Avoiding being the banker who knew too much (August 2008)

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Avoiding being the banker who knew too much (August 2008)

This guide to what’s okay to find out about prospective employees can keep you from breaking the law in the name of thoroughness.

By Steve Cocheo, executive editor, This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

Responsible business demands knowing your job applicant and knowing your employee. But how you got the knowing, and what you do with it, ah, there’s the rub

Working late one night, banker Jim Dandy decided to check out an applicant he’d just offered a job to that afternoon. The candidate had accepted, and Dandy thought a quick peek at the internet wouldn’t hurt.

Typing in her name, he discovered the young hiree had her own Facebook page. He found a picture of her smoking a cigarette at a sports rally.

Seemingly incidental, except that he had told her during the interview process that the bank did not employ smokers, and she had said she didn’t.

OK, maybe it’s an old photo. Nope, Dandy recognizes the rally. It was held for a local school team, and he knows when it was held. And that just happens to have been during the course of the interview process. This means the hiree was a smoker at the time she was interviewed.

Furthermore, one of the references that she willingly provided also said that she was not a smoker.

Dandy decides to read further on the Facebook page. It gets worse. He learns that his hiree had been an employee advocate of sorts at a previous job, and that things got sticky enough that her last employer had filed a police report.

Funny, thinks Dandy. The employer had verified dates of employment and such, but hadn’t given even a hint about labor activism. Tina had stated during the interview that she had just completed an undergraduate degree in economics and decided it was time to move on.

Now what?

How deep to dig?
Bankers face challenges beyond those of many other types of employers. Besides all the concerns about “fit” and qualifications that any employer has, bankers have legal obligations to avoid hiring people with certain categories of crime in their past, and a whole body of regulation covers that. (See the box below.)

As part of that obligation, bankers like the hypothetical Jim Dandy have a “duty of reasonable inquiry” under FDIC’s policy statement implementing Sect. 19 of the FDIC Act, as amended (“Penalty for Unauthorized Participation By Convicted Individual”). This includes the need to establish a screening process.

Yet, how far should Dandy have gone? How much information should he have gathered? How much information should he have expected to get from the previous employer? If the situation were reversed, how much should he be willing to share?

Bruce R. Alper, attorney with Vedder Price P.C., Chicago, spoke to these issues during ABA’s Regulatory Compliance Conference in June. The Dandy episode was one of his examples of how getting to know about applicants can challenge.

Share and share alike? Hardly
Alper says employees frequently think employers share information freely through some kind of secret “subterranean network” that attempts to get around relevant laws through hints and codes.

“That may happen in a small town,” says Alper, “but not in Chicago. People are very careful what they say about their former employees.”

Alper says that this occurs in spite of laws that actually protect employers.

“You get what you give,” he said, “and that’s usually not much.”

Alper said that many states have statutes similar to one in Illinois, which holds:

“Any employer … who, upon inquiry by a prospective employer, provides truthful written or verbal information, or information that it believes in good faith is truthful, about a current or former employee’s job performance is presumed to be acting in good faith and is immune from civil liability for the disclosure and the consequences of the disclosure. The presumption of good faith … may be rebutted by a preponderance of evidence that the information disclosed was knowingly false or in violation of a civil right of the employee or former employee.”

In addition to such statutes, said Alper, “every state recognizes a common law conditional privilege to disclose information for a proper purpose to an appropriate recipient.”

However, he said, a risk is that an individual can prove that there was reckless disregard for their rights. In Illinois, for instance, an employer’s reliance on such immunity can be defeated for failing to investigate the truth of a matter. And some state laws can restrict the disclosure of specific items of information.

As a result, said Alper, who works with many banks, “you don’t provide any information to anyone. ‘Was he a good employee?’ ‘I really can’t discuss it.’ That’s how it’s done these days, and there’s nothing wrong with that.

However, what if the position involved is extremely critical to the bank, and the candidate looks like “the one”? Alper said it is legally possible to ask the candidate to ask a former employer for their personnel file. The file, sent directly to the bank, must be provided to the inquiring employer in such cases, under “personal records review” laws. The former employer is shielded from liability in such cases.

Among Alper’s recommendations:
1. Don’t disclose qualitative information about a former employee and don’t expect to receive it.
2. Disclose only objective, factual information.
3. Be consistent in information sharing.
4. Remember, “it’s ‘off-the-record’ until you get sued.”
5. Consider exceptions if failure to disclose might endanger someone’s safety, such as an employee terminated for sexual assault who is about to be hired elsewhere.
6.Make certain your employment application asks the hard questions: “Have you ever been involuntarily terminated or asked to leave any prior employment?”

Criminal history tools and traps
As number 6 foreshadows, Alper notes that banks must choose their questions carefully. And they must use what they find through applications and other means equally carefully.

Case in point are inquiries regarding any criminal history, including FBI fingerprint checks. As indicated earlier, the bank must make “reasonable inquiry” of an applicant’s criminal past, but they are not required by law to run fingerprint checks. In Alper’s experience the process is much more common among larger banks than smaller ones.

But the criminal check is no simple matter.

“You don’t want to rely on arrest records,” in making hiring decisions, warned Alper. “In some states, that is a civil rights violation.” In addition, he said, the Equal Employment Opportunity Commission will look closely at an employer’s use of arrest records and even conviction records. (The agency would be looking at disparate impact of such procedures on minorities and other protected groups.)

Among Alper’s recommendations:
1. Don’t ask about or consider arrest information—arrests are not convictions—or about sealed or expunged records.
2. Any convictions used to disqualify an applicant should be job-related, i.e., something that would impact work as a teller, for instance.
3. If the bank elects to use fingerprinting, it must create and consistently hold to a specific protocol.
4. Treat the failure to disclose criminal history differently than the existence of criminal history.

“If they failed to disclose their history to you,” provided the bank asked the right questions, as above, and they were hired, “you can fire them, because they lied to you,” said Alper.

Credit history’s a dicey one
Banks are all about credit, but Alper said he doesn’t buy many banks’ position that they can’t hire someone who can’t manage their own financial affairs because they can’t trust them to manage those of customers, or the bank itself.

“Oh, come on,” scoffed Alper, “there are a lot of executives who don’t pay their debts. It’s not a good predictor of job performance.”

He said credit history is a means of screening applicants that EEOC scrutinizes closely when analyzing employers for disparate impact of policies and practices.

While the lawyer resists using credit history, he said it can be used, with careful controls. For example, compliance with the Fair Credit Reporting Act is mandated if the bank employer chooses to use a consumer reporting agency to obtain a credit report on an applicant. This means that use of reports must be disclosed to applicants. In addition, there are limits, such as the ban under federal bankruptcy law against discriminating against someone who filed for bankruptcy protection.

Among Alper’s recommendations:
1. Monitor the potential disparate impact of your policy.
2. Construct a thoughtful, job-related policy using objective, consistently applied criteria.

In spite of this list, the lawyer added, “I think the downside outweighs the benefits.”

Facing up to Facebook
The internet represents a tremendously powerful research tool. Nearly everyone leaves a trail of some kind. Can, and should, a bank use the net in hiring?

“Yes,” said Alper, “but you may learn something that’s unlawful to consider.” He suggested that if the hiree mentioned at the beginning of this article had been involved in pressing sexual harassment charges against her employer, rather than the undefined workplace issues, the bank would be in an awkward spot if the offer was withdrawn.

“You may learn information that you don’t want to know,” said Alper. Or what you learn could be wrong.

In addition, “Jim Dandy” decided to do his internet check in an off-the-cuff manner. “Checking on some applicants and not others may create discrimination problems,” said Alper.

Still more complications arise.

“Rejecting an applicant because he or she has a controversial Facebook page or blog may be illegal under laws adopted in many states which prohibit adverse employment treatment based on the use of lawful products or engaging in lawful practices outside of work,” according to Alper.

Among Alper’s recommendations:
1. Decide on an internet search policy and follow it.
2.Make certain your policy bars consideration of impermissible information. BJ

Screening bank candidates to comply with federal law

Section 19 of the FDIC Act bars, absent FDIC approval, depository institutions’ hiring of anyone convicted of any criminal offense involving dishonesty, breach of trust, involvement in drug trafficking, or money laundering. Likewise, anyone who has entered into a pretrial diversion or similar program in connection with a prosecution under such charges can’t work for a bank. Overall, such individuals can not only not be employees, but can’t be “institution-affiliated parties” of any stripe.

Section 19 requirements were expanded in 1991 and FDIC published risk-based guidance in 1998. To address further expansions, to clearly include bank and thrift holding companies in the ban, the Federal Reserve and the Office of Thrift Supervision are working on relevant rules, according to Tim Divis, regional counsel for FDIC, who spoke at ABA’s Regulatory Compliance Conference.

Insured institutions and their holding companies must establish a screening process; use written employment applications requiring disclosures by applicants; and have a process in place for making case-by-case determinations.

Divis noted that the prohibition on associating with or hiring banned individuals as institution-affiliated parties hinges on a number of factors. Certain affiliates and subsidiaries might not be covered, depending on the specifics. In addition, he noted that certain events did not trigger the ban, including arrests not leading to conviction; pending cases; and cases reversed on appeal. Pardoned individuals must apply to FDIC for a waiver. Other considerations also apply.

The electronic version of this article available at: http://lb.ec2.nxtbook.com/nxtbooks/sb/ababj0808/index.php?startid=48