More than a dozen 7-Eleven franchises took in more than $180 million in revenue by running a “modern-day plantation system,” prosecutors in New York charged on Monday, built on the unpaid labor of dozens of illegal immigrants hired using sham Social Security numbers.

Federal authorities seized 14 7-Eleven stores on Long Island and in Virginia, arresting nine owners and managers, and seized property, including five homes. They are investigating 40 other 7-Eleven franchises in New York City and elsewhere in one of the largest criminal immigrant employment investigations ever conducted by the Justice and Homeland Security Departments, officials said.

Through the scheme, the defendants, who as franchisees for the parent company were licensed to use 7-Eleven buildings, trademarks and Slurpee and hot dog machines, recruited more than 50 illegal immigrants and gave them identities stolen from American citizens, including children and dead people.

The employees worked for 100 hours a week but were paid for a fraction of that time, and were forced to live in substandard housing owned by the operators of the convenience stores, the authorities said.

via U.S. Seizes 14 7-Eleven Stores in Immigration Raids – NYTimes.com.

Rob will be addressing this issue at AHRMA’s Workplace Law Seminar Series on June 12th.

I hope you enjoy the interview!

Catchy, if misleading, headline, eh?

I’m proud that our clients have trusted us with significant business matters, including vetting CEO’s and political appointees. We have run deep due diligence on key individuals placed in high-trust positions and those investigations have sometimes cost our clients into the thousands of dollars. However, when I saw the headline above from the New Jersey-based Daily Record.com I did a double take!

$70,000 for a background check? Yikes! And they missed something significant? Double yikes!

Then, I read the article (and reread the headline) and realized that the background check was only a part, and a relatively small part, of the services provided by the search firm commissioned to find Rutger’s next athletics director.

The short version goes like this: Rutgers paid an executive search firm $70,000 to find their next AD. After Julie Hermann was announced as the final candidate, it surfaced that former players had complained of her abusive behavior and that she had been at the center of at least two sex-based discrimination lawsuits at the University of Tennessee and Louisville.

According to the The Daily Record.com, Rutger’s contract with Parker Executive Search included the following background check:

• Criminal, credit and motor vehicle investigations.

• Confirm candidates degrees.

• Conduct a NCAA sanctions review for past major infractions.

• Conduct media reviews for potentially controversial areas of concern.

• Have candidates sign a statement of accuracy of a bio.

• Reference checking for each candidate.

For the final candidates — which in the Rutgers search included Wisconsin Deputy AD Sean Frazier and Fresno State AD Thomas Boeh — Parker Executive Search says, “We speak directly with individuals who are in position to evaluate the candidates’ performance in recent years, references that will include both those supplied by the individual as well as additional reference contacts.

This is maybe a $500 background check – definitely not $70,000. Our experience, however, is that most executive search firms are unwilling to spend that much on a background, even when they are collecting a fee in the tens of thousands of dollars.

And staffing firms? As they say in New Jersey, fuggedaboutit.  (Assuming that The Sopranos is an accurate cultural representation of New Jersey.)

Most staffing firms run an instant criminal background check from an online database that costs them about $2 (and misses between 40% and 60% of the available criminal records).

Where the Rutgers background check failed, however, was in the research items were not included.

A civil records search would have easily identified the two federal lawsuits. (The media search that was included in the background check probably should have identified those cases, as well, assuming that the local newspapers carried stories about the accusations against the coach.) Adding civil records searches to the background investigation on Ms. Hermann would have increased the cost to around $900.

Good investigative interviews would likely also have identified that a number of former players felt that the coach’s past behavior had been abusive. This kind of research is time consuming and expensive given her long tenure in collegiate athletics. The cost for that kind of research could easily approach $3,000 or $4,000 or more.

So, if done the Imperative way, the total background check for the athletic director of New Jersey’s flagship university might have approached $5,000. I’ll bet the search firm, New Jersey Governor Chris Christie, and the Rutgers administration now wishes they had spent the money.

Rob will be speaking on this topic on  June 12th as part of the Austin Human Resource Management Association’s Workplace Law Seminar Series.

I hope you find the slidecast below informative!

The issue of how to apply state law under the Equal Employment Opportunity Commission’s (“EEOC”) Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964 is a significant issue because the EEOC makes clear in its Enforcement Guidance that state law mandates may be pre-empted by Title VII. Which leaves those in certain industries regulated by state laws, such as healthcare, guessing as to the appropriate application of state law under the EEOC’s Enforcement Guidance.

via State Law Mandate to Conduct Criminal Background Check Isnt a Shield to a Disparate Impact Claim under Title VII | Immigration Compliance and Background Screening.

As Montserrat Miller points out in this concise post, federal law trumps state law which can put employers in a pickle when trying to comply with Title VII of the Civil Rights Act of 1964 and state-law limitations on who they can hire for certain positions.

The federal court seems to be suggesting that the employers should have pursued all possible relief with the state to avoid creating disparate impact. As I understand it, this was a legislatively-created limitation and the state board of education likely had no ability to grant a waiver.

I’m curious whether the court would have ruled differently (perhaps suggesting that the plaintiffs were suing the wrong entity) had the school district tried unsuccessfully to seek an exemption for the impacted employees from the state board of education.

Most employers have assumed that the ability to meet state licensing requirements is a bona fide occupational qualification. This decision suggests that it may not be.

One wonders about applicants whose state-issued drivers’ licenses are suspended for reasons unrelated to their driving safety (failure to pay child support, for instance). If a group of taxi drivers in a protected class were to complain that they are disproportionately impacted by the requirement that they have a valid drivers license, might they have a case under this ruling?

This is one of the topics I discuss in my Background Checks Under Fire: Policy Considerations to Avoid Discrimination Claims presentation, which I am presenting at SHRM meetings across Texas this summer.

On May 24th, Imperative hosted a webinar for our clients and friends. Terri Swain of The HR Consultant, LLC discussed recent changes in the attention paid to different issues by the Office of Federal Contract Compliance Programs (OFCCP).  We had over 100 attendees with whom Terri shared her expertise.

You can download the slides and notes here.

You can also watch the recording of the webinar here but we’re sorry we can’t award you HRCI credit. (It is still worth it!)

Join us for future webinars!

About Terri

Terri Swain

Terri Swain is the Managing Partner of The HR Consultant, LLC, a human resources consulting firm based in Fort Worth, Texas specializing in equal employment opportunity, affirmative action planning and employee relations.  They have been in business since 1998 and provide Affirmative Action Plan preparation, third party  fact finding services, expert witness testimony and other compliance solutions to a variety of companies small and large; local and national.

Terri began her human resource career as an investigator with the United States Equal Employment Opportunity Commission (EEOC) working in both the El Paso and Dallas offices.  She then swapped sides of the table and was a Human Resource leader at Burlington Northern Santa Fe Railway in EEO/AA, HR Planning and Leadership Development/Training roles.  Her shoot-from-the hip, tell it like it is style easily lent itself to a career in consulting,  Together with her associates, The HRC provides common sense compliant solutions that minimize risk and maximize use to their employer partners.

I’ll be delivering my ever-evolving Background Checks Under Fire: Policy Considerations to Avoid Discrimination Claims presentation on Tuesday, October 22nd at 3:15. It was standing room only when I made the earlier iteration of the presentation last year.

I’m flattered that they invited me back and look forward to seeing all my HR peeps back here in Fort Worth this fall!

Of course, if you just can’t wait to hear the Gospel According to Coffey, you can catch one of my webinars or one of my other speaking engagements.

The recent decision of the U.S. Court of Appeals for the Seventh Circuit in Teed v. Thomas & Betts Power Solutions, LLC, holding that a successor company may be held liable for its predecessor’s violations of the Fair Labor Standards Act, serves as a cautionary tale to businesses when evaluating potential acquisitions. Traditionally, when evaluating and analyzing risk, buyers will rely on state-law successorship principles and avoid liability by including a disclaimer in the asset purchase agreement. But the decision of the Seventh Circuit, which hears appeals from federal courts in the states of Illinois, Indiana, and Wisconsin, held that buyers cannot disclaim liability under the federal labor and employment statutes.

via You Buy the Business, You Buy Its Sins – Seventh Circuit Reminds Business Buyers of Successor Liability for Federal Employment Law Violations

Imperative often assists in the HR side of due diligence during mergers and acquisitions. Typically, our work focuses on the human side of the equation: conducting  investigations into the backgrounds of principals, key managers, and franchise-player employees. Some of this work is often done before the acquisition target is even aware that our client is on the horizon. These investigations provide valuable insight into how these key players conduct themselves personally and professionally.

In one recent project involving acquisition of partnership, the initial attention had been paid to the partner whose name appeared on the company’s door. However, our due diligence effort suggested that it was the less public partner who was the true numbers guy and strategic thinker. His personal real estate holdings and well-organized corporate holdings stood in sharp contrast to the “face man’s” forfeited corporate entities, sole-proprietor businesses operated without corporate protection, and numerous high-dollar toys that wouldn’t generate ongoing income. This was helpful as our client decided how to approach the partners with an offer.

However, once the formal due diligence process starts, the acquiring company needs to pay particular attention to the target firm’s HR practices with an eye to potential liability. As the case referenced above suggests, purchase agreements cannot always innoculate the new firm from liability for the target company’s past practices. Whether the liabilities originate with the Fair Labor Standards Act, the Civil Rights Act’s Title VII provisions, the Americans With Disabilities Act, or any of the myriad federal laws governing the workplace, caveat emptor should be the theme.

Certainly basic due diligence will identify active litigation facing the company. Attention should also be payed to prior litigation, particularly the true reasons for the litigation, the resolution of the litigation, and whether the underlying company behavior has been corrected.  (Might there be other plaintiffs out there, just waiting for deeper pockets to come along?)

Unfortunately, many acquiring companies’ review of employment practices is limited to a review of policies and procedures and they find out too late that there was a disconnect between policy and practice. A review of actual HR and payroll transactions along with conversations with front-line supervisors may uncover potential problems. For instance, employees misclassified under FLSA might improve the company’s productivity while creating a liability down the road when a disgruntled employee finds a plaintiff’s attorney.

A good employment law attorney or HR consultant with due diligence expertise should be a part of every M&A project.

If the Proposal becomes law, it would join a growing number of laws and proposed laws to limit employment discrimination on the basis of credit history. Indeed, eight states have greatly restricted employer consideration of applicant and employee credit history, including California, Maryland, Connecticut, Hawaii, Illinois, Washington, Oregon and Vermont, as well as at least one locality, the City of Chicago. Moreover, bills containing some form of ban on the use of credit history in employment decisions also have been proposed in the U.S. Congress and a number of state legislatures, including New York States.

via New York City Council and Bloomberg Administration Clash over Proposal to Prohibit Employment Discrimination Based on Credit History | Publications | Proskauer.

This would be on the heels of their earlier decision to make discrimination against unemployed applicants illegal.

At Imperative, we spend a fair bit of time dissuading employers from utilizing credit reports in making most employment decisions for several reasons.

Credit history may not effectively predict job performance or integrity.

Many employers seek to predict which job applicants are most likely to steal from them based on the applicant’s credit history – the assumption being that someone who is behind in paying their bills are higher risk. The assumption is also made that employees with financial problems have more distractions (such as calls from creditors) during the day than other employees. The problem with both of these assumptions is that there haven’t been any validated studies correlating poor credit history and job performance. In fact, one study in the financial services area suggested that employees with negative credit history were no more likely than their peers to have performance problems or terminate employment voluntarily or involuntarily.

Credit reports often suggest medical information that the employer would be better off without.

When faced with significant medical bills for themselves or family members, many uninsured or underinsured patients finance their own medical care. This may result in extremely high credit balances in relation to the individual’s income. Sometimes the creditor’s name is clearly a medical service provider. When a patient has been unable to meet their financial obligations to a medical provider, their account is turned over to a collections agency and the credit report will reflect the debt as a medical collection account. Under the Americans With Disabilities Act and some courts’ interpretation of the Family Medical Leave Act, consideration of the health conditions of a prospective employee or her family members might constitute illegal discrimination.

It is difficult to consistently evaluate credit reports fairly.

Credit reports procured for employment purposes do not include FICO scores, those mysterious numbers that lenders use to evaluate an individual’s ability to repay a debt. FICO scores were not developed for use in evaluating an individual for employment and none of the credit bureaus allow them to be provided for employment purposes. This leaves employers with the challenge of objectively reviewing candidates’ credit history without an obvious standard.

• Should only accounts with late payments be considered? If the late payments correlate with the time the applicant has been unemployed following an unexpected loss of employment, can the employer assume that the late payments will continue once employment has been gained?
• What other life factors that are not apparent from the credit report might have affected the applicant’s ability to pay their bills on time? Personal illness? An ill child or spouse? A spouse’s job loss? An investment gone bad?
• Should the employer be concerned with the income-to-debt ratio of the applicant? If so, should the applicant’s income at their previous job be used or the proposed income with the new employer?

Credit report use may result in disparate impact claims.

A study by the FDIC reported that minorities are more likely to have negative credit histories than the majority population. This suggests that employers who use credit history as a selection tool could be exposing themselves to disparate impact claims, particularly if they haven’t documented a close relationship between the information gleaned from the credit reports and the job’s requirements.

For these and other practical reasons, Imperative encourages clients to limit credit history reviews to situations where the individual will be making financial decisions on behalf of the employer or clients. In these situations, it may be easier for an employer to draw a correlation between how the indivdual manages their personal finances and how they will execute their professional responsibilities. Even here, however, employers should only review credit reports when they are willing to have a frank discussion with the applicant about any concerns and try to understand the reasons behind any negative credit items.

As ever, please feel free to contact me if you would like to discuss your own company’s policies with regard to credit reports or any other background investigations tool.

Senator Royce West

Texas Senator Royce West introduced Senate Bill 990  in response to constituent complaints that they were being denied employment and housing based upon erroneous criminal history information. In particular, expunged records often continue to be reported by private database companies long after the record has been removed from the court’s record.This problem is the reason that I joined with two other background screening firms to create Concerned CRAs several years ago. (We now have around 175 participating screening firms.) While many background screening firms do follow best practices to ensure that the information received by employers is accurate, some big databrokers sell instant criminal searches to employers without regard to the accuracy of their data. (Click on the “databases” tag below or just Google “criminal background check errors” for details – most if not all of the reports you find are related to sloppy database use.)

I have worked closely with Senator West’s office to revise this bill so that it (1) protects individuals against incorrect information while (2) not creating any new responsibilities for the majority of consumer reporting agencies (CRAs) who already provide reports that are accurate and up to date. I believe we have succeeded.

I have summarized each section of the bill  (pdf file) (updated 04/30/2013) to make it clear who the section impacts and what the requirements would be.

The only background investigation-related entities with new responsibilities under this bill are database companies and those few CRAs who sell criminal history data to end users without first ensuring that it is accurate and up to date.

The bill also seeks to create a listing of database companies so that notices of expungements can be directed to those who might have outdated information.

The only new obligation on end-users who use the information for employment, housing, or licensing is that they must identify to the individual where they received any criminal history information upon which an adverse action is based if they received it directly from a court or government agency. This will point the individual to the source of any incorrect information. Similar disclosure is already a requirement under federal law when the information was received from a background screening company.

This bill has been amended since it was first introduced and as screening firms have pointed out ways to improve the bill, the Senator’s staff has been responsive. As it is reflected in the pdf file linked above, I believe it is a good bill for the background screening profession and consumers.

This bill should be supported by all CRA’s and investigators concerned about the negative impact on our profession from sloppy database use from a few large databrokers.