Presented by Shannon Durst National Account Executive Employment Screening Resources (ESR)

About the Speaker Expertise. Screening industry experience matters. Shannon Durst ESR National Account Executive Shannon Durst is a National Account Executive with Employment Screening Resources (ESR), a nationwide background check firm accredited by the National Association of Professional Background Screeners (NAPBS ). She is a subject matter expert in criminal background, drug, alcohol and occupational health services for both regulated and non-regulated industries. She has over a decade of experience in the industry and speaks frequently at industry events. 2 2016 All Rights Reserved

Legal Notice This presentation is intended for educational purposes only. It does not constitute legal advice and should not be relied upon as such. Local laws, screening programs and industries are unique and, as a result, legal counsel should be sought for specific program questions or concerns. 3 2016 All Rights Reserved

The Due Diligence Imperative There is a statistical certainty that a firm that does not screen employees will hire someone with an unsuitable criminal record or false credential. What s the Cost to Employers? Workplace Violence DOJ estimates 2 million incidents each year Time Wasted in Recruiting, Hiring and Training Fraudulent Credentials Up to 40% of resumes contain material lies or omissions about education, past jobs or qualifications Turnover Costs Cost to replace an employee is 2 to 3 times their salary Lawsuits for Negligent Hiring, Retention, Promotion, or Supervision FCRA Class Actions are now a Trend! Brand Destruction, Lost Customers & Workplace Disruption Termination Exposure EEOC or Regulatory Action 4 2016 All Rights Reserved

Litigation, Regulation & Legislation Risk Factors Employers that do not conduct defensible due diligence can easily face a financial and legal nightmare. Absent sound due diligence practices, employers can find themselves involved in costly litigation the permitted and proper use of background checks are governed by litigation, and impacted by regulation and legislation. Litigation Class action lawsuits at the federal level for not following the federal Fair Credit Reporting Act (FCRA). Federal government class actions involve not only the FCRA, but the laws and regulations of the Americans with Disabilities Act, (ADA), the Equal Employment Opportunities Commission (EEOC). Lawsuits filed at the state level relating to special rights and/or procedures applicable to residents. 5 Regulation Legislation Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) have oversight for the Fair Credit Reporting Act. New Equal Employment Opportunity Commission (EEOC) Guidance for use of criminal records will change how you hire. Regulation from the ADA. Laws on ban the box, credit reports, social media, offshoring, etc. 2016 All Rights Reserved

How Are Employers Getting into Trouble? Top Eight Focus Topics 1. FCRA Compliance Failures 2. EEOC & Title VII Claims 3. Ban the Box Compliance Failures 4. Integrated Technology Constructs that Create Risk 5. Negligent Hiring & Retention 6. Improper Use of Credit 7. Social Media Screening (Lack of Proper Controls) 8. Selection of Screening Firm w/ Sub-Standard Practices 6 2016 All Rights Reserved

FCRA Class Action Lawsuits Will Continue to Increase Total Number of FCRA Class Action Filings Against Employers 2012-June 10, 2016 400 350 365 300 250 250 200 150 160 175 145 100 50 0 2012 2013 2014 2015 2016 (Jan - Jun 2016) 7 Statistics Courtesy of Littler Mendelson 2016 All Rights Reserved

FCRA Lawsuits Will Continue to Increase 2015/2016 Highlights of FCRA Class Actions & Settlements Date Company Settlement January 2016 Home Depot $3 Million March 2016 Wells Fargo $12 Million March 2016 Lowes Up to $22.5 Million June 2016 Uber $7.5 Million March 2015 Food Lion $3 Million April 2015 Home Depot $1.8 Million July 2015 Chuck E. Cheese $1.75 Million October 2015 Whole Foods $803,000 December 2015 Calvin Klein $716,400 NOTE: A class action settlement does not mean there has been a finding of any liability or that any facts have been determined or any settlement entered. 8 2016 All Rights Reserved

FCRA Lawsuits Will Continue to Increase Sample FCRA Class Actions & Nature of Alleged Violation Company Pizza Hut Michaels Stores Hertz Chipotle Grill Universal Studios Amazon Waffle House Sprint Big Lots Nature of Alleged Violation Not having a clear and conspicuous disclosure about background checks Neglecting to properly inform applicants about background checks. Acted willfully in violating FCRA requirements during background checks. Consent for applicant background checks was hidden in the document. Not properly disclosing to job applicants that the company used credit reports. Not giving applicants a chance to fix errors on negative background checks. Denied employment due to background check that contained inaccuracies. Using non-compliant disclosure forms before checking the credit of job applicants. Extraneous information in form used to obtain consent to background checks. 9 NOTE: A class action settlement does not mean there has been a finding of any liability or that any facts have been determined or any settlement entered. 2016 All Rights Reserved

FCRA Basics in 4 Easy Steps Employer Certification Background Screening Firm (CRA) Duty Prior to providing a consumer report employers must first certify to the CRA, in writing, that they will follow the FCRA rules concerning disclosure/ authorization/notice and adverse action notices and that they will not use information in violation of any state/federal discrimination law. CRA will typically provide a method for doing so via either a paper or automated process. The National Association of Professionals Background Screener s (www.napbs.com ) accreditation program requires a screening firm to make certain disclosures but there are no nationally approved forms. 11 2016 All Rights Reserved

FCRA Basics in 4 Easy Steps Disclosure and Authorization (604(b)(2)(A)(i)(ii) Employer Duty (i) a clear and conspicuous disclosure has been made in writing to the consumer at any time before the report is procured or caused to be procured, in a document that consists solely of the disclosure, that a consumer report may be obtained for employment purposes; and (ii) the consumer has authorized in writing. 12 2016 All Rights Reserved

FCRA Basics in 4 Easy Steps Disclosure and Authorization (604(b)(2)(A)(i)(ii) Disclosure and Authorization Issues Excess verbiage rule - can combine notice and disclosure but cannot put excessive language on form that detracts from clear meaning. Wavier rule-per FTC letter (Hauxwell) cannot make consumer waive rights under FCRA. One-time Evergreen Disclosure/Authorization good for future screening within limits but possibly not in some states. 13 2016 All Rights Reserved

FCRA Basics in 4 Easy Steps Adverse Action Notices Pre & Post Adverse Action Notifications PRE: Prior to taking adverse action (based in whole or in part on report), employers must provide applicants with copies of Consumer Report and Summary of Rights (e.g. credit reports). Must give same report employer receives. FCRA is silent on how long employer must wait, but the best practice is to give applicant a meaningful opportunity to review, reflect and object. Minimum of five (5) business days suggested or as otherwise required by law. POST: Second letter required under FCRA Section 615 if adverse action becomes final. 14 2016 All Rights Reserved

FCRA Basics in 4 Easy Steps Be Aware of State Laws States Rules 20 States with own FCRA Type Rules ARIZONA CALIFORNIA COLORADO GEORGIA KANSAS KENTUCKY LOUISIANA MAINE MARYLAND MASSACHUSETTS MINNESOTA MONTANA NEW JERSEY NEW HAMPSHIRE NEW MEXICO NEW YORK OKLAHOMA RHODE ISLAND TEXAS WASHINGTON 15 2016 All Rights Reserved

FCRA Basics in 4 Easy Steps Be Aware of State Laws Examples of State Rules At least 11 states have a 7-year limit on criminal records some states have an exception if applicant has a higher incomes level (Texas and Colorado pre-empted by FCRA). Various states, counties and cities have special rules for: Disclosure form for consumer including copy of rights specific to the jurisdiction. Rules for Investigative Consumer Reports Nature and Scope letter Disputed Accuracy procedures Timing and notice of reports Notification periods 17 2016 All Rights Reserved Other examples: CA numerous only in California rules MA Final adverse action letter must be in 10 pt type minimum within 10 days with specified language NJ special notifications of reason why dispute is frivolous NY corrected copy rule

FCRA Basics in 4 Easy Steps Be Aware of State Laws More Examples of State Rules Some states limit employers from using arrests, such as California, Hawaii, Illinois, Massachusetts, Michigan, Nevada, New York, Pennsylvania, Rhode Island, Utah Virginia, Washington, Wisconsin. Some states limit misdemeanors, such as California, Hawaii and Massachusetts. Some states limit expunged or sealed records, such as California, Colorado, Hawaii, Illinois, Ohio, Oklahoma, Oregon, Rhode Island, Texas, Virginia, Louisiana, Maryland, New Jersey, South Dakota, Utah, Virginia. Some states limit first offense records, records based upon a certain age (other than a seven year limit) or diversion/non-adjudication programs, such as Georgia, Massachusetts, Hawaii, Illinois, California. Many states have rules reflecting EEOC enforcement guidance arrest or conviction must have rational relationship to job given nature and gravity of the offense, nature of the job and age of offense. 18 2016 All Rights Reserved

FCRA Basics in 4 Easy Steps Strategy 1. Review your disclosure and consent forms and process for compliance. a. Include an Evergreen clause if allowed in your state. b. Ensure disclosure consists solely of the disclosure no waivers or extraneous language. 2. Review Pre & Post Adverse Action Processes for Compliance with local, state and federal laws. a. Some companies mistakenly believe they only have the federal adverse action to worry about. If you are outsourcing this to your screening provider, make sure ALL req s are being covered. 3. Make sure all forms including the Summary of Rights are current and up to date. 4. Identify and approve suitability of information sources being provided by your screening provider. a. Accuracy claims can create lawsuits against the CRA AND the employer. 5. Ensure that the Summary of Rights Under the FCRA is provided in advance if an investigative consumer report will be requested. 6. Understand what your screening provider is reporting to you. Are they giving you actionable information that has been reviewed against federal and state laws? 7. Utilize a screening firm that has a demonstrated expertise in legal compliance. Current trends underscore that background screening is far more than data retrieval. The focus is more and more on legal compliance capabilities. 19 2016 All Rights Reserved

EEOC Enforcement Guidance on Criminal Records On April 25, 2012, the U.S. Equal Employment Opportunity Commission (EEOC) issued its updated Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964. *Title VII applies to employers with 15 or more employees (caution: threshold headcounts for application of federal statues can be tricky). Impact to Employers The EEOC enforcement guidance is not law or regulation and does NOT have the force and effect of law but is used by the EEOC in litigation which can create case law. Even where the EEOC has not yet litigated, courts will consider the opinions of an agency. If Courts adopt the EEOC approach, effectively becomes law. In reality, the tough decisions are NOT the murders and sex offenders, but applicants with more minor or older offenses. Even if a court or jury rejects, defending against a discrimination charge is expensive and time consuming. 20 2016 All Rights Reserved

EEOC Guidance on Criminal Records Strategy 1. Afford the opportunity for affected Applicants to have an Individualized Assessment. Consider: Nature, Gravity, Length of Time and Job Relatedness 2. Determine when and how that opportunity will be made available; ensure consistency. 3. Have a strong policy that includes measures for consistent application. 4. Inquire about criminal history later in the hiring process (unless otherwise required by law). 5. Background check should be a targeted screen based on demonstrable risk and be relevant to the position being sought. 6. Utilize a screening firm that has a demonstrated expertise in legal compliance. 21 2016 All Rights Reserved

Ban the Box Polling Question: What is your level of confidence that you are compliant with Ban the Box laws? Choices: Very Confident, Fairly Confident, Not Confident, What is Ban the Box? What is Ban the Box? Ban the Box is the name of a campaign by civil rights groups and advocates for ex-offenders that seeks to remove the check box from employment applications that inquires into an applicants criminal record. Ban the Box on Steroids Ban the Box and the EEOC The EEOC recommends the Ban the Box approach for private employers. As a best practice, and consistent with applicable laws, the Commission recommends that employers not ask about convictions on job applications and that, if and when they make such inquiries, the inquiries be limited to convictions for which exclusion would be job related for the position in question and consistent with business necessity. 22 2016 All Rights Reserved

Ban the Box How does it affect you? Currently, more than 100 cities and counties have adopted Ban the Box. 24 states have some type of Ban the Box Policy California (2013, 2010), Colorado (2012), Connecticut (2010), Delaware (2014), Georgia (2015), Hawaii (1998), Illinois (2014, 2013), Louisiana (2016), Maryland (2013), Massachusetts (2010), Minnesota (2013, 2009), Missouri (2016), Nebraska (2014), New Jersey (2014), New Mexico (2010), New York (2015), Ohio (2015), Oklahoma (2016), Oregon (2015), Rhode Island (2013), Tennessee (2016), Vermont (2015, 2016), Virginia (2015), and Wisconsin (2016). 9 States Have Laws that Impact Private Employers Connecticut, Hawaii, Illinois, Massachusetts, Minnesota, New Jersey, Oregon, Rhode Island, and Vermont 23 2016 All Rights Reserved

Ban the Box Strategy Be aware of Ban the Box laws in your state. May impose additional, specific disclosure requirements May prohibit inquiry about applicants criminal past until post offer. May impose additional adverse action type requirements May vary by City/County Consider the EEOC position on Ban the Box Ensure your company has a strong, company wide policy. Consider utilizing a screening firm that has technologies to support compliance and emerging disclosure or adverse action requirements. 24 2016 All Rights Reserved

Integrated Technologies & Compliance Strategy 1. Most Applicant Tracking System (ATS) operators do not want and should not have control or responsibility over the applicant disclosure and consent forms. Systems that host the applicant consent on the platform may pose unnecessary risk. 2. Most ATS operators do not want to house background screening data due to data breach concerns and will provide a link to the report housed by the background screening firm. 3. Most ATS operators do not want to be a party to the background check in order to avoid any possible applicant form or reports that are alleged to have errors. 4. Most ATS operators should only facilitate communication between an employer and a background screening firm, but stay out of the process as much as possible. 25 2016 All Rights Reserved

Negligent ESR RESOURCES Hiring & Retention Negligent Hiring If an employer fails to exercise due diligence and a person is harmed by an employee, that employer can be sued for negligent hiring. Liability for the acts of workers may not even be limited to just employees; an independent contractor or a worker sent from a staffing vendor can also potentially land a business in hot water. Strategy 1. Have a comprehensive, compliant screening program in place with targeted screens based on business necessity and job relatedness. 2. Define requirements by job classification as well as identify the types of crimes that would disqualify. 3. Ensure training and consistency for any employee that applies the policy. An employer that hires someone it either knew or should have known was dangerous, unfit or unqualified for the work can be sued for negligent hiring. 26 2016 All Rights Reserved

Negligent ESR RESOURCES Hiring & Retention Negligent Screening & Post Hire Screening Programs An employer may be liable for negligent retention if the employer becomes aware or should have become aware post hire of an employee s criminal acts. Strategy 1. Consider implementing a post hire screening program. 2. Consider adding a self-reporting requirement to your policy. 3. Ensure the screening is job-related (I.e. checking the MVR for employees who have driving responsibilities). 4. Ensure you have proper consent. a. If you have an evergreen release, make sure it is allowed in your state and that consent isn t required each time a background check is requested. 5. Make sure you observe adverse action requirements as they apply equally to pre-employment and post employment. Pre- Employment Screening Program Self Report Policy Post Hire Screening Program (Continuous Screening) 27 2016 All Rights Reserved

Use of Credit A number of states have passed laws restricting the use of credit histories of applicants and employees by employers for employment purposes: California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington. Strategy 1. Approach use of credit reports in hiring decisions with caution 2. Credit reports are a potential issue for EEOC. 3. Credit reports can potentially be discriminatory unless measures taken to ensure their use is fair, accurate and relevant. 4. Need to clearly establish job-related reasons why a credit report is a valid predictor of job performance. 5. Review applicable state laws. Use and exceptions are defined. 28 2016 All Rights Reserved

Social Media Screening Social media checks can present legal risks for employer: Keep in mind that you can t un-ring the bell or un-see information take precautions surrounding what you may become aware of. Too Much Information (TMI) - Can expose employers AND recruiters to discrimination claims nationality, race, religion, age, sex or medical issue. Online Photos Appearance or religious affiliations revealed by photos. Reasonable expectation of privacy based on generally accepted standards. Legal off duty conduct. Issue of identifiers and authenticity is it really your applicant? Failure to utilize social media can arguably be the basis of a negligent hiring claim, where social media search may have raised a red flag. States have passed laws limiting employers asking for passwords or shoulder surfing. Download the Whitepaper at www.esrcheck.com 29 2016 All Rights Reserved

Social Media Screening Strategy 1. Beware of In-house Analysis. 2. Utilize social media as late in the process as possible. 3. Most conservative approach: Perform search AFTER there is consent and a job offer is made, contingent upon completion of a background check that is satisfactory to the employer. 4. Be Consistent and Do Not Discriminate. Team training is key. 5. Be Transparent. 6. Use OBJECTIVE and DOCUMENTED standards. 7. If conducting in-house, researcher should be independent of hiring process and NOT be a decision maker. 8. If outsourced, utilize a screening firm with strong FCRA Compliance. 9. Employers should have a post-employment policy on use of social media. 30 Download the Whitepaper at www.esrcheck.com 2016 All Rights Reserved

Background Screening Firm Selection If you think it s expensive to hire a professional, wait until you hire an amateur. - Red Adair Good Fast Expensive But Good Not Possible Low Quality Not Likely Possible Cheap There will always be someone who says they can do it cheaper. 31 2016 All Rights Reserved

Background Screening Firm Selection Myth Busters Myth #1: Fact: Myth #2: Fact: Myth #3: Fact: Myth #4: Fact: All background check companies are the same. Background screening firms have significantly different practices. The lowest price is the best deal. The lowest price is often NOT the best deal. What corners are being cut to deliver low pricing? Quality? Accuracy? Compliance? Service? Employers can t be sued for a CRA s mistakes. In many cases CRA omissions are linked to end user obligations creating potential liability for the employers. I can use any information reported by my screening provider in my hiring decision. It depends. The screening provider may not be providing actionable information that meets state and federal laws. Regulated industries may have special considerations. 32 ESR s lack of litigation history is no accident. 2016 All Rights Reserved

The Practice of Offshoring What is of offshoring? The practice of U.S. companies sending Personally Identifiable Information (PII) of American consumers to foreign countries with cheaper production and labor costs to increase profits. Quality & Accuracy Concerns There are horror stories about foreign workers misinterpreting U.S. criminal information resulting in omissions and/or inaccuracies. Identify Theft Concerns There is little to no recourse for affected individuals. Consumers and companies may not even be aware that sensitive information has left the U.S. No Screening Accreditation Standards Exist for International Organizations or Locations An NAPBS accredited firm is audited for U.S. practices and in U.S. locations only. Data Protection The risk for a data breach is always a concern. Security levels and protocols may not be up to par. Service Levels Suffer Many companies find decreased service levels are not worth the savings. State or Federal Law May Impose Additional Requirements California requires screening disclosure document to contain a link to screening firm s privacy policy that must contain specific language if this link is missing it could cost the employer $10,000 per background check. 33 2016 All Rights Reserved

Background Screening Firm Selection Don t Underestimate the Importance of Working with a Quality Background Screening Firm. Why are background screening firms sued? Top 18 Reasons 1. Using a loose matching system. 2. Reporting withdrawn or incorrect charges. 3. Providing repetitive information. 4. Reporting a violation that is non-criminal under state law. 5. Failing to provide a contemporaneous notice in addition to failing to ensure information is complete and up to date as required by statute. 6. Selling instant searches without providing contemporaneous notice or using bad data. 7. Failing to conduct a timely reinvestigation. 8. Reporting arrests beyond 7 years unless excepted. 9. Failing to conduct an adequate investigation of consumer dispute and/or limiting what a consumer can communicate to the CRA about their dispute. 10. Not obtaining FCRA certifications from the employer. 11. Failing to provide consumers with a summary of their rights. 12. Reporting criminal records contrary to state equal employment law. 13. Failure to tell employers that the FCRA applies. 14. Not properly training employees on requirements of the FCRA. 15. Providing legally defective forms to an employer. 16. Prohibiting an employer from disclosing the contents of the report to the consumer. 17. Failure to conduct an employer certification every time a report is ordered. 18. Failure to clearly and accurately disclose all client s information in their file upon client s request. Download the Whitepaper at www.esrcheck.com 34 2016 All Rights Reserved

Background Screening Firm Selection Top 10 Checklist for selecting a background screening firm. 1. Is the firm a member of and accredited by the National Association of Professional Background Screeners (NAPBS)? 2. Does the firm offshore any part of their operations overseas? 3. Has the firm ever been the subject of a lawsuit for violating the Fair Credit Reporting Act? 4. Has the firm ever been the subject of a regulatory sanction or action (FTC, EEOC, CFPB)? 5. In what ways does the firm support employer compliance? a. Applicant disclosures: Are they dynamic and do they include municipal, county, state and federal requirements? b. Adverse Action: Do they comply with the various state, county and city laws as well as the federal two step mandated process? 6. If the firm sells a national criminal product, do they conduct a court search for potential criminal matches before reporting? Or is the information instant? 7. Does the firm report only actionable information compliant with applicable municipal, county, state and federal laws? 8. How does the firm stay abreast of ever changing legislative and regulatory requirements? 9. How do the firm s privacy, confidentiality and security controls stack up? Are they independently audited? 10. Does the background screening firm take measures to ensure that ALL legal and relevant criminal records are searched, as opposed to just going back "seven" years, which can leave an employer exposed? Get the complete list at www.esrcheck.com 35 2016 All Rights Reserved

Thank You for Joining Us Today! We believe companies deserve a background screening partner they can rely upon to consistently deliver fast, accurate, affordable and compliant information through an innovative, highlyintegrated solution that supports employer compliance with ever-changing laws. Contact Us Shannon Durst National Account Executive (415) 530-3844 sdurst@esrcheck.com 37 2016 All Rights Reserved