FiveTips for Conducting Lawful Employment Background Checks

Business Devil.jpgIt's gettin' so a businessman can't expect no return from a fixed fight. Now, if you can't trust a fix, what can you trust? For a good return, you gotta go bettin' on chance - and then you're back with anarchy, right back in the jungle.

Johnny Caspar, played by Jon Polito, Miller's Crossing

The above quote is from Miller's Crossing (a phenomenal movie) and is delivered by Jon Polito's character Johnny Caspar, a ruthless gangster, who is offering his take on the ethics that should be expected when it comes to Mr. Caspar fixing fights.

As Mr. Caspar's dialogue shows, ethics can be a matter of flexibility. In the context of the employment relationship, most employers and employees probably would agree that the employment relationship is flexibile enough to tolerate a certain amount of puffery, resume exagerration, and even white-lies.

But some companies offer services for employees who are willing to take "ethical flexibility" to levels reserved only for contortionist. 

Take for example this description from Paladin Deception Services

Paladin Deception Services is here to assist you in obtaining the fictitious reference, the little white lie, or the alibi that you need. Our agency can provide you with either male or female testimonials​ over the phone in the local area code that you require ... Get the verification that you need!

Paladin's website further explains that it provides a "case manager who will walk you through the entire process from start to finish, developing an operational plan of disinformation best suited to your needs." 

Combating Disinformation with Employment Background Checks  

Even without employment disinformation services like the above, employers routinely conduct some degree of due diligence when it comes to job applicants and prospective employees. The scope of your company's background checks will depend upon its particular goals and circumstances. Ideally, that scope should be determined by the company's management, its human resource professionals, and its employment attorney. At a minumum, these stakeholders should include the following areas in that determination when it comes to implementing an employee background check procedure:    

  1. Credit Scores. Job applicants need to be given proper notice and give their written consent if your company intends to review their credit score. Reviewing an applicant’s credit rating brings into play the Fair Credit Reporting Act (FCRA), a federal statute that permits employers to request a credit report for employment purposes.
  2. Pre-Adverse Notice and Credit Scores. Your company may need to provide a "pre-adverse" disclosure if it uses a credit report to make certain adverse employment decisions such as hiring, firing, or promoting. Under the FCRA, an employer must give the individual what is often called a pre–adverse action disclosure that includes a copy of the individual’s consumer report and a specific document titled "A Summary of Your Rights Under the Fair Credit Reporting Act." And after an employer has taken an adverse action, the individual must be given additional information, including (i) the name, address, and phone number of the consumer reporting agency that supplied the report; (ii) a statement that the agency that supplied the report did not make the decision to take the adverse action and cannot give specific reasons for it; and (iii) a notice of the individual’s right to dispute the accuracy or completeness of any information the agency furnished; and (iv) a written or electronic disclosure of the numerical credit score used in taking any adverse action. 
  3. Criminal Background Checks. If criminal background checks are used to screen applicants or employees, employers should obtain the individual's written authorization and a signed release.
  4. Criminal Background Checks and Consistency. Conducting criminal background checks should be used in a consistent manner. Inconsistent investigation may result in an inference of discrimination against a certain racial or ethnic group. It is also important to know what can and cannot be asked when it comes to criminal background checks. For instance, under Michigan's main employment statute, the Elliott-Larsen Civil Rights Act (ELCRA), an employer cannot request arrest records, except that it may request records of pending felony charges and past felony arrests when a conviction did not occur.
  5. Driving Records. If your company needs to review an applicant’s driving record, complete a Michigan Department of State Commercial Record Request and submit it to the Michigan Department of State Record Lookup Unit. Under certain circumstances, this request does not require the applicant's consent or authorization, but you should dicuss this topic with an employment attorney.


For more information about preemployment background checks and compliance with federal or Michigan employment laws, contact Jason M. Shinn. He is an experienced Michigan employment attorney who works with businesses and individuals to address employment law issues, and, if necessary, litigate employment law disputes in Michigan and federal courts.

Employee Makes False Police Report Because She was Running Late for Work

Lying Employee.jpg[T]he Lie, as a recreation, a solace, a refuge in time of need ...  man's best and surest friend, is immortal, and cannot perish from the earth ... My complaint simply concerns the decay of the art of lying. 

From the Art of Lying by Mark Twain.

Mr. Twain's concern about the decay of lying played out last week when CBS reported that a Southfield, Michigan woman lied (very poorly) about being abducted. Originally the woman did not call the police, but a co-worker insisted that they should be called. After they investigated the abduction report, including video surveillance showing no abduction whatsoever, it became apparent that the abduction was made up. After being confronted with the evidence, the woman admitted that she made it up because she was late in returning to work after lunch. She was arrested for giving a false police report and after the arrest, it was reported that the police discovered a bag of marijuana and some narcotics paraphernalia allegedly belonging to the woman. 

The Take-Away for Employers

While this story is somewhat laughable, it is also an important reminder for employers to have in place appropriate attendance policies that promote attendance and punctuality and provides a framework for enforcing both. Such policies should also provide for a legitimate means for employees and employers to handle unexpected situations that may interrupt an employee's normal attendance.

An attendance policy depend upon your company's particular circumstances, however, some general guidelines for absenteeism and tardiness are as follows:

  • It should be explained, in writing, to employees that absences may be designated as either excused or unexcused absences and how this determination will be made;  
  • If an employee is going to be absent or tardy, who must be notified and under what circumstances. For example, ideally such notice should generally be provided prior to the event or as soon afterwards as possible and include the reason for the absence or tardiness, an estimate of when the employee is expected to return to work, and include a description of any unfinished work assignments that may require completion;  
  • It should also be emphasized that the employee may be asked, in the employer's sole discretion, written verification of the reason given for the absence or tardiness; 
  • Also, employers should expressly note that a failing to report an absence for some determined amount of consecutive scheduled work days may result in disciplinary action up to and including discharge. Similarly, employee should be advised that excessive tardiness may, in the discretion of the employer, be cause for disciplinary action, up to and including discharge.

These are generic examples concerning employee absences. However, more attention and separate policies will likely be needed concerning employee absences for medical related reasons in order to comply with applicable employment law requirements, such as the Family and Medical Leave Act or the Americans With Disabilities Act. 

For more information about these employment law matters or updating your company's employment policies, contact Jason M. Shinn. Mr. Shinn is an employment attorney who focuses on employment law compliance and litigation

Also, feel free to leave a comment about the most outrageous lie given to your company by an employee in order to get time off or to excuse an absence.  

Recent Ruling by NLRB Means its Probably Time to Update Your Employee Handbook

Employee Manual.jpgMost employers understand that an employee manual is a cornerstone of good HR best practices. Unless, however, the National Labor Relations Board (NLRB) says otherwise, which means your company's employee handbook could be a source of liability.

This point was recently illustrated in a recent decision where the NLRB affirmed a finding that DirectTV's employee policies violated the National Labor Relations Act (PDF).

At issue in this matter were four rules - two provisions in the employer's employee handbook and two corporate policies maintained by the employer's intranet system - violated the NLRA because employees could reasonably construe workplace policies as prohibiting Section 7 activity.   

Communications with Media and Violating the NLRA

The employer's handbook contained a provision entitled “Communications and Representing DIRECTV,” which expressly instructed employees as follows: “Do not contact the media.” The employer's handbook also contained a provision that read: “Public Relations,” which advised employees that “Employees should not contact or comment to any media about the company unless pre-authorized by Public Relations.”

The NLRB considers any rule that requires employees to secure permission from their employer as a precondition to engaging in protected concerted activity on an employee’s free time and in non-work areas is unlawful." Accordingly, it is not surprising that these provisions were found to be in violation of the NLRA. 

Restriction on employee communication with Law Enforcement Violated the NLRA

The employer's handbook also contained a section that provided: “If law enforcement wants to interview or obtain information regarding a DIRECTV employee, whether in person or by telephone/email, the employee should contact the security department in El Segundo, Calif., who will handle contact with law enforcement agencies and any needed coordination with DIRECTV departments.”

Many employers will probably be surprised to learn that the NLRB found this to be a violation of the NLRA (Section 8(a)(1) to be specific). In fact, the NLRB even acknowledged such provisions make business sense and may actually favor the employee: 

[W]e acknowledge that an employer may, in some circumstances, have a legitimate interest in knowing about law enforcement agents’ attempts to interview employees. For example, an employer may wish to ensure that the employees have the opportunity to be represented by counsel during such interviews.

However, the NLRB went on to decide the employer's rule was "ambiguous" in that it failed to distinguish situations where it would be appropriate for an employer to first engage law enforcement from protected employee contacts with agents of the NLRB or other law enforcement officials. 

Employer Confidentiality Rules as a Violation of the NLRA

The employer's handbook also contained a provision entitled, “Confidentiality,” that instructed employees to “[n]ever discuss details about your job, company business or work projects with anyone outside the company” and to “[n]ever give out information about customers or DIRECTV employees.”

This provision also was found to be violative of the NLRA. Specifically, the NLRB concluded that because the rule expressly included “employee records” as one of the categories of “company information” that must be held confidential, the restriction would reasonably be understood by employees to restrict discussion of their wages and other terms and conditions of employment - a right protected under the NLRA.

Intranet policy on “Company Information”

The fourth rule that the NLRB found to violate the NLRA had to do with the employer's corporate policy displayed on its intranet that read: “Employees may not blog, enter chat rooms, post messages on public websites or otherwise disclose company information that is not already disclosed as a public record.”

The NLRB went to great lengths to conclude that while this policy itself referenced only unspecified “company information,” when it was read in connection with the employer's handbook "Confidentiality" provision discussed above, it was presumed that “company information” includes “employee records.”

Accordingly, an employee who reads the two policies in tandem would understand the intranet policy to prohibit disclosure of “employee records,” which would include information concerning their own or fellow employees’ wages, discipline, and performance ratings, which is a violation of the NLRA.

Perhaps in recognizing that not every employee would go to such lengths to reach this conclusion, the NLRB noted that "at the very least, the scope of 'company information' in the intranet policy is ambiguous" and under NLRB precedent, “employees should not have to decide at their own peril what information is not lawfully subject to such a prohibition.”

The Take Away for Employers

The first point employers need to realize is that the NLRA generally applies to private sector, non-unionized workforces.

Second, the NLRB will continue to closely scrutinize employer/employee relations outside of the union environment pursuant to its promoting public awareness of rights under the NLRA strategy. In this regard, attorney John Holmquist noted that this agenda was made clear at last year's ABA Labor and Employment Section where members of the NLRB spoke: 

[Chairman Pearce] said that the Board will continue to pursue public awareness since 'A right only has value when people know it exists.' In difficult economic times, employees need to see for themselves and understand what protected, concerted activity is. He said it is one of the best kept secrets of the NLRA. 

Third, similar or variations of the preceding offending provisions are common to a company's employee manual. In light of decisions like the above and the NLRB's intent to focus on its "public awareness" campaign, companies and their HR department need to closely review their existing employee handbooks as well as all other policies or procedures intended to apply to the employer/employee relationship. This includes technology, email, and social media policies.

For more information about drafting or updating your company's employee manual, as well as other questions about Michigan or federal employment laws, contact Jason Shinn

Survey Answers Questions About Improving Employee Relations: Add Meaning

Line of Questions.jpgThe Detroit Free Press released its fifth annual Top Workplaces to Work finalists of Metro Detroit employers. Congratulations to all the 2012 finalists.

One point that jumps out from the results of the employee surveys submitted (my understanding is that these surveys are submitted anonymously) is the critical value employees placed on cultivating a meaningful "connection" between them and their company. Specifically, employees placed high value on feeling appreciated at work and confident about their future. They also value work that makes them feel like part of something meaningful.   

It is noteworthy that these concerns received higher priority by employees than pay and benefits, managers, and work expectations. 

Based on my employment law and trial experience, however, these results are not entirely surprising. Even in bitter litigation where one side is fighting "tooth and nail" for monetary damages, it is common for a scorned former employee to simply want to "tell their story" about being mistreated at the hands of management. And it is equally common defending such claims - with all the benefit of hindsight - to see at any number of points how a particular lawsuit could have been avoided or, at least, the chance minimized if some degree of common sense or attempt to meaningfully resolve an issue by management.

In this regard, one of the best business books I've read was by written by Ari Weinzweig of the Zingerman's family of restaurants in Ann Arbor. In it, Mr. Weinzweig included his view on the proper management of employee relations:  

Here at Zingerman's we've always taken the approach that we were going to treat people who choose to work with us as if they were volunteers ... Ultimately people want to feel that their work makes a positive difference, that their extra efforts are noticed; that they can improve the quality of their lives and the lives of those around them through their work ... If you want the staff to give great service to customers, the leaders have to give great service to the staff.

A Lapsed Anarchist's Approach to Building a Great Business. It is apparent to anyone that has been to any of the Zingerman's restaurants that the business practices what it preaches.  

I'm not naive enough to walk away completely from an employment law and litigation mantra of "planning for the worst, while hoping for the best." But as employers and employees head into the Holiday season, especially Thanksgiving, adding Mr. Weinzweig's approach to employee relations to your employee relations toolbox might be a good thing for the bottom line and for managing employment law risks in the long term.  

Mergers & Acquisitions: Don't Forget About Employee Compliance with Nondisclosure Agreements

Building BlockThe cornerstone of merger and acquisitions - the buying and selling of all or part of a business - is the non-disclosure agreement. And similar to the critical role a cornerstone has in building a foundation, the nondisclosure agreement also serves as the reference point for completing a business transaction. 

However, a recent lawsuit filed in federal district court illustrates the importance companies and their employees need to place on complying with nondisclosure obligations throughout the purchase transaction.   

Due Diligence and Nondisclosure Agreements in M&A

Nondisclosure agreements are often signed at the beginning of the merger or acquisition under consideration. It generally is intended to facilitate the exchange of often highly confidential information between a buyer and a seller usually as part of the purchasing company's due diligence process.  

Nondisclosure agreements also provide a measure of protection for companies who rightly worry that word of a potential sale will hurt business, jeopardize customer or supplier relationships, and undermine employee morale if the sale does not take place.  

Liability for Breaching a Nondisclosure Agreement

In 2011, Catalent Pharma Solutions was in talks to sell its U.S. commercial pharmaceutical packaging business to Sharp Corp., reportedly for $80 million. At the time of these talks, Sharp was a U.S. division of United Drug, PLC. 

The parties entered into a nondiscolsure agreement and pursuant to that agreement, Catalent considered these talks to be confidential as well as the information exchanged between Sharp and Catalent.

But United Drug's CEO took a different view: In two separate public conference calls United CEO discussed the potential sale, valuations of Catalent, and how  the sale would affect the U.S. market in favor of United Drug. Discussions between Catalent and Sharp ended without a deal being consummated between them. 

Catalent Pharma eventually sued Sharp and United Drug for damages arising from a breach of the non-disclosure agreement based on the allegedly unauthorized and improper disclosure of Catalent's confidential and sensitive business information by its parent company's CEO.  

A key issue in Catalent's lawsuit will be whether Sharp's parent company (United Drug) was bound by the nondisclosure agreement. In this regard, Catalent claims in the lawsuit that United Drug executives were involved in the deal discussions and, therefore, were "representatives" under the nondisclosure agreement.  

Take-aways for Employers

When it comes to mergers and acquisitions, the Catalent lawsuit makes clear that a nondisclosure agreement is only a piece of paper, which can be easily violated. And even if a violation is discovered, they can be expensive to litigate. Therefore, it is important to manage the flow of confidential information. To properly manage this flow, here are a few points companies should consider: 

  • Digital Deal Rooms. I have become a big fan of using digital deal rooms for sharing information, including in conducting due diligence matters. These are secure online virtiual deal rooms where documents are stored and shared. Two great features are establishing permission-based roles and creation of audit trails. In this regard, the Catalent complaint noted the number of times confidential documents were reviewed.   
  • Sequence the Disclosures. The purpose of a buyer's due diligence is to obtain enough information for the buyer to make an offer. But this doesn't mean that a buyer needs every data point all at once. Instead, information could be provided in a phased approach so that "crown jewel" type confidential information would be disclosed at the end of the due diligence period or only after a definitive binding acquisition agreement is ready to be signed. 
  • Educate Employees. It is important for the company and its employees that is receiving information pursuant to a confidential agreement to not lose sight of the obligations created by the nondisclosure agreement. In this regard, a best practice is to limit access to such information to those employees and consultants with a need-to-know basis. For those employees that do have access, make sure they understand - if not the specifics of the nondisclosure agreement - the ultimate goal to protect the confidentiality of the information and even the existence of the deal under discussion. 

These are only a few of many issues to consider if your company is part of a merger or acquisition transaction. But for more information about buying or selling a business, including conducting an efficient and meaningful due diligence of that sale, contact Jason Shinn