An Emerging Human Capital Risk - Lowers Risk Group · An Emerging Human Capital Risk: Increased...
Transcript of An Emerging Human Capital Risk - Lowers Risk Group · An Emerging Human Capital Risk: Increased...
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An Emerging Human Capital Risk: Increased EEOC & CFPB/FTC Scrutiny of
Employment Background Screening Programs
Danny Pack, Senior Vice President, Risk Management │ Loomis US Vince Pascarella, Esq., SPHR, FCRAA, Vice President │ Lowers Risk Group Steve Yesko, ARM, Director, Business Development │ Lowers & Associates
April 24, 2013 │ 10:30am-11:45am
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This presentation and the information contained herein are intended as general educational information only and are not to be construed as legal advice or opinion.
Disclaimer
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About Danny Pack q 25+ years of experience as a risk management professional
q Currently, SVP, Risk Management at Loomis US
q Former Director of Loss Prevention
q University of Houston graduate
q Southwestern College graduate
www.linkedin.com/pub/danny-pack/6/387/793
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About Vince Pascarella q Attorney, SPHR, FCRAA
q Employment screening, risk management, loss prevention industry executive since 1998
q Former general counsel (in-house)
q 2-term Co-Chair NAPBS Best Practices Committee
q JD, University of Colorado Law School
q BA, Magna Cum Laude, Long Island University
www.linkedin.com/in/vincepascarella
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About Steve Yesko q Background in Risk Management Information System (RMIS),
Claims Administration Systems, Disability Case Management, Agent/Broker Systems, Knowledge Management Solutions, and related Data Management and Consulting Services
q 20+ years of experience within the risk management and insurance industries
q Associate in Risk Management (ARM); RIMS Fellow Candidate
q MBA, Executive Management, St. John’s University
q BS, The Pennsylvania State University
www.linkedin.com/pub/stephen-yesko/16/2b5/4b1
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Presentation Overview
q Your Human Capital Risk
q The CFPB’s & FTC’s FCRA Enforcement Activities
q Title VII and the EEOC 2013-2016 Strategic Enforcement Plan
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Your Human Capital Risk
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Your Human Capital Risk
Why Background Screening?
q Lower Turnover
q Reduce Occupa;onal Fraud
q Avoid Catastrophic Workplace Events
q Mi;gate Negligent Hiring and Reten;on Losses
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Turnover For 2011 the annual average total employment for the United States was approximately 140 million workers, with a total separations (turnover) rate of 30.5%, resulting in 42.7 million position turnovers.
Source: Bureau of Labor Statistics
Turnover Stable Positions
Average Annual U.S. Turnover Percentage (2011)
69.5% 30.5%
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Occupational Fraud
"The use of one's occupa;on for personal enrichment through the deliberate misuse or misapplica;on of the employing
organiza;on's resources or assets."
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Fraud Statistics Distribution of Dollar Losses
1.2%
9.1%
15.8%
11.6%
29.1%
8.8%
24.4%
1.9%
7.0%
16.8%
11.2%
28.2%
9.6%
25.3%
0% 10% 20% 30% 40% 50%
Less than $1,000
$1,000 - $9,999
$10,000 - $49,999
$50,000 - $99,999
$100,000 -$499,999
$500,000 -$999.999
$1,000,000 and up
2008
2006
Source: 2012 Association of Certified Fraud Examiners (ACFE) Report to the Nations
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What Fraud Costs
Direct losses (on average, including undetected losses) $3,242,095 q Management costs (on average) $550,356 q Damage to the brand 88% of cases q Damage to staff morale 88% of cases q Damage to external business relations 84% of cases q Costs of dealing with the regulator 84% of cases q Damage to relations with the regulator 80% of cases q Damage to share value 69% of cases
Source: PWC 6th Biennial Global Economic Crime Survey, 2011
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Significant Losses from Fraud
q In the U.S., fraud losses are estimated at - – 5-7% of businesses annual Revenue, or – Approximately $994 Billion (based on U.S. GDP) – However, claimed net losses were approx. $18 Billion
Source: 2012 Association of Certified Fraud Examiners (ACFE) Report to the Nation
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Types of Fraud Breakdown by category
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Departmental Breakdown
Source: 2012 Association of Certified Fraud Examiners (ACFE) Report to the Nations
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Managing the Risk
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Allocating additional resources to fraud control
Implementing an external fraud hotline
Using data mining as a fraud detection strategy
Implementing an internal fraud reporting hotline
Implementing fraud detecting strategies
Conduct fraud awareness training
Screening suppliers & third parties
Allocating internal audit resources to fraud control
Establish a fraud control strategy
Conduct fraud risk assessments
Focusing senior management on fraud risk
Pre-employment screening
Establish a code of conduct
Review and/or improve internal controls
Source: KPMG Fraud Risk Management Survey, 2009
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Catastrophic Events
q Catastrophic events include workplace violence, theft, sexual harassment, drug-related activity, and accidents
q Compounding these events are the resultant negligent hiring/retention lawsuits that often follow on
Source: US DOJ Office of Justice Statistics
Average Annual Number of Workplace Victimizations (1993-99)
29,000
70,000
160,000
140,000
60,000
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
Homicide Rape/SexualAssault
Robbery AggravatedAssault
SimpleAssault
Victimizations
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Negligent Hiring & Retention
Hiring or retaining an employee where:
q Employer knew, or should have known, employee was dangerous, unfit, or not qualified, and
q Foreseeable injury or harm could result
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Heyl Logistics, LLC
q Truck driver coming off a crystal methamphetamine high and falling asleep at the wheel killed other driver
q Transportation broker, employer, and driver found liable q $5,200,000 jury verdict
Negligent Hiring & Retention
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The Nurse Connection, Inc.
q Home health care worker murdered patient q Prior burglary conviction q Prior for-cause termination q $40,000,000 payout
Negligent Hiring & Retention
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q Average settlement - $1,000,000 Source: Human Resources Management
q Employers lose 79% of negligent hiring cases Source: Fortune
Negligent Hiring & Retention
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Background Screening q Powerful human capital risk mitigation tool
q Highly regulated industry with increased regulatory scrutiny
q Can unwittingly create new risk exposure if done improperly or unlawfully
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The CFPB’s & FTC’s FCRA Enforcement Activities
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The CFPB & FTC CFPB - Consumer Financial Protection Bureau
q Created by The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act)
q Now the FCRA interpreter and primary enforcer q Has Exclusive rulemaking authority under the FCRA q Seem to be gearing up to undertake an active supervisory and
enforcement role under the FCRA
FTC - Federal Trade Commission q Former interpreter and sole enforcer of FCRA; now joint
enforcement authority with CFPB q No past or present rulemaking authority under FCRA; formerly
issued opinion letters and guidance
FPO
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Fair Credit Report Act (FCRA) Employer Obligations Overview
q Employer FCRA & EEO Compliance Certification to Background Check Provider (aka Consumer Reporting Agency or CRA)
q Applicant Disclosure and Authorization Requirements
q Adverse Action Requirements
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FCRA Employer FCRA & EEO Compliance Certification to CRA
q FCRA § 604(b)(1)(A) o Certify FCRA Compliance o Certify EEO Compliance
q Typically in CRA Service Agreement
FPO
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FCRA Applicant Disclosure & Authorization Requirements
q FCRA § 604(b)(2)(A) o Prior to ordering background check o Disclosure and Authorization o Disclosure stand alone document/screen o Can be combined with Authorization, only
q Sample from CRA FPO
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FCRA Adverse Action Requirements
q FCRA §604(b)(3)(A) q FCRA § 615(a) q Adverse Action 2-Step q Can be Outsourced to CRA
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FCRA FTC Adverse Action Enforcement
q Kmart (2013) o $3M
q Quality Terminal Services/Rail Terminal Services (2009) o $77K
q Imperial Palace (2004) o $325K
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Title VII and the EEOC 2013-2016 Strategic Enforcement Plan
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Title VII of the Civil Rights Act of 1964
q Prohibits employment discrimination based on race, color, religion, sex, national origin
q Private employers, and federal, state, and local governments
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EEOC 2013-2016 Strategic Enforcement Plan
Eliminating Barriers in Recruitment & Hiring
q Target class-based recruitment and hiring practices that discriminate against racial, ethnic and religious groups, older workers, women, and people with disabilities; and
q Target class-based intentional recruitment and hiring discrimination and facially neutral recruitment and hiring practices that impact particular groups.
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EEOC Facially neutral recruitment and hiring practices that
impact particular groups -
q 2012 Guidance on the Consideration or Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964 (“EEOC 2012 Guidance”)
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EEOC 2012 Guidance April 25, 2012 – New Guidance Issued
q Consolidates and “updates” 1987/1990 Guidance
q Effective immediately upon issue
q Comply now
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EEOC 2012 Guidance q Arrests versus convictions
q Disparate treatment
q Disparate impact
q Effect on conflicting Federal and state law
q EEOC’s Best Practices for Employers
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EEOC 2012 Guidance Arrests vs. Convictions
q Use of arrest is per se disparate impact
q Not job related or consistent with business necessity
q Burden shift
q Can base decision on underlying conduct
o Investigate
o Talk to individual (individualized assessment)
q Pending cases not distinguished
Conviction
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EEOC 2012 Guidance
Disparate Treatment
q Treat criminal history differently based on race or national origin of applicant/employee
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EEOC 2012 Guidance Disparate Impact
q Neutral policy with disproportional impact based on race and national origin
q National data supports basis for investigation
q Guidance presumes disparate impact unless employer can show evidence to contrary
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EEOC 2012 Guidance Disparate Impact
q Job related, and
q Consistent with business necessity
q No less discriminatorily impactful alternative
q Green v. Missouri Pacific Railroad, 523F.2d 1290 (8th Cir., 1975) • Nature and gravity of offense • Time since conviction/completion of sentence • Nature of job sought or held
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EEOC 2012 Guidance Green factors - with new Guidance details
q Nature and gravity of offense o Harm caused o Legal elements of crime o Classification (F/M)
q Time since conviction/completion of sentence o Recidivism evaluation
q Nature of job sought or held o Not just job title o Specific duties, essential functions, environment
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EEOC 2012 Guidance Job related and consistent with business necessity met by -
q Validation, or
q Targeted screen with individualized assessment
No bright line rules
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EEOC 2012 Guidance Validation
q Academic studies and expert testimony
q Correlating specific past criminal conduct to position-specific subsequent workplace performance or behavior
q Uniform Guidelines on Employee Selection Procedures
q Safety, security, and risk
q Recidivism
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EEOC 2012 Guidance
Targeted Screen
q Green Factors o Nature and gravity of offense o Time since conviction or completion of sentence o Nature of job sought or held
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EEOC 2012 Guidance
Individualized Assessment
q Case-by-case, applicant-by-applicant analysis
q Whether the policy as applied to the individual, is job related and consistent with business necessity
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EEOC 2012 Guidance Individualized Assessment
q Not required by Title VII
q Recommended by EEOC
q Criminal offense must have “demonstrably tight nexus to the position in question” to circumvent individualized assessment
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EEOC 2012 Guidance Individualized Assessment
q Facts/circumstances surrounding
q Number of convictions
q Age at time of offense or release
q Rehabilitation
q Bonding
q Length/consistency of employment before and after
q Evidence same type of work post conviction without evidence of criminal behavior
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EEOC 2012 Guidance
No bright line rules
q No absolute bar
q “Ban the box” – recommended by EEOC
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EEOC 2012 Guidance Federal law generally withstands Guidance
State and local law preempted
q Compliance problem for employers in state regulated industries o e.g., law enforcement, fire and emergency
services, schools, healthcare, eldercare, etc.
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EEOC 2012 Guidance EEOC’s Best Practices for Employers
q No bright line policies
q Narrowly tailored written policy on use of criminal records, including matrices
q Document justification for policy and procedures, consultation, and research
q Train hiring staff on Title VII discrimination and requirements
q Inquire only about past convictions that are job-related and consistent with business necessity
q Maintain confidentiality of criminal record information
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Recent EEOC Title VII Investigations q Pepsi settlement (2012)
– $3.13M use of criminal records in hiring
q Freeman lawsuit (2009)
– Pending in MD
– Use of criminal records (and credit reports) in hiring
q Peoplemark lawsuit (2011)
– EEOC ordered to pay nearly $800K
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About Us
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Loomis International leader in the cash handling services industry
q Nation’s largest integrated cash distribution network q Secure armored transport q SafePoint Retail Cash Management solutions q ATM services q Cash, coin and check processing q Outsourced vault services
Creating efficient cash flow designed to efficiently and effectively manage cash in society.
www.loomis.us
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Lowers Risk Group
Comprehensive Enterprise Risk Solutions
q High-risk, highly-regulated environments q Organizations that value risk mitigation
o Human capital risk management o Specialized industry enterprise risk management
Protect people, brands, and profits from avoidable loss and harm
www.lowersriskgroup.com
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Proforma Screening Solutions
Comprehensive employment screening services
q Background checks q Drug tests q Assessments
Hire the right people. Right away.
www.proformascreening.com
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Lowers & Associates
Independent & Internationally Recognized Risk Management Consulting Firm
q Risk Assessment q Audit q Investigation q Compliance
Proven solutions that reduce
internal and external risk
www.lowersrisk.com
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Questions or Feedback?
Danny Pack [email protected]
Vince Pascarella, Esq. SPHR, FCRAA
Steve Yesko, ARM [email protected]