Scrutiny of Databases that Track Private Records of Employee Wrongdoing

Massachusetts recently changed the law governing access to criminal offender record information or CORI to insure that job applicants have an opportunity to find work without suffering unduly from past criminal misconduct. Employers often conduct background checks as part of pre-employment screening. The results of these checks, and other pre-employment inquiries, like drug testing, can determine whether an individual obtains a job or not. Public records and private testing have a certain inherent reliability. An employer can, with some measure of confidence, rely on a criminal record, the results of a credit check, or the results of a drug test. At the same time, employers know that such records are of limited value -- in other words, there are plenty of people whose past conduct suggests they would not be reliable employees but who survive this kind of scrutiny.

Not surprisingly, some corporations see opportunity in that gap. One of them is First Advantage Corporation.  That corporation, like others, owns and operates a database designed to capture private records of wrongdoing. Specifically, with the cooperation of subscribing retailers, this database -- Esteem -- tracks suspected theft, instances where employees have confessed to dishonesty, and so forth, irrespective of whether any criminal charges ensued. These databases have countless subscribers and are used by retail giants, including Target, CVS and Family Dollar.

Advertising for Esteem reads as follows: "Since many internal theft incidents are not prosecuted, Esteem provides your organization with access to proprietary theft and fraud data that may not be available anywhere else."  The system is contributory -- retailers contribute data on employees and then potential future employers can access it. Esteem's advertising tries to address concerns about reliability by saying: "[a]ll admission statements are verified prior to delivering results."  It is not at all clear what "verified" means, but this hits squarely at what should be a concern for retailers relying on such a service. It's one thing to gather and disseminate information; it is another to vouch for its accuracy.

Anyone who has supervised employees knows that the reliability of statements made to supervisors can be suspect. Employees can be motivated in such interactions by a desire for advancement or, in dire circumstances, by a desire to save their job. For instance, an employee may simply decide to take responsibility for a cash irregularity (if it's small) in the hope that the issue will go away. Or, an employee might feel pressured by a supervisor and believe he has no choice but to confess, even where he did nothing wrong. Just as police officers sometimes elicit false confessions in the business context, where there are no meaningful controls on pressure tactics, it may also happen.

So it is no surprise that there is regulatory concern over these databases and that lawsuits have been brought against them and the employers who rely on them. The Federal Trade Commission is considering whether such databases comply with the Fair Credit Reporting Act, which applies to consumer credit checks. Former employees have sued retailers for relying on such databases in their decision-making. At issue is the permissibility of collecting and disseminating the information as well as the propriety of relying on it. Any retailer who decides to use such a database (and the Home Depot has stopped doing so)  needs to think through these very real concerns.

Potential employers understandably may want the information available through Esteem or a similar database. Without endorsing the use of such services, there are some considerations about how to do so. First, a prospective employer might do well to consider informing applicants of an intention to obtain information from such a service. Second, the employer should consider sharing with the prospective employee any negative information received to provide the prospect with an opportunity to explain. Finally, the employer might consider letting the prospective employee know about any sharing of disciplinary outcomes so that the prospect can anticipate the possibility as they consider future employment. The goal is to be up-front and to make decisions based on what the employer actually observes, rather than on the basis of information that is not always verifiable.

Bottom line, given the evolving legal landscape around the use of such information, and the potential for complications, an employer would do well to consult with its legal counsel before making such information part of its hiring process.

Related topics: Employment, Retail