Cobra Subsidy Extended Only Through March; More to Come? (4/10)

Congress voted once again to extend the Consolidated Omnibus Budget Reconciliation Act (COBRA) premium reduction subsidy, but only through March.  Specifically, the period to qualify for the COBRA subsidy that provides terminated employees and their beneficiaries with a 65% premium reduction in health continuation insurance costs was extended through March 31, 2010.  The subsidy period is available for up to 15 months of the COBRA 18-month entitlement period.           The subsidy, which originally was part of the $787 billion stimulus package created by the American Recovery and Reinvestment Act (ARRA), initially was available to any employee terminated involuntarily between September 1, 2008, and December 31, 2009, and their covered dependents, and provided only nine months of the reduced-rate COBRA coverage.  The subsidy was extended initially until February 28, 2010, and for a total of 15 months, as part of the 2010 Department of Defense Appropriations Act (2010 DOD Act), and then was extended a second time as part of the Temporary Extension Act of 2010, but only through March 31, 2010.      The latest extension also expanded eligibility to the COBRA subsidy.  Specifically, an involuntary termination of employment that occurs on or after March 2, 2010, but by March 31, 2010 and which follows a qualifying event that was a reduction of hours that occurred at any time from September 1, 2008 through March 31, 2010 is also a qualifying event that makes an individual eligible for the COBRA subsidy.      At the time that this newsletter went to print, Congress was considering yet another extension which would continue the subsidy through December 31, 2010.  Two bills with the COBRA subsidy extension have already passed both the House and Senate, but they now are stalled in a conference committee waiting for the members to hammer out differences to their separate bills.  News reports indicate that another temporary month-long extension also is in the works (taking the subsidy through April 31, 2010), though it could be held up by Senate Republicans’ demands that the costs of the extensions be paid for.  Last month, Senator Jim Bunning (R-KY) delayed the Temporary Extension Act because it violated the “pay-as-you-go” or “pay-go” statute signed into law by President Obama in February.  The law requires that all new nondiscretionary spending be offset with spending cuts or tax increases.  Democrats argue that the extensions to the COBRA subsidy and unemployment benefits are “emergency spending” and exempt from the “pay-go” requirements.        Most legal experts agree that the subsidy will be extended.  What is harder to predict is whether it will be in piecemeal fashion a month at a time or whether one more extension will take the subsidy through the end of the year.  Stay tuned – HR Matters will report on any new developments.

Know Your Obligations Under the Fair Credit Reporting Act (fcra) (4/10)

Do you use an outside agency to conduct background investigations on job applicants?  If you do, you must comply with the comprehensive notice, consent, and disclosure obligations of the federal FCRA.  Make sure you understand your obligations under this complex law.

The weak job market has created a new interest in background checks by employers, particularly credit checks, according to recent news reports and surveys.  A November 2009 survey of employers by the Society for Human Resource Management indicated that 76% of responding employers performed reference background checks (such as checking employment history) on all applicants, while 47% of respondents specifically conducted credit checks on selected job applicants.  Major news outlets including The Wall Street Journal, The Baltimore Sun, and Inc. Magazine have run stories in the last few weeks discussing the increased use of credit checks by employers and the negative affect these checks can have on job seekers who have poor credit.       While the use of credit checks, in particular, to exclude applicants from jobs that do not involve money handling or other financial management may be controversial, federal law does not prohibit employers from conducting credit or other background checks.  But, federal law, in the form of the Fair Credit Reporting Act (FCRA) does specify what steps you must follow if you use an outside agency to perform checks.  So, if you are not performing all of your checks in-house, you must be sure you are following the FCRA’s requirements to the letter.  Below you will find a summary of the law’s requirements and information on how to comply. FCRA Basics Specifically, the FCRA requires all employers that use outside agencies to perform credit or other background checks (including criminal, reference, or driving record checks) to comply with comprehensive notice, consent, and disclosure obligations both prior to doing the checks and after the results are reported.  The law is codified at 15 U.S.C. §§1681, et seq.  The FCRA does not specifically limit background checks.  However, it does require employers that obtain “consumer reports” from “consumer reporting agencies” for employment purposes to comply with comprehensive procedural obligations, both prior to performing a background check and after the results are reported.  Examples of “consumer reports” include information obtained by a third party about credit issues, employment history, motor vehicle records, and criminal background and reference checks.      Under the FCRA, you must give applicants notice of, and get their consent to, third-party background checks before obtaining the reports.  In addition, if you decide to reject an applicant based on the information in a consumer report, you must follow certain procedural requirements both before and after you communicate the hiring decision.  And, finally, you must dispose of consumer report and credit information from outside agencies “properly.”  These requirements are discussed in more detail, below.  (Note that all of the FCRA requirements also apply when you require a credit check for current employees, too.) Written Notification and Authorization Required Before requesting a consumer report for an applicant, you must provide the applicant with a clear and conspicuous written disclosure that a consumer report may be obtained for employment purposes.  This disclosure must be on a separate, self-contained page and may not be included in an employment application or other document containing other employment information, such as a general waiver form.  In addition, the applicant must give you written authorization to obtain the report.  This authorization may be obtained with the notice form, and many employers combine the two.        A “consumer report” is defined to include any written, oral, or other communication of any information by a consumer reporting agency regarding a consumer’s creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used as a factor to establish the consumer’s eligibility for employment.  Under amendments to the FCRA by the Fair and Accurate Credit Transactions Act (FACTA), the definition of “consumer report” excludes communications made to employers in connection with investigations of suspected misconduct relating to employment or to compliance with laws, regulations, or written employer policies.  The amendments also provide that consumer reporting agencies may not disclose medical information to employers unless the information “is relevant to process or effect the employment” and the consumer reporting agency has the consumer’s “specific written consent” to furnish that information.  (For more information on medical information in consumer reports, see below.)        A “consumer reporting agency” is defined as any person who, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties.   Certification to the Consumer Reporting Agency  In order to obtain a consumer report from a consumer reporting agency, you must provide certification to the agency that you:  (1) are requesting the report for employment purposes (which includes to evaluate a consumer for employment, promotion, reassignment, or retention as an employee); (2) have provided the required disclosure to the applicant and received the necessary written authorization to request the report; (3) will provide the consumer with a copy of the report and a written description of the consumer’s rights before taking any adverse action based in whole or in part on the report; and (4) will not use the information from the report in a manner that violates federal or state equal opportunity laws.   Adverse Action Based on the Consumer Report Questions often arise regarding how the FCRA affects your decision-making process if you discover negative information about the applicant in the background check.  The FCRA does not limit your actions; rather it requires you to take certain procedural steps if you want to take action based on the consumer report.        Specifically, you may take adverse employment action, such as not hiring an applicant, based on the information contained in the report.  However, before taking adverse action (such as not hiring an applicant) that is based in whole or in part on the information, you must provide a copy of the report to the employee and describe in writing the person’s rights under the FCRA.  As a practical matter, the consumer reporting agency is required to provide this summary to you with the report (but you are not required to provide a copy of the report unless you plan to take adverse action based on it).        A second, separate notice also must be provided after you take adverse action.  This notice can be given orally, in writing, or electronically and must include:  (1) the name, address, and telephone number of the consumer reporting agency issuing the report; (2) a statement that the agency did not make the decision and is not able to explain why the decision was made; (3) a statement regarding the consumer’s right to obtain a free disclosure of the consumer’s file from the agency if the consumer requests the report within 60 days of notice of the adverse action; and (4) a statement regarding the consumer’s right to dispute directly with the consumer reporting agency the accuracy or completeness of any information provided by the agency.        The Federal Trade Commission (FTC) also has issued nonbinding, informal opinion letters providing limited guidance about how long an employer must wait between the time it notifies the employee that it plans to take adverse action and provides a copy of the credit report, and the time that it actually may take the action.  The FTC noted that the statute does not define the time period and recommends an “appropriate” time period, the duration of which must be assessed according to the circumstances.  In one letter ruling, the FTC approved of a five business-day period between furnishing the report and taking action.  Investigative Consumer Reports Require Additional Steps Some employers want a more detailed, personal report regarding an applicant’s background and will request an “investigative consumer report.”  An investigative consumer report is defined as a consumer report or portion of a consumer report which relies on interviews with neighbors, friends, and associates to compile information about the applicant’s character, general reputation, mode of living, and other personal characteristics.  So, for example, an in-depth interview with the applicant’s previous employer could be an investigative consumer report if it goes beyond just fact-checking employment dates and salary and also asks the employer to rate the applicant’s past job performance.  In order to obtain an investigative consumer report, you must comply with the same notice, authorization, and disclosure (both to the consumer reporting agency and to the applicant if adverse action is taken) requirements that apply to consumer reports.        In addition you also must, within three days of requesting the report:  (1) disclose in writing to the applicant that the investigative consumer report may be made; (2) inform the applicant of the right to request disclosure of the nature and scope of the investigation to be made; and (3) provide a written summary of the applicant’s rights under the statute.  Further, if the applicant requests in writing the information on the nature and scope of the investigation, you must send this information to the applicant, also in writing, within five days after the date of the request.   Medical Information in Consumer Reports  As noted above, the FACTA’s amendments to the FCRA prohibit disclosure of medical information by consumer reporting agencies to employers except where the information “is relevant to process or effect the employment” and the consumer gives “specific written consent” to furnish that information.  However, this amendment generally should not cover drug or other preemployment medical test results since the FCRA excludes from the definition of consumer report any “report containing information solely as to transactions or experiences between the consumer and the person making the report.”  The “transactions and experiences” exemption has been interpreted to exclude from coverage any report based on the reporter’s first-hand experience of the subject with the consumer, such as medical test reports from the person who actually conducted the tests.  On the other hand, third party reports about worker’s compensation, disability, or other medical benefit claims likely are not covered by the exception for direct transactions.  Remember, though, you still must comply with other laws that restrict medical inquiries of applicants, such as the Americans with Disabilities Act, so you likely are better off not requesting or receiving any of this information at least before a conditional offer has been made.   Disposal of Consumer Report Information Regulated Another issue that you should be aware of that was created by amendments to the FCRA is the rule requiring proper disposal of consumer report information.  The FACTA added a section to the FCRA directing the FTC and other federal agencies to adopt rules regarding the disposal of sensitive consumer report information.  The purpose of these rules is to reduce the risk of identity theft and other consumer harm from improper disposal of a consumer report or related records.  To that end, the FTC issued rules regarding the proper disposal of consumer report information and records under the FACTA and the FCRA, contained in 16 C.F.R. §§682.1 et seq.  The FTC’s “Disposal Rule” applies to persons, like employers, who, for a business purpose, maintain or possess consumer report information.  Covered persons must “dispose of such information by taking reasonable measures to protect against unauthorized access to or use of the information in connection with its disposal.”  The FTC’s standard for disposal includes specific examples of appropriate measures that would satisfy its requirements, which include burning, pulverizing, or shredding paper records; destroying or erasing electronic media; or contracting with another party engaged in the business of record destruction to dispose of the materials in a manner consistent with the rule.   State Restrictions on Checks Also May Apply In addition to meeting the FCRA requirements, you also should check your state’s law for any restrictions on credit or other checks.  Many states have also enacted fair credit laws similar to the FCRA that contain different or additional requirements relating to the use of consumer reports for employment purposes including Arizona, California, Maine, Massachusetts, and New York.        Three states have stricter limits that appear to apply only to the use of credit checks.  Hawaii’s state fair employment practices law prohibits employers from discriminating based on a credit check unless the employer can show that the credit check information is a bona fide occupational qualification, though the law does exclude managerial and supervisory employees and allows credit checks by financial institutions.  Washington also bans the use of credit checks unless the check is “substantially job related” and the employer’s reasons for the check are disclosed to the applicant or employee.  Oregon passed a law that will take effect July 1, 2010 (assuming the Oregon Governor signs it, as expected) which is similar to Washington’s law.  Several other states are considering similarly restrictive laws, including Maryland and Wisconsin.  Be Careful How You Use Background Check Information The value and effectiveness of credit and consumer investigations in the hiring process are controversial.  While it is important to check an applicant’s references and background to verify past experience and to protect against claims of negligent hiring, credit records in particular may not reflect the applicant’s ability to perform the job.  Investigative consumer reports also are subject to question since they rely primarily on interviews with the applicant’s acquaintances and may be biased and subjective.  In addition, you may discover information about the applicant that you would not otherwise be allowed to obtain, such as about the applicant’s medical history.  Further, the FCRA has substantial penalties for noncompliance, including actual and punitive damages, fines, and imprisonment of up to two years for willful violations.  Accordingly, you should be careful to comply with the Act and antidiscrimination statutes when requesting and compiling information for these reports.