Last month, we began looking at security issues involvingemployees. Many security and safety issues focus on employees, andhiring and retaining the best employees is a major concern of allbusinesses, as well as a major insurance issue.

Hiring – or firing – the wrong employee can lead to headaches ina number of insurable issues, ranging from liability exposures tothird parties, injuries to other employees, employment practicesissues, or fidelity bond claims, not to mention the damage to anemployer's reputation and business that a bad employee cancause.

The extent of screening of job applicants conducted by employersvaries from entity to entity, often depending on the nature of thejob for which the person is applying. Screening can involve factorsranging from completion of an application and submission of ar?sum? in which information is verified to credit checks andpersonal interviews.

Stories constantly surface about the falsification ofinformation on r?sum?s and job applications, submission of“purchased” academic degrees, or inaccurate descriptions of priorpositions. Even when the application specifies that references notbe family members, an applicant may alert listed references who maybe encouraged to falsely identify themselves or give favorablecomments. Merely reviewing an application or r?sum? may, in and ofitself, be a futile attempt at screening. Nevertheless,applications can trigger further investigation of factors such asfrequent job turnover, gaps in employment, scattered patterns ofpreviously held positions, and frequent changes of city or state.All of these may have very logical explanations, but they need tobe pursued.

Searching the Criminal Database

The problem with criminal background checks is that, at present,no record verification vendor, despite advertisements to thecontrary, has access to the same computerized FBI record data thatmay be available to law enforcement agencies. What many of theseservices provide is a check of courthouse records for whatevercity, county, or state the employer indicates in the recordrequest. Hence, the screening is hit or miss, as the individual mayhave lived in one state, but records on his criminal convictionsmay be in a different state. To check in all counties and statesfor every newly hired person would be prohibitively expensive.

Additionally, these records often are misleading. Even withidentifiers such as social security numbers and dates of birth,name confusion (a divorced and remarried woman may have had two orthree prior names, for example), and other factors render thesechecks suspect. Any positive hit needs to be carefully screened byobtaining the actual record and, if applicable to the new employee,discussed in a confidential interview. There may be a logicalexplanation for a criminal record, and not every criminal felonyconstitutes dishonesty (a charge of vehicular homicide arising outof a serious auto accident, for example). The absence of a hit in acriminal background check is not assurance that the employee doesnot have such a record. Furthermore, with the increase in identitytheft, the finding of a record that matches the name, socialsecurity number, date of birth, and even address, still may notrepresent the applicant for the job.

Janet Cortez, of the Georgia record screening firm, ChoicePoint,confirmed that there is “no comprehensive national [crime]database,” reported Joanne Friedrick in her article “Companies rampup pre-employment screening,” in Security Director News, July,2004. “Even the FBI database covers about 63 percent of criminals,”said Cortez, noting that her own company's database provides “about60 percent coverage.” Her firm also does Social Securityverification, important for identification of illegal aliens.

Between 1996 and 2003, the number of criminal background checksincreased by 29 percent. One problem created by the screeningprocess is the privacy issue. If a job applicant is advised thatthe company wishes to do various background screenings, theapplication form should have a permission clause to be signed bythe applicant. This requirement, in and of itself, may detersomeone with a criminal record from proceeding with theapplication. If the person is hired before a record check, the newemployee should be advised that screening to confirm any statementson the application will be conducted, and that any falsificationwill be a reason for termination.

Claims, in its September 2004 issue, reported that the NationalAssociation of Insurance Commissioners had drafted a model act forstates to adopt that provides them the ability to collectfingerprints of insurance employees and submit them to appropriatelaw enforcement agencies, such as the FBI. The NAIC also proposesto use its National Insurance Producer Database as a centralrepository for fingerprints and background checks.

The admission of a crime should not necessarily bar an entityfrom hiring the person. The nature of crimes differs. As ateenager, the applicant may have been arrested for smoking pot, acriminal offense, but debatable as fitting a fidelity bonddefinition of dishonesty. In some areas, bouncing checks may bedealt with as a crime, regardless of how innocent it may have been.Minorities in urban settings often have criminal records becausethey are frequently targeted by aggressive police departments andcharged with misdemeanors or felonies that they may or may not havecommitted.

Better than 5 percent of the U.S. population either is currentlyin prison or has been in prison for some crime, a rate that is thehighest in the world. It is likely that many job applicants havecriminal records, but they may not necessarily pose security risksThey would, however, have to have special clearance by the suretyfor fidelity bond coverage.

Reviewing Driving Records

Driving record checks can be useful in many ways, even if thejob applicant would not be using a vehicle on company business. Arecord of one or more drunk driving charges or serious alcohol ordrug-related accidents may indicate an employee with substanceabuse problems. As with criminal records, driving records aregenerally produced by states and, properly to screen applicants whohave lived in more than one state (or live in areas where two ormore states are in close proximity), the cost of screening can beprohibitive. However, driver records should be checked at leastevery three years for any employee who does operate a vehicle onthe entity's behalf.

Whenever an employee is at fault in a serious automobileaccident, either in the course of employment or while operating theemployer's vehicle, it is likely that the employer's recordsregarding that driver will be subpoenaed. If the records show ahistory of violations or accidents, or that no driving record checkwas made, the possibility of a demand for punitive damages couldincrease.

The legal issue is one of negligent entrustment or supervision,as in the cases of Northern Ins Co. of N.Y. v. Ekstrom, (784 P.2d320 [Colorado, 1989]), Oakley Transport Inc. v. Zurich Ins. Co.,(648 N.E.2d 1099 [Illinois, 1995]), or Sapp v. USF&G Co. (572So.2d 158 [Louisiana, 1990]).

Prior Employers

Contact with previous employers is not always a successful meansof obtaining useful information about prospective employees. First,due to fear of slander suits, most direct supervisory personnel areinstructed to refer any reference inquiries to human resourcedirectors, who will provide only verification of dates ofemployment. Although former employers may agree to giveinformation, obtaining useful information in this manner isdoubtful, and could be hazardous to both the provider and thereceiver if such information is false, misleading, or alleged to beslanderous.

In the Louisiana case, Adams v. Pro Sources Inc., a federalcourt addressed a coverage dispute as to an employment practiceexclusion regarding a defamation claim by a former employee due toinformation in that employee's records. Similarly, in the Oregoncase, Clinical Research Inst. of So. Or. v. Kemper Ins. Co. (84P.3d 147 [2004]), a coverage dispute resulted from an insuredemployer's informing a former employee's prospective employer thatit would sue that employer if it hired the former employee. Theformer employee sued for slander, alleging that the former employerhad sent a “false and defamatory letter.”

However, termination of an employee due to information receivedfrom a previous employer does not always have the implication thatthe terminated employee will have a sustainable right of action.The Alaska Supreme Court found that termination of an “at will”employee, when the employer learned from a prior employer ofco-worker sexual harassment, did not breach a duty of good faith tothe employee. The terminated employee argued that he had“pre-termination rights” based on the employment manual, includingthe right to a complete investigation of the allegations. Thecourt, however, noted that the employee had not disputed theevidence that the employer introduced to show that the terminationalso was for insubordination, intimidation, and non-sexualharassment of co-workers (Belluomini v. Fred Meyer of Alaska, 993P.2d 1009 [1999]).

Drug Testing

Drug screening is popular with many employers, but the ultimatevalue may be questionable, as there are many ways the tests can befaked. Security Director News quoted Les Rosen, president ofEmployment Screening Resources in Novato, Calif., as saying thatdrug testing “has really become a bit of a no brainer.” With lowcosts and infrastructure in place, he suggests that “there arecompelling statistics for doing it.” Additionally, he notes,specific jobs and industries mandate such testing.

Nevertheless, testing can lead to litigation under state privacylaws. For example, in the Colorado case, Roe v. Cheyenne Mt.Conference Resort (124 F.3d 1221 [10th Cir., 1997]), drug testingof employees with non-safety or sensitive jobs was deemed acognizable claim under state common law.

Drug testing also might be a part of a medical record review andphysical examination when employment requires physical labor ordeals in any way with public safety, such as driving school buses,piloting aircraft, operating overhead cranes, or similar complextasks that require a sound mind and body. Medical record review,however, is a potentially hazardous process if privacy safeguardsare not in place. The Health Insurance Portability &Accountability Act of 1996 restricts access to medical recordsexcept when patients provide specific authorization.

Employers often need access to prior medical treatment to assesspreexisting conditions, both for group insurance programs and todocument any preexisting disabilities that might trigger SecondInjury Fund claims in the event of workplace injuries.Additionally, if an employment applicant has a preexistingdisability, access to medical records may be necessary to assess areasonable accommodation under the Americans with Disability Actrequirements.

Furthermore, a danger of seeking too much information arises ifthe testing or examination also includes DNA or genetic data. Forexample, in a 2001 Iowa federal case, the Equal EmploymentOpportunity Commission became involved in a dispute with theBurlington Northern Santa Fe Railroad that alleged violation of theAmericans with Disability Act. The railroad had a genetic testingpolicy for workers who made carpal tunnel syndrome workers'compensation claims. It was argued that this was “an invasion ofprivacy and a person's bodily integrity,” and that it discriminatedagainst those with the disability and led to retaliation for thosewho asserted their rights to object to the testing.

Blanket requirement of medical records from applicants oremployees, however, could become a basis for an employment practiceliability suit, if the records are used in any way to denyemployment or terminate the person after hiring. In California'sWise v. Thrifty Payless, Inc., 83 Cal. App. 4th (2000), forexample, a pharmacy was found to have violated a stateConfidentiality of Medical Information Act by disclosingprescription drug information to an employer without authorizationfrom the employee.

Theoretically, job interviews are to be made blind, so that theinterviewer cannot know a person's race, gender, age, or health.Under Equal Opportunity Employment and other fair labor laws, useof medical information to deny employment when applicants arephysically and mentally able to do the jobs can be found to bediscriminatory.

One study made by the University of Illinois found that 35percent of Fortune 500 companies admit to using medical informationto make employment decisions. Two-thirds of the states requirehealth-care organizations to maintain the confidentiality ofmedical records, and 22 have legal protection laws applicable tocomputerized or electronically transferred patient information,reported Robert F. Pendrak and R. Peter Ericson, in their article,“Information Technologies Need to Protect Patient Confidentiality,”in Healthcare Financial Management, October 1998.

Verification of citizenship or immigration status now is a legalrequirement. Most employers make photocopies of Social Securitycards or other required immigration documentation. The hiring ofillegal immigrants not only is against the law, it is a potentiallyhazardous situation if individuals should happen to be terroristsor criminals.

In 1986, Congress passed the Immigration Reform & ControlAct, which granted a one-time amnesty to certain classes of alienswho were in the United States illegally. Although the law didlittle to stem the tide of illegal immigration, the JusticeDepartment has enforced sanctions against employers who hireillegals. Hence, employers have an obligation to be certain thatany employee is in the country legally, and have three businessdays from the date of hiring to examine employees' documents,although the time can be extended if employees present applicationsfor unavailable documents, suggests Stanley Mailman, in “TheEmployer as Immigration Inspector,” New York Law Journal, April1996.

Credit Histories

Credit checks have declined as an employment screening device,ChoicePoint's Cortez says. She noted that credit checks arerequested in less than 10 percent of pre-employment record checks,and that “companies feel there needs to be an intersection betweenthe type of job [for which a person is being considered] and thetype of check we're doing.” For some types of work, especiallythose related to financial tasks such as accounting andbookkeeping, however, a bad credit record could be a significantemployment factor. If a person's personal finances become toonegative, he may begin to look around for an additional source ofrevenue.

A personal interview remains one of the better methods ofemployment screening, provided that the interviewer is familiarwith employment laws, a skilled observer of both the obvious andsubtle aspects of human behavior (such as body language), and agood listener. Nevertheless, an individual with less than honorableintent can easily con an expert and make light of any deficienciesthat may come to an employer's attention. As Jason Morris,president of Background Information Services in Cleveland, Ohio,reported to Security Director News, “The goal of HR is to getsomeone hired quickly, while the goal of security is to get thesafest person.”

Ken Brownlee, CPCU, is a former adjuster and risk manager,based in Atlanta. He now authors and edits claim adjustingtextbooks.