This newsletter is sent to clients of Employment Screening Resources (ESR) as well as employers, Human Resources and Security professionals and law firms who require information on pre-employment screening, safe hiring, the FCRA and legal compliance.  If this was sent in error, you can be removed from this mailing by using the "remove" feature at the end of the newsletter.

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February, 2004            Vol. 4, No. 2
 

Employment Screening Resources (ESR) Newsletter and Legal Update

1. Hot Off The Press: New FCRA Section on Misconduct Investigations to Take Effect March 31, 2004 (Vail Letter Repeal)

2. The High Cost of Employee Turnover

3. International Employment Screenin

4. Safe Hiring Workshops Available for Employers in 2004

1. Hot Off The Press:  New FCRA Section on Misconduct Investigations to Take Effect March 31, 2004
(Vail Letter Repeal)

On February 4, 2004, the Federal Trade Commission (FTC) announced that the new amendments to the Fair Credit Reporting Act (FCRA) concerning investigation of current employees for suspicion of misconduct would take effect March 31, 2004.  The announcement makes final an earlier interim determination.  

The FCRA was amended in late 2003 by the Fair and Accurate Credit Transactions

Act of 2003 (FACT Act).  Among the changes, the bill exempts third party investigations of current employees from many FCRA notice and consent requirements when the investigation concerned suspected misconduct relating to employment, or compliance with federal, state or local law, certain financial regulatory rules or any existing written policies of the employer.  The new rules are part of section 603(x) of the FCRA. 

The new law effectively repealed what has been known as the "Vail" letter.  The Federal Trade Commission indicated in an opinion letter in 1999 that the full FCRA notice and disclosure rules that apply to pre-employment screening must also be followed when it comes to any investigation of current employees for misconduct. This has been criticized by Human Resource, Legal and Security experts as crippling investigations of sexual harassment claims, as well as other misconduct such as theft or threatened workplace violence. 

If an adverse action is taken as a result of such an investigation, the employee is still entitled to a summary containing the nature and substance of the report, but not the names of individuals that provided information for preparation of the report. 

ESR will provide more detailed information in the future as the implications of the new law develops.  
 

2. The High Cost of Employee Turnover

The direct economic cost of replacing a single bad-hiring decision can be very expensive.  The time, money and energy spent recruiting, hiring, and training is wasted. It is estimated that the average cost of replacing an employee is 33% to 50% of the total compensation of a non-exempt employee, or a whopping 100% to 200% of the total compensation of an exempt employee. 

Those numbers are probably conservative if an employer adds in the amount of time lost between the time the bad hire is identified and a suitable replacement is trained and in position.  As a general rule of thumb, employers can expect replacement costs to be one and one half times a person's yearly salary.  That means one bad hiring decision can cost from $10,000 to $100,000.

It is estimated that a firm spends approximately 36% of its expenditures on human capital assets (in other words, their people).  For nearly any firm in the US, labor is either the first or second largest line item cost in a budget.  Just a 25% turnover rate can mean that a firm is spending a substantial part of its revenue on replacements.  When a bad hire is replaced, a firm not only has replacement costs, but has litigation exposure as well.  An employer must also consider other costs that are harder to quantify, such as the loss of productivity and know-how, and the disruption of the workflow. 

For these reasons, employers should consider cost-effective hiring tools that reduce turnover and replacement, such as pre-employment screening. 

3. International Employment Screening

Many firms are finding that they have a need to conduct background screening on individuals from other countries. This can occur in two situations:

1. An American company is considering a job applicant who was born abroad, or has been working or studying abroad, and has not been in the United States long enough to rely solely upon checking American references and records.

2. An American company is hiring an individual in another country to work in that country, such as an outside sales or marketing representative.

Although international screening is a challenge, it is something that American employers are able to do.  Some of the challenges stem from dealing with different time zones, languages and customs.  It can also be challenging locating past employers or schools internationally.  In addition, many countries do not have the same access to public records.

There are resources available to assist employers.   For example, ESR Global Services is able to provide worldwide employment and education verifications in over 120 countries.  ESR Global Services utilizes the services of fluent speakers for verifications performed in many countries, including speakers of Russian, Chinese, Japanese, French, Spanish, German, Dutch, Arabic and many others.  See http://www.esrcheck.com/international.php

In addition, ESR Global Services can provide criminal record checks for applicants in over 100 countries.  (See ESR International Screening Services for a listing of countries and details of searches.)

4. Safe Hiring Workshops Available for Employers in 2004

ESR founder and attorney Lester S. Rosen is featured in the following presentations at locations throughout the United States:

April 20-21, 2004--Washington, D.C. 
SHRM 35th Annual Employment Management Association (EMA) Conference and Exposition.  Topic: -"Safe Hiring Audit-Implementing and Measuring Due Diligence in Your Hiring." 

April 13, 2004--Houston, TX 
" How to Avoid Hiring Criminals and Problem Employees." Gulf Coast Symposium.  See www.hrhouston.org

April 6, 2004--Oakland, CA
"Privacy in the Workplace." Seminar sponsored by Lorman Seminars   (www.Lorman.com )

March 23, 2004--San Jose, CA
"Identify Theft: How Individuals and Businesses Can Protect Against Fraud and New Legal Obligations of Employers."  San Jose EAC (breakfast meeting).

March 10, 2004--Stockton, CA 
"Crimes, Criminals and Human Resources."  San Joaquin Human Resource Association (SJHRA) at Noon.  See www.sjhra.org

February 24, 2004--San Francisco, CA
"Drugs, Sex and Murder--An Introduction to Safe Hiring and Pre-employment Screening in California."   (A three-hour workshop sponsored by he NCHRA--details to be announced)

February 19, 2004--Newark/Fremont, CA
"Drugs, Sex and Murder--An Introduction to Safe Hiring and Pre-employment Screening in California."   (A three-hour workshop sponsored by he NCHRA-details to be announced)

Employment Screening Resources (ESR) Rated Top Background Screening Firm in First Independent Industry Study
http://www.ereleases.com/pr/2002-12-12e.html

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