on potential employees should be mindful of the FTC’s continued enforcement efforts with respect to the FCRA.

Growing a company from the ground-up can be immensely rewarding but also challenging.  With the proliferation of start-up companies in this Digital Age, the question is often asked how a business can grow from a handful of like-minded individuals with a common goal while maintaining its culture and staying in compliance with a myriad of laws that impact its operations and workplace.  On May 17, 2017, Epstein Becker Green’s TMT service team was delighted to co-host with WeWork Dumbo Heights (Prospect): When Jeans Meet Suits: Keeping Your Startup Culture & Staying Compliant with Workplace Laws.  Panelists Jonathan Truppman (Casper), Adam Greenberg (Warby Parker) and AJ Pires (Alloy Development) shared with us their insights as to what builds a best-in-class workplace.  My takeaways from the discussion are as follows:

  • Hire Carefully – It’s important to get to know potential hires, their character and personality, and whether they will share the common goals and mentality of the organization.  Specific skills for the job can be taught.  Try not to hire too quickly, if possible, before you have a sense that the person will fit in with the company culture. Once the organization has its defined culture and values, it will become easier to identify like-minded individuals to hire.
  • It’s OK to Hire the Over Talented – When trying to fill positions, even entry-level, think long-term.  The people that you bring into the organization should be people that you’d like to see grow with the company and move up.  They may be overqualified at first, but give them the skills and training they need to progress even further.  Nurture their ambition and their talents.
  • Create an Open Door – Create an atmosphere where employees feel comfortable speaking with senior management.  Not only will employees appreciate the feedback and guidance, but also, open communication can serve to address any employee concerns early on.  Empower employees to make good decisions with integrity which can help stave off workplace compliance issues.
  • Infuse Social Responsibility – There are many ways to give back to the community and instill philanthropic goals in employees.  Foster a do-good mentality, sponsor programs and allow employees time from work to volunteer.  Not only does this help the community, but it builds strong bonds and a shared vision among employees in the workplace.
  • Engage Advisors When Needed – In the ordinary course, it may become necessary to seek outside advisors, especially as the business grows.  It is helpful to do a gut check periodically to assess whether there are any changes in the law that can impact the business or workplace.
  • Maintain Levity – Try to have fun along the way!

It certainly makes a lot of sense to build a company culture of transparency and inclusion, where talents are recognized and promoted, and giving back is a shared value.  What is good for the human heart is most certainly good for the bottom line.

On April, 24, 2017, the New York State Department of Labor (“NYSDOL”) has filed an appeal to the February 16, 2017 decision by the New York State Industrial Board of Appeals (“Board”). The Board’s ruling held that the NYSDOL’s regulations regarding employer payments via payroll debit cards and direct deposit were invalid, thereby revoking the regulations, which were set to become effective on March 7, 2017. While the regulations remain ineffective, we will continue to provide updates on New York’s payroll debit card and direct deposit rules.

Our colleague Sharon L. Lippett, a Member of the Firm at Epstein Becker Green, has a post on the Financial Services Employment Law blog that will be of interest to many of our readers in the technology industry: “Potential Impact of Trump Tax Reform Plan on Retirement Plans: What’s Old Could Be New Again.”

Following is an excerpt:

While Congress’ attention has most recently been focused on the American Health Care Act, that bill will most likely not be the only proposed legislation that Congress will consider in 2017. It appears that a tax reform plan (the “2017 Tax Proposal”), which could also have a wide-reaching impact, is also on the agenda.

If the 2017 Proposal includes provisions relating to defined contribution retirement plans sponsored by private employers, such as 401(k) plans, the impact will be felt by employers and investment managers, as well as by plan participants. While the Trump Administration has stated that the current version of its 2017 Tax Proposal does not reduce pre-tax contributions to 401(k) plans, speculation continues that a later draft may include curtailment of these contributions or other changes with a similar impact. …

Read the full post here.

In the latest HR headline from the start-up world, the offending executive doesn’t fit the typical mold, but the lesson remains the same: don’t ignore human resources.

Miki Agrawal, the self-proclaimed “SHE-eo” of THINX, and her “boundary pushing” workplace demeanor are the focus of a New York City Commission on Human Rights complaint by the former head of public relations, Chelsea Leibow. Leibow alleges that Agrawal created a hostile work environment through her constant discussion of sex, nudity around employees, and inappropriate touching of employees’ breasts.

THINX, the “period underwear” company that seeks to disrupt the menstrual products world, intentionally pushes boundaries with its marketing strategies. In her role, Leibow was responsible for PR emails, which were the subject of media attention highlighting the emails’ casual, “millennial-speak.” According to Leibow in an interview with New York Magazine, the company also pushed internal boundaries of professionalism.  Leibow alleges that, just a few months after she joined THINX Agrawal, “helped herself” to Leibow’s breasts and engaged in a variety of other sexualized conduct.  Leibow asserts that Agrawal drove a casual culture, and that many employees engaged in more casual (and often sexually-inappropriate) conversations out of fear of losing their jobs.

Leibow alleges that she made multiple internal complaints, including to the CFO and CCO, about Agrawal’s behavior, but those complaints were ignored. Rather than establish a formal HR function, Agrawal introduced “Culture Queens” to manage internal disputes. Neither of these individuals had HR experience, and the reporting line brought all complaints back to Agrawal – even those complaints about her. In fact, Leibow alleged that it was ingrained into the culture that the employees and the executive team “operated on different planes.”

In response to Leibow’s complaint and subsequent publicity, Agrawal published a blog acknowledging that THINX failed to appropriately establish a human resources function early enough in the formation of the company. Like many start-ups, when THINX had only 15 employees, Agrawal did not make hiring an HR professional a priority.  She acknowledges that the failure to address human resources was a “problem area,” but “to sit down and get an HR person and think about [health insurance, vacation days, benefits, and maternity leave] were left to the bottom of the pile of things to get done.” THINX has commissioned an employment law firm to investigate these claims, along with several other allegations being anonymously reported to various news outlets.

Following the complaint, Agrawal has stepped down as CEO, and THINX is hiring a new CEO and a HR manager. Our attorneys have seen a continuing pattern of successful start-up companies ignoring human resources functions in favor other responsibilities to launch the business.  But as this example teaches, start-ups and other small businesses should not leave HR-planning to the end. Although managing the HR function early on seems less important than getting the business off the ground, failing to establish basic workplace rules, including a harassment complaint procedure, can lead to major problems.

A new post on the Management Memo blog will be of interest to many of our readers in the tech industry: “‘A Day Without’ Actions – How Can Employers Prepare?” by our colleagues Steven M. Swirsky and Laura C. Monaco of Epstein Becker Green.

Following is an excerpt:

[T]he same groups that organized the January 21, 2017 Women’s March on Washington – an action participated in by millions of individuals across the county – has called for a “Day Without Women” to be held on Wednesday, March 8, 2017. Organizers are encouraging women to participate by taking the day off from paid and unpaid labor, and by wearing red – which the organizers note “may be a great act of defiance for some uniformed workers.”

Employers should be prepared to address any difficult questions that might arise in connection with the upcoming “Day Without Women” strike: Do I have to give my employees time off to participate in Day Without events? Can I still enforce the company dress code – or do I need to permit employees to wear red? Can I discipline an employee who is “no call, no show” to work that day? Am I required to approve requests for the day off by employees who want to participate? As we explained in our prior blog post, guidance from the National Labor Relations Board’s General Counsel suggests that an employer can rely on its “lawful and neutrally-applied work rules” to make decisions about granting requests for time off, enforcing its dress code, and disciplining employees for attendance rule violations. An employer’s response, however, to a given employee’s request for time off or for an exception to the dress code, may vary widely based upon the individual facts and circumstances of each case. …

Read the full post here.

As I continue to follow developments regarding the future of work, I recently attended an event co-sponsored by Cornell/ILR’s Institute for Workplace Studies in NYC and the McKinsey Global Institute (MGI) addressing MGI’s report last Fall entitled Independent Work: Choice, Necessity and the Gig Economy. The report examines the increasing numbers of self-employed, freelance and temporary workers in the U.S. and Europe which are currently estimated to comprise 30 percent of the working-age population and rising.  The report notes that many workers have chosen this autonomous path as their primary means of income, while others follow it to supplement income, and yet others have no other choice and would prefer a traditional job with fair wages and benefits.   Many factors have led to the return to this pre-industrial revolution independent worker model including the recession and the emergence of The Digital Age as workers are more mobile and have increasing access to new technologies which transform how work is performed and goods and services are bought and sold.

The independent model of work is not without its critics.  Not everyone is capable of managing themselves as an independent business.  Many fear that this model is more appropriate for highly-skilled workers who have special skills and can manage multiple engagements which they have cultivated and that are well paid.   For the majority of entry-level or non-specialized workers, however, this model may drive down wages and leave many others unemployed. Further, it is unclear how independent workers will be protected from pay disparities, discrimination, work injuries, unemployment and how they will obtain benefits for such needs as health care, retirement, or disability.  Many have argued that employers have moved toward retention of independent workers to avoid employment and benefits legal responsibilities and erode the traditional employer-employee relationship and benefits.

Shifting worker models are also caused by advances in automation and will accelerate with the transformations that will be ushered into the workplace with artificial intelligence, machines and robots that perform many current jobs and will perform jobs of the future.   In a December 2016 report from the Obama administration entitled Artificial Intelligence, Automation, and the Economy, it was noted that while the industrial revolution led to the disruptions to the lives of many agricultural workers, the technological revolution has led, and will continue to lead, to disruptions for workers in all industries. This will also continue to impact the professions (e.g., financial services, education, journalism, sales, accounting, law and medicine).   The increased use of automation and the demand for highly-skilled workers and those capable of abstract thinking and creativity will result in the displacement of many workers who perform routine tasks and in lower-skilled jobs.  Further, it is only a matter of time before robots are built with the manual dexterity to perform physical labor jobs.  As society advances and deploys AI-driven automation, a re-thinking of worker models, our educational system and the social safety net is crucial.

With this confluence of events, it is imperative that swift policy action is taken to prepare for the transition that lies ahead and employers have an important role to play.   As we have seen with the passage of the Affordable Care Act and proposals for automatic payroll-IRAs managed by states or local governments, there have been movements afoot for several years calling for more government-run forms of benefits in the U.S. which lend themselves to portability without attachment to an employer, but these models are also controversial for numerous economic and political reasons and are under attack.  Policy makers  continue to put forth ideas to require employers and independent contractor agencies to contribute toward a system of portable benefits for independent workers which may include multiple employer programs, pooled associations, and various types of government funds. The shifting tides will also require individuals to be financially educated and to save in their own health, retirement, and other insurance type vehicles apart from any employer-provided benefits. Employers in all industries will need to contribute to these debates and should consider the following:

  • Develop a Workplace Transition Policy.  As employers manage multiple generations in the workforce from the traditionalists, baby boomers, Generation X, Millenials, and Generation Z, and  as society shifts to new models in the workplace, including use of AI-driven automation, impact on existing traditional-model workers should be carefully addressed.   Immediate issues to consider include proper management of employee reductions and retirements (including fair and reasonable severance and related benefits (including career transitioning and re-training assistance), incentives for transfer of knowledge between generations (which may require ongoing consulting arrangements or staggered retirements), guidance for younger generations managing older generations and/or cobot relationships (which may require leadership training or new models of management training which address the newly envisioned workplace), integration of flexible work arrangements and job sharing, and deployment of AI and workplace technologies (with commensurate training and accommodations for their use). Improper handling of these issues can implicate allegations of violations of various employment laws from age, gender and disability discrimination to interference with rights to certain employee benefits.
  • Pay a Fair and Competitive Wage.  The call for fair wages, including a rise in the federal minimum wage, is not new. As more of the economic burden will fall on individuals to not only afford to live but also to save for all of their needs including health care, retirement, and periods of unemployment without employer assistance, fair wage initiatives are imperative and provide one way for employers to contribute to the eroding social safety net for all workers.  If this can be combined with financial  wellness and literacy type programs, employers can play a significant role in assisting their workers understand and meet their financial needs.
  • Provide Employee and Independent Worker Benefits.  It is widely noted that the erosion of employer provided pensions has contributed to the retirement crisis. Further,  employer provided health care also continues to be under attack.  Employer sponsored programs that address retirement savings and health care benefits provide a crucial safety net for workers and should be maintained lest these needs fall on the government to provide in order to fill the void.  Policy makers are also evaluating ways to make these benefits more flexible and portable and these developments should be monitored.  Consideration should also be given to making these benefits available to independent workers, which would resolve many of the worker misclassification analyses as it relates to impermissible exclusions of eligible workers for plans.  Among the many other types of employer-provided benefits, additional benefits such as tuition reimbursement and student loan debt repayment programs will also assist workers to train for future job skills and ease burdens of existing debts.
  • Contribute to Pipeline Development of Workers.  Educational systems are in dire need of reform.  Employers should consider how to partner with high schools, colleges and universities for job training, internships, and research endeavors to prepare next generations for the future of work.  Thought should also be given to retooling the current workforce to obtain the skills needed for the marketplace.  Ensure that the pipeline of workers obtains the needed skills for future jobs.   
  • Carefully Deploy AI-driven Automation and New Technologies into the Workplace.  The increased use of machines, robots and AI in the workplace will lead to new legal questions concerning data privacy and security, workplace safety, and far ranging employment and labor issues as individuals are required to work with, or be displaced by, these tools.  Whether a worker is an employee, an independent contractor, or another yettobe determined classification, the co-working relationship between humans and machines has yet to be defined and will require thoughtful planning.

Businesses that have goods and services to sell will need individuals to buy them.  If independent work becomes more of a necessity than a choice, the social and economic consequences can be dire.  As businesses gain from the increased profitability that is promised by the use of AI-driven automation, impending tax reform, and shifting worker models, it is imperative for employers to contribute to the policy debates and find ways to contribute to the economic security of the individual workers.

The United States Department of Labor’s Office of Federal Contract Compliance Programs (“OFCCP”) on January 17, 2017, just days before the inauguration of President Donald Trump, filed a lawsuit against Oracle America, Inc. (“Oracle”), alleging discrimination in its compensation and hiring practices, and its refusal to produce requested records and data. See Complaint. The lawsuit, filed with the Office of Administrative Law Judges, stems from a compliance review initiated by the OFCCP on September 24, 2014 at Oracle’s Redwood Shores headquarters in California, housing 7,000 employees.

As a federal government contractor, subject to Executive Order 11246, the Rehabilitation Act and the Vietnam Era Veterans’ Readjustment Assistance Act, Oracle is contractually obligated not to discriminate in employment on the basis of certain protected characteristics, which include race, color, religion, sex, sexual orientation, gender identity, national origin, disability, and status as a protected veteran. In addition, Oracle is required to take affirmative action to ensure that applicants and employees are afforded employment opportunities without regard to these protected characteristics. As part of its contracts with the federal government, Oracle also agrees to allow the OFCCP to inspect its employment records to ensure the company’s compliance with its non-discrimination and affirmative action obligations.

The lawsuit seeks to redress violations of Executive Order 11246 stemming from the tech giant’s alleged “systemic compensation discrimination” against qualified women, Asians and African Americans employed in Information Technology, Product Development and Support positions (encompassing 80 job titles), and its “pattern and practice of hiring discrimination” against qualified White, Hispanic and African American applicants in favor of Asian applicants, namely Asian Indians, in the Professional Technical 1, Individual Contributor and the Product Development job groups (involving 69 job titles). The OFCCP specifically alleged that there were “gross disparities in pay” and “[statistically] significant overrepresentation” of Asians in the applicant pools and affected positions. In making its findings, the OFCCP indicated that Oracle refused to produce prior year compensation data and complete hiring data, and further refused to produce documentation demonstrating that it had performed “an in-depth review of its compensation practices” and that it had analyzed its applicant-hiring data for adverse impact.

Having found discrimination, the OFCCP issued a Notice of Violations, and three months later a Notice to Show Cause seeking an explanation for why the agency should not initiate enforcement proceedings. Seven months later, after conciliation efforts failed, the OFCCP instituted the instant action. While only Oracle and the OFCCP know what was discussed and debated in an attempt to bring about a resolution, clearly the OFCCP was not satisfied with Oracle’s explanations justifying the pay disparities and hiring practices, nor pleased with the company’s refusal to produce the additional compensation and hiring data requested. As a result, the OFCCP is seeking a decision finding that Oracle’s compensation and hiring practices violated Executive Order 11246, and an order permanently enjoining the company from failing and refusing to comply with its obligations, cancelling its federal government contracts, debarring it from entering into future contracts until remedying its prior noncompliance, and requiring it “to provide complete relief to the affected classes, including lost compensation, interest and all other benefits of employment resulting from Oracle’s discrimination.” Simply put, there are millions of dollars at stake.

Action Steps Employers Should Take Now

While it is still unclear what agenda the Trump Administration will expect the OFCCP to follow, so long as the status quo remains, federal government contractors should take heed. The OFCCP clearly intends to send a message with this and other lawsuits recently filed. Contractors should therefore be proactive to ensure that their compensation practices are not causing significant pay disparities that cannot be justified. They also need to ensure that their hiring practices are such that they are considering a diverse slate of candidates drawn from well-balanced recruiting pools and making hiring decisions without regard to gender, race and ethnicity. Both can be accomplished by contractors engaging counsel to conduct self-audits to ensure that they are in compliance and meeting all of their non-discrimination/affirmative action obligations as a federal government contractor. If such action is not taken, then they may face the same level of scrutiny and consequences as Oracle.

A New Year and a New Administration: Five Employment, Labor & Workforce Management Issues That Employers Should MonitorIn the new issue of Take 5, our colleagues examine five employment, labor, and workforce management issues that will continue to be reviewed and remain top of mind for employers under the Trump administration:

Read the full Take 5 online or download the PDF. Also, keep track of developments with Epstein Becker Green’s new microsite, The New Administration: Insights and Strategies.

Our colleagues Judah L. Rosenblatt, Jeffrey H. Ruzal, and Susan Gross Sholinsky, at Epstein Becker Green, have a post on the Hospitality Labor and Employment Law Blog that will be of interest to many of our readers in the technology industry: “Where Federal Expectations Are Low Governor Cuomo Introduces Employee Protective Mandates in New York.”

Following is an excerpt:

Earlier this week New York Governor Andrew D. Cuomo (D) signed two executive orders and announced a series of legislative proposals specifically aimed at eliminating the wage gap in gender, among other workers and strengthening equal pay protection in New York State. The Governor’s actions are seen by many as an alternative to employer-focused federal policies anticipated once President-elect Donald J. Trump (R) takes office. …

According to the Governor’s Press Release, the Governor will seek to amend State law to hold the top 10 members of out-of-state limited liability companies (“LLC”) personally financially liable for unsatisfied judgments for unpaid wages. This law already exists with respect to in-state and out-of-state corporations, as well as in-state LLCs. The Governor is also seeking to empower the Labor Commissioner to pursue judgments against the top 10 owners of any corporations or domestic or foreign LLCs for wage liabilities on behalf of workers with unpaid wage claims. …

Read the full post here.