(c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

Establishing the Employment Relationship:

A Legal Perspective on Important Do’s and Don’ts

September 19, 2006

Robert M. SheaMorse, Barnes-Brown & Pendleton, P.C.

(c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

Focus on trends/issues in three areas:

• Background Checks

• Offer Letters

• Non-Compete Agreements

(c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

Background Checks• Percentage of employers conducting background checks

rising steadily

Survey of Boston-Area Businesses (by The Survey Group)

– Approximately 80% of employees have formal policies– Up 15% in two years

CORI requests have increased from 400,000 (annually) in 1998 to 1.5 million in 2004

Business of doing background checks is now a multi-billion dollar industry

(c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

Why are background checks increasing?

• Bad hire decisions are costly

– Employee turnover– Recruitment costs– Wasted management time– Loss of productivity– Employee theft– Employment-related litigation

(c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

• Claims by other employees– Harassment– Assault– “Negligent hire”

• Safety issues– Workplace violence– Terrorism

(c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

What types of background checks are being conducted?

• Criminal background checks• Sex offender checks• Social Security traces• Driving record• Credit report• Employment verification

(c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

What types of background checks are being conducted?

•Education verification•Business reference verification•Personal reference verification•License, credential and certification verification•Military record

(c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

What are employers legal obligations?

• Anti-discrimination law – Don’t make inquiries, directly or indirectly, “the response to which would likely disclose the applicant’s protected class status”

• Protected classes – race, color, religious creed, national origin, sex, sexual orientation, age, ancestry, or disability

• MA Law also prohibits inquiries regarding workers’ compensation histories and certain types of criminal records

(c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

Fair Credit Reporting Act (“FCRA”)

• Designed to ensure accuracy and protect privacy of consumer report information

• “Consumer report” – any communication containing information about a person’s personal or credit characteristics, character, reputation and/or lifestyle that is generated by a consumer reporting agency

• “Consumer reporting agency” – a business that assembles such reports for other businesses. Generally, any 3rd party that performs background checks for ERs is a consumer reporting agency

(c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

FCRA Requirements

• Disclosure and consent

• Provide required documents prior to any adverse action

• Notice after adverse action

• Disposal of consumer report information

(c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

FCRA only applies to consumer reports obtained from 3rd parties

• FCRA does not apply to background checks performed by “in-house” personnel

• Issue – use of internet search firms. Does FCRA apply?

(c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

Criminal Offenders Record Information (“CORI”)

• CORI requests have risen dramatically

• CORI includes arrests and other non-conviction records starting at age 18

• Last year, in response to concern over broadened use of CORI, new rules impose “FCRA-like” obligations when using CORI

(c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

New CORI Requirements

• Adopt a written CORI policy

• Notify applicant/employee that adverse action may be based on CORI report

• Provide copies of CORI report and employer’s policy to applicant/employee

• Provide a copy of CHSB’s informational summary to applicant/employee

• Provide an opportunity to challenge accuracy and relevance of CORI report

(c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

Offer Letters

Why important?

• Establish expectations – nature/term of employment, position, duties and compensation.

– View as an enforceable contract

• Provide important protections to employers

(c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

Elements of a good offer letter

• Definition of position and reporting structure

• Duty of loyalty / anti-moonlighting

• Compensation

• At-will statement

• Severance, if applicable

• Any requirements of non-compete, other restrictive covenants

(c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

• Representation that employment does not conflict with current/prior employment

• Conditions– IRCA– Background check

• Entire understanding

• Expiration of offer

(c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

Noncompetition Agreements

Enforceable?

Yes, when:

• Necessary to protect ER’s legitimate business interests

• Reasonable in time and scope

• Consistent with public interest

• Supported by consideration

(c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

What business interests are protectable?

• ER’s relationships with customers (“good will”)

• Trade secrets and other confidential business information

ERs cannot prevent ordinary competition

(c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

ERs should take a well-considered and consistent

approach

Ask: Will this EE control customer relationships and/or have access to confidential business information?

Will EE be in a position to harm ER’s business if leaves and use good will or confidential information?

Is non-compete necessary? Or would non-solicitation and/or nondisclosure restrictions be sufficient?

(c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

Scope of restrictions must be reasonable

• Duration

• Geographical

(c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

Issues

• Dilution / inconsistent enforcement

• Restriction imposed “post-hire”– Is continued employment adequate consideration?

• Effect of changes in position (e.g., promotion)

• Assignment

• Forum selection

• Attorneys’ fees

(c) 2006 Morse, Barnes-Brown & Pendleton, P.C.

Questions??