CFPB Weighs in on Key Background Check Issue: What is an Adequate Basis to Attribute a Criminal Record to an Individual?
A major background check vendor has settled charges by the Consumer Financial Protection Bureau (CFPB) that matching practices—the bases by which it attributes a criminal record to a specific individual—violated the Fair Credit Reporting Act (FCRA). At bottom, the settlement attempts to establish a standard that name and Date of Birth matching alone is insufficient to comply with the FCRA’s accuracy requirements, “three-factor” matching (name, DOB and address for example) is the minimum compliant matching standard. The settlement also covered other noteworthy business practices in the background check industry.
On November 22, 2019, the CFPB filed a Complaint against Sterling Infosystems, Inc. in the United States District Court for the Southern District of New York alleging violations under the FCRA and simultaneously filed a Proposed Stipulated Final Judgment and Order.
The 10-page Complaint against Sterling alleges the company violated sections 1681e(b), 1681k(a) and 1681c(a) of the FCRA. Each alleged violation is described below.
1. Alleged Failure to Employ Reasonable Procedures to Assure Maximum Possible Accuracy (1681e(b))
In the Complaint, the CFPB alleges that the following procedures, or lack of procedures, led Sterling to report erroneous adverse items of information on consumer reports:
(i) Matching Based on Two Identifiers: Between December 16, 2012, and October 2014, Sterling matched criminal records using two identifiers (which could include (i) first and last name and (ii) date of birth). This policy allegedly created a heightened risk of false positives because many commonly named individuals (e.g., John Smith) share the same first and last name and date of birth. Because of the widespread lack of access to Social Security numbers in criminal records, background check companies need to determine whether a given record applies to a given consumer using matching criteria. The CFPB takes the position that two-factor matching consisting of name and date of birth is inadequate.
(ii) Insufficient Training on New Policies: Beginning in October 2014, Sterling adopted its first company-wide common-name matching criteria, which required a match on three personal identifiers. But continuing after October 2014 through July 31, 2016, Sterling continued reporting instances of erroneously matching criminal records on common-name candidates due to supposedly insufficient training on the new common-name matching policy. The CFPB seems to be taking the position that three-factor matching can be adequate.
(iii) Junior/Senior Issue: Other instances of reporting errors involving both common and uncommon names were the result of another policy where Sterling permitted matching criminal records with male candidates based solely on a matching first and last name and matching address. This too created an allegedly heightened risk of false positives because some males with the same first and last name (i.e., a junior and senior) live at the same address.
(iv) High-Risk Indicators: On one of its platforms, Sterling included in the Social Security Trace portion of its reports the notation ***HIGH-RISK INDICATOR*** next to an address, followed by a descriptor placing the address into a particular category. These categories included Psychiatric Hospital, Nursing and Personal Care Facility, Corrections Institution and Social Service Facility, among others. Sterling included a statement that the SSN Trace should not be used for an FCRA purpose. Sterling allegedly did not implement any procedures to verify the accuracy of these high-risk designations.
2. Alleged Failure to Maintain Strict Procedures to Ensure that Adverse Public Record Information Contained in the Consumer Reports was Complete and Up to Date (1681k(a))
The CFPB alleges that Sterling violated section 1681k(a) of the FCRA because: (1) Sterling has not, in many instances, notified candidates of the fact that it was reporting public record information about the application at the time that information was being reported, and (2) for the same reasons as described above, Sterling failed to maintain “strict procedures” to ensure that the public record information it reported is “complete and up to date.”
3. Alleged Reporting of Outdated Adverse Information (1681c(a))
Finally, the CFPB alleges that Sterling violated section 1681c(a) in the following ways:
(i) Outdated Addresses: In the Social Security Trace portion of its reports, Sterling reported the ***HIGH-RISK INDICATOR*** next to an address at which the candidate lived and was “last seen” more than seven years before the report was generated. Per the CFPB complaint, “such a designation may be an adverse item of information because it could cast the consumer in a negative or unfavorable light.”
(ii) Outdated Adverse Criminal Information: Beginning in May 2012 and continuing through February 2013, Sterling used the “disposition date” as the start date for the seven-year calculation. The CFPB alleges that “date of entry” should be used on records of arrest, and “date of criminal charge” should be used for other non-conviction criminal record information.
The parties’ Proposed Stipulated Final Judgment and Order provides for the following:
- Monetary Payment:
- $6,000,000 paid into a Redress Fund. The Redress Fund will be paid pro rata to approximately 7,100 consumers who successfully disputed criminal records.
- $2,500,000 paid as a Civil Penalty.
- Conduct Requirements:
- The proposed order does not include any specifics in this section. Rather, the proposed order only repeats the requirements of the FCRA under sections 1681e(b), 1681k(a) and 1681c(a).
- The only specifically defined change in conduct is that Sterling will not report High-Risk Indicators for the next 5 years.
- Compliance Committee:
- Sterling has to establish a Compliance Committee.
- The Compliance Committee must meet at least once every two months and maintain minutes.
- The Compliance Committee will be responsible for monitoring and coordinating Sterling’s adherence to the Order.
- Role of the Board
- The Board of Directors of Sterling is ultimately responsible for compliance with this Order and must review all submissions to the CFPB under this Order.
- Reporting Requirements:
- For 5 years, Sterling must provide a written compliance progress report that details the manner and form in which Sterling has complied with each paragraph of the Order.
EEOC Conciliation Agreement Over Criminal History Background Checks Serves as a Reminder to Employers to Take a Fresh Look at Their Screening Practices
Synopsis: After six years of litigation, on November 18, 2019, the Equal Employment Opportunity Commission (“EEOC”) announced a multi-million settlement with a national employer, which resolved litigation that claimed the employer’s use of criminal history had a disparate impact on minority job candidates. The announcement is a reminder to employers to carefully draft and implement their screening policies as they relate to use of an candidate’s criminal history.
Criminal history information can be a crucial tool in the employment decision process. During the past few years, state and local governments have been limiting employers’ use of criminal history information in the employment process through regulation, litigation, and legislation. In 2012, the Equal Employment Opportunity Commission (“EEOC”) issued guidance in an effort to limit employers’ options with respect to their use of this tool. See: http://www.eeoc.gov/eeoc/newsroom/release/4-25-12.cfm.
The EEOC has brought several high-profile lawsuits against national employers over their use of criminal history information, with some cases resulting in employer victories. Most recently, on November 18, 2019, the EEOC announced in a press release that a nationwide retailer settled a race discrimination lawsuit brought by the EEOC, which challenged the employer’s use of criminal history for employment purposes. Specifically, the EEOC had alleged that the employer’s use of criminal history resulted in a disparate impact against minority workers, especially African Americans who had been excluded from jobs at higher rates than non-minority candidates. The EEOC gave as an example an candidate denied a position for having a six-year-conviction for possession of a controlled substance, which fell within the employer’s 10-year exclusionary rule for this type of conviction.
The three-year consent decree requires that the employer not only pay $6 million (to be distributed to aggrieved individuals) but also, if the employer elects to continue considering criminal history pre-employment, hire a criminologist to develop a new criminal background check based on certain factors including: (a) the time since conviction; (b) the number of offenses; (c) the nature and gravity of the offense(s); and (d) the risk of recidivism. Once the consultant provides a recommendation, the employer is not allowed to use any other pre-employment criminal background check. Until the criminologist provides a recommendation, the employer must continue to conduct individualized assessments.
The settlement also enjoined the employer from discouraging people with criminal histories from applying, engaging in retaliation, and otherwise discriminating on the basis of race in implementing a criminal history check. The employer also is now required to advise conditional hires of its background screening processes and state that having a criminal history is not an automatic bar to employment. In addition, the settlement requires the employer to update its process when a rejected candidate requests that the company reconsider its decision. As part of this process, the employer is required to clearly communicate to disqualified candidates that they may provide additional information to the employer to support reconsideration of the adverse decision. Finally, the employer must provide reports to the EEOC regarding its implementation of any new criminal history checks and its reconsideration process.
The employer remained steadfast in its position that its screening policies were lawful, and the settlement should not be viewed as any admission by the retailer of any wrongdoing.
Employers in all jurisdictions should consider an attorney review of their pre-employment and hiring practices by experienced counsel. Setting aside the EEOC’s guidance, many states and localities have their own laws concerning “job relatedness” requirements for an employer’s use of criminal history information, including California, New York, Pennsylvania, and Wisconsin, among many others. Further, subject to narrow exceptions, some states, counties and cities do not even permit employers to inquire about criminal history information on the initial written application form or before a conditional offer, including ordering a criminal background check report from a consumer reporting agency. Against this backdrop, and based on an individual employer’s operations, a company might consider the following best practice recommendations, including:
- Eliminating policies or practices that exclude people from employment based on a bright-line rule, for example, any criminal record or any felony.
- Training managers, hiring officials, and decision-makers about the numerous laws that impact use of criminal history information.
- When asking questions about criminal history information, limiting inquiries to records for which exclusion would be job related for the position in question and consistent with business necessity.
- Keeping information about candidates’ and employees’ criminal history information confidential and only using it for the purpose for which it was intended.
In addition, employers continue to be targeted in Fair Credit Reporting Act (FCRA) class action lawsuits over the process they use to obtain and make decisions based on background check information obtained from a consumer report agency. As a result, employers are well advised to consider evaluating their use of criminal history information and any other background check information to ensure compliance with the FCRA, similar state fair credit reporting statutes and substantive employment laws.
Tenant Protection Act of 2019 May Have Unintended Consequences in the Cannabis Space
The California Legislature has passed Assembly Bill 1482—Tenant Protection Act of 2019 (“AB 1482”), providing for comprehensive statewide residential rent control and eviction protections. Signed by Governor Newsom in October 2019, and commencing January 1, 2020, AB 1482, among other things, requires a landlord to evict a tenant only for “just cause” if the tenant has occupied the property for more than 12 months. AB 1482 will remain in effect until January 1, 2030. In the cannabis space, AB 1482 has been giving landlords and tenants pause. Specifically, the question many are grappling with is whether engagement in certain cannabis activities rise to the level of “just cause” justifying eviction of a tenant under the terms of AB 1482. As described in AB 1482, “just cause” means: (a) failure to pay rent; (b) material breaches of lease; (c) committing waste; (d) commission of a nuisance; (e) criminal activity on the property, or criminal threats against the landlord or landlord’s agent; (f) improper assignment/subletting of space; (f) refusal to allow landlord to enter the property as authorized by law; (g) refusal to execute a written extension or renewal of the lease that terminates on or after January 1, 2020 for an additional term of similar duration with similar provisions, provided that those terms do not violate this section or any other provision of law; and/or (g) failure to vacate. If the eviction is for just case but is a curable lease violation, a landlord must first give notice of the violation to the tenant with an opportunity to cure the violation. If the violation is not cured within the time period set forth in the notice, a 3-day notice to quit without an opportunity to cure may be served to terminate the tenancy.
Evictions where there is “no fault” of the tenant are permissible when: (a) it is a result of the landlord’s compliance with a government order or a local ordinance that requires vacating the residence; (b) the unit is being removed from the rental market; (c) the landlord intends to demolish or substantially remodel the residential unit; or (d) the landlord or specified family members of the landlord intend to occupy the residential real property. In the event the owner evicts a tenant based on “no fault” of the tenant, the owner must, at the owner’s option, either assist the tenant to relocate or waive in writing the payment of rent for the final month of tenancy. Further, any notice of termination on this basis must include notice of the tenant’s right to relocation assistance or rent waiver.
In drafting AB 1482, a bill with the express purpose to provide heightened protections for tenants, the Legislature most certainly did not take into consideration the dichotomy between federal and state cannabis laws. As an initial matter, most leases require compliance with local, state and federal law, and cannabis-related activities may constitute a material breach of the lease, a qualifying action for “just cause” eviction.
California’s Health & Safety Code section 11362.1(a) provides that: “[I]t shall be lawful under state and local law, and shall not be a violation of state or local law, for persons 21 years of age or older to:
- Possess, process, transport, purchase, obtain, or give away to persons 21 years of age or older without any compensation whatsoever, not more than 28.5 grams of cannabis not in the form of concentrated cannabis;
- Possess, process, transport, purchase, obtain, or give away to persons 21 years of age or older without any compensation whatsoever, not more than eight grams of cannabis in the form of concentrated cannabis, including as contained in cannabis products;
- Possess, plant, cultivate, harvest, dry, or process not more than six living cannabis plants and possess the cannabis produced by the plants;
- Smoke or ingest cannabis or cannabis products; and
- Possess, transport, purchase, obtain, use, manufacture, or give away cannabis accessories to persons 21 years of age or older without any compensation whatsoever.
Despite attempts to the rectify the inherent inconsistency with state law, the federal government still classifies cannabis as a Schedule I drug under the Controlled Substances Act. Therefore, possession, personal cultivation or use of cannabis on the residential premises would constitute a violation of federal law. Therefore, if the lease includes the above-referenced compliance provision, a landlord, arguably, has “just cause” to evict a tenant if the tenant fails to cure this breach in lease terms. Moreover, the landlord may claim the cannabis-related activities are a nuisance under Civil Code section 1946.2, also justifying “just cause” eviction.
Additionally, California law gives landlords the green light to include specific terms in a residential lease the prohibit a tenant’s possession, personal cultivation or use of cannabis within the residential unit and/or common areas. Health and Safety section 11362.1(a) specifically conditions this code provision on Section 11362.45, expressly states: “Section 11362.1 does not amend, repeal, affect, restrict, or preempt the ability of an individual or private entity to prohibit or restrict any of the actions or conduct otherwise permitted under Section 11362.1 on the individual’s or entity’s privately owned property.” (Heath & Saf. Code § 11362.45(h).)
Therefore, while California law holds cannabis-related activities identified in Health and Safety Code section 11362.1 are not “criminal activity,” property owners and landlords are not precluded from prohibiting cannabis-related activities on the premises per the terms of the lease. Under AB 1482, landlords are, then, well within their rights to evict any violating tenant for “just cause” following the required notice and cure period. Tenants engaging in cannabis activities and landlords could all benefit from taking a hard look at their current residential leases in advance of January 1, 2020 and from working towards remediation of any violations.
NYC Fair Chance Act Restricts Employers’ Consideration of Criminal Background
The New York City Fair Chance Act (FCA) places significant obligations and restrictions on employers that consider criminal histories in the hiring process. Employers that fail to follow any of the multiple steps required by the FCA risk significant damages under the New York City Human Rights Law.
Under the FCA, New York City employers may not in any way inquire into an candidate’s criminal history prior to extending a conditional offer of employment. Importantly, the FCA covers both external candidates seeking employment as well as current employees seeking promotions, transfers or other job changes. Both external and internal job advertisements, solicitations and employment applications cannot seek criminal background information—or even mention that a background check is required. Likewise, an candidate’s criminal history cannot be discussed during a job interview. If the candidate voluntarily discloses his or her criminal history, the employer must explain that the criminal history cannot be considered at that time and change the subject. Once a conditional offer of employment, promotion or job change is made, the employer may obtain information regarding the candidate’s criminal history. If a criminal history exists, the FCA requires that the employer assess the candidate in accordance with New York Correction Law Article 23-A. Pursuant to Article 23-A, an employer may reject the candidate in only two circumstances:
- if there is a direct relationship between the criminal offense(s) and the specific job for which the candidate applied; or
- if hiring the individual would involve an unreasonable risk to property or to the safety and welfare of individuals or the general public.
To determine whether these exceptions apply, the employer must conduct an individual assessment of each criminal offense using an eight-factor test set forth in Article 23-A. Those eight factors are:
- the public policy of New York is to encourage the employment of persons previously convicted of one or more criminal offenses;
- the specific duties and responsibilities necessarily related to the employment sought or held by the candidate;
- the bearing, if any, the criminal offense(s) for which the candidate was previously convicted will have on his or her fitness or ability to perform one or more such duties or responsibilities;
- the time which has elapsed since the occurrence of the criminal offense(s);
- the age of the candidate at the time of the occurrence of the criminal offense(s);
- the seriousness of the criminal offense(s);
- any information produced by the candidate, or on his or her behalf, in regard to his or her rehabilitation and good conduct; and
- the legitimate interest of the employer in protecting property and the safety and welfare of specific individuals or the general public.
When assessing whether a direct relationship exists between the criminal offense and the job, the employer must analyze the crime against specific job duties and responsibilities that were defined (preferably in writing) prior to making the conditional offer of employment. When assessing whether the candidate would present an unreasonable risk to property or the safety and welfare of individuals or the public, the employer must begin with the assumption that no risk exists and then establish how the eight factors (combined or alone) create such a risk.
If, after conducting the eight-factor analysis, an employer determines that employment or the job change should be denied, the employer must send a written statement to the candidate setting forth the details of the eight-factor analysis and asking the candidate for any evidence of rehabilitation or good conduct. Along with this written statement, the employer must provide a copy of any of the documents the employer relied on (e.g., background check, Internet search results) and give the candidate at least three business days from his or her receipt of the statement to respond before making a final decision. The employer must keep the position open during the candidate’s response period.
If the candidate provides supplemental information or documentation, the employer must then repeat the eight-factor analysis, taking into consideration the new evidence. If the employer still wants to revoke the employment offer or deny the promotion or job change, the FCA requires the employer inform the candidate of its final decision. Finally, if the candidate ever requests a written statement setting forth the reasons for the job denial, the employer must provide that statement within 30 days.
Given the FCA’s multitier process, a formal criminal background check policy, including accurate record keeping, is highly recommended. There are per se violations for failing to meet each of the required obligations and significant monetary damages if candidates are denied jobs in violation of the FCA or Article 23-A. In addition, the New York City Commission on Human Rights has expressed its commitment to ensure employer compliance with the FCA and in 2018 conducted nearly 300 tests to determine whether employers were unlawfully asking candidates about their criminal histories. The Commission also announced it would be bringing 12 charges against national and local businesses for discriminating against job candidates with criminal histories
Waterloo, Iowa Enacts Ban the Box Restrictions
All private employers with at least 15 employees, including the City of Waterloo, are subject to the Ban the Box Ordinance (the “Ordinance”), which is scheduled to take effect on July 1, 2020. Covered employers may not inquire in any manner about an candidate’s criminal records prior to issuing a conditional offer of employment, unless criminal history is voluntarily disclosed by the candidate before an offer. Employers also are prohibited from making any employment decision based on:
- arrests or pending criminal charges; and
- convictions that have been erased, expunged, pardoned or nullified.
In addition, an employer may only rescind a conditional offer of employment based on a criminal record if it has a legitimate business reason, which means, according to the Ordinance:
- Situations where the nature of the criminal conduct has a direct and substantial bearing on the fitness or ability to perform the duties or responsibilities of the position, taking into consideration the following factors: the nature of the position, the place and manner in which the duties will be performed, the nature and seriousness of the offense or conduct, whether the position presents an opportunity for the commission of a similar offense or conduct, the length of time between the conviction or arrest and the employment application (not including time on probation or parole or the time during which fines or other financial penalties or remedies may be outstanding), the number and types of convictions or pending charges, and any verifiable information provided by the candidate that is related to the candidate’s rehabilitation or good conduct.
- Situations where the granting of employment would involve unreasonable risk of substantial harm to property or to safety of individuals or the public, or to business reputation or business assets, taking into consideration the factors listed above.
- Positions working with children, developmentally disabled persons and vulnerable adults where the candidate has a conviction record of a crime against children or disabled or vulnerable adults, including but not limited to crimes of rape, sexual abuse, incest, prostitution, pimping, pandering, assault, domestic violence, kidnapping, financial exploitation, neglect, abandonment, and child endangerment.
- Situations where an employer must comply with any federal or state law or regulation pertaining to background checks and the criminal conduct is relevant to the candidate’s fitness for the job
E-Verify to be Required for All Pennsylvania Construction Companies
The CONSTRUCTION INDUSTRY EMPLOYEE VERIFICATION ACT (“the Act”) became Pennsylvania law on October 7, 2019 and takes effect on October 6, 2020. The Act requires that all Pennsylvania-based construction companies utilize the E-Verify system for Forms I-9 (Employment Eligibility Verification). Those who run construction and trades businesses have a little less than one year to get their houses in order and become users of E-Verify. The companies which do so will be better positioned in this tight employment market, since only individuals who can verify their ability to work in the United States will be legally employable. Those who do not comply may have to contend with Pennsylvania Department of Labor and Industry (DOLI) oversight, and ultimately could have their professional licenses suspended or revoked. What may be most surprising to construction trade professionals is that the Act applies to nearly every conceivable business engaged in the construction trades:
“Construction industry.” The industry which engages in the erection, reconstruction, demolition, alteration, modification, custom fabrication, building, assembling, site preparation and repair work or maintenance work done on real property or premises under a contract, including work for a public body or work paid for from public funds.
(The Act, Section 2. Definitions)
Another surprising piece of the Act may be that it applies to all but one-person operations:
“Construction industry employer.” As follows: (1) An individual, entity or organization in the construction industry, which: (i) transacts business in this Commonwealth; and (ii) employs at least one employee in this Commonwealth. (2) The term includes a staffing agency that supplies workers to a construction industry employer.
(The Act, Section 2. Definitions)
It is critical that businesses affected by the Act consider the effects of E-Verify on their recruiting and employment now, instead of after it takes effect. This is a big change because it not only adds an additional step to employee onboarding processes, it adds another enforcement layer to an already challenging employment compliance environment. Employers are already subject to enforcement actions on the Federal level, such as, but not limited to: Social Security Administration Requests for Employer Information, Immigration and Customs Enforcement (ICE) worksite enforcement, Office of Fraud Detection and National Security (FDNS) administrative site visits, Form I-9 Audits, and U.S. Department of Labor investigations. With the implementation of the Act, it is no longer only the federal government that construction employers need to consider in managing hiring, employment, and terminations. Pennsylvania construction sector companies will also need to consider DOLI enforcement.
All employers, regardless of the industry, are required to verify an individual’s authorization to work in the United States. This is accomplished by completing Form I-9, Employment Eligibility Verification with every new employee upon hiring. However, because there are no annual reporting requirements for Forms I-9 (such as tax filings and Worker’s Compensation reporting, amongst many others), businesses will sometimes fail to verify employment authorization of new hires. Companies must complete Form I-9s in good faith and keep the documents in accordance with a proper and consistent policy, even though the forms do not have to be regularly submitted to any government authority. Consequently, the first time many companies think about their Form I-9 compliance is when the government is requesting documents and threatening to assess penalties.
Ostensibly, the Act is meant to ensure that all Pennsylvania construction and trades companies are employing authorized workers and providing mandated employee protections. The Philadelphia Inquirer notes that “[t]he building trades pushed for the law, as is standard building trades practice, believing it will lead to more work for their members” and cites to reports which suggest that 15-25% of all Philadelphia construction workers are undocumented and unprotected by standard worker programs like unemployment insurance. (See: New Pa. law requiring immigration checks on construction workers shows labor’s identity crisis, The Philadelphia Inquirer, by Juliana Feliciano Reyes, November 25, 2019.)
For any company fitting within the definition of “construction” in the Act (as noted above), the next year is going to require careful, deliberate adaptation to these new regulations. Construction businesses, unless they already utilize E-Verify, are required to act—they cannot “do nothing”, they cannot continue to employ unauthorized workers, and they will have to compete with companies who are also having to adapt to employing only authorized workers.
Companies which recognize the importance of maintaining compliance can take substantive steps during this intervening year to be ready for when the Construction Industry Employee Verification Act becomes effective on October 6, 2020:
- Verify or re-verify the status of the workforce. (NOTE: This action should be done with the assistance of legal counsel);
- Enroll in E-Verify, designate company officials who are going to use the system and verify compliance, and develop expertise to ensure compliance is maintained (NOTE: In most circumstances, you cannot use E-Verify to check the status of already employed workers);
- Take stock of the company’s recruiting, hiring, employee documentation, and termination policies and protocols. Assess whether policies and procedures serve organizational needs and place the company in the right place to recruit and retain high-quality authorized workers;
- Look at job descriptions and compensation levels to identify organizational changes that may make the company more competitive in hiring and retaining employees with authorized status; and
- Take a serious look at compensation practices to make sure that the company is in compliance with state and federal law regarding wage and hour.
Attention to these issues can place companies in a better position to deal with regulatory challenges. Such companies will be far less likely to see ICE worksite enforcement or Department of Labor (DOL) Wage and Hour investigations. Should ICE, DOL, or any other agency show up, the companies who are proactive will be ready to demonstrate compliance. Using this time period to a construction company’s advantage can place forward-looking organizations in a better position than their competition to employ the best workers available.
Medical Marijuana Users are Eligible for Unemployment Compensation in Michigan
The Michigan Medical Marijuana Act (MMMA) grants qualified medical marijuana users who are using marijuana in accordance with the MMMA immunity from “arrest, prosecution, or penalty in any manner.” Such users may not be denied any right including being subject to civil penalty or disciplinary action by a business or occupational or professional licensing board or bureau. Several years ago, in Braska v. Challenge Manufacturing, the Michigan Court of Appeals held that medical marijuana use will not disqualify a person from receiving unemployment benefits if that person tests positive for marijuana while holding a valid registry identification card issued under the MMMA. In Braska, several employees had tested positive for marijuana and were terminated. The Court explained that, because the employees were registered users of medical marijuana and there was no evidence that the positive drug tests had been caused by anything other than their lawful use of medical marijuana, the employees were not disqualified from receiving unemployment benefits. Holding otherwise and denying unemployment benefits, the Court said, would constitute an improper penalty under the MMMA. So absent evidence that the employees had ingested marijuana in the workplace or had worked under the influence of marijuana, they qualified for unemployment benefits.
The Michigan Unemployment Insurance Agency has since issued guidance on its website explaining the three scenarios in which an employee who uses medical marijuana will be disqualified from receiving unemployment benefits. The employee will be disqualified if: (1) a positive drug test for marijuana was caused by the ingestion of marijuana at the workplace; (2) discharge is based on the fact that the employee was under the influence of marijuana at the workplace; or (3) the employee is unable to demonstrate that he or she is a qualifying patient who has been issued and possesses a registry identification card under the MMMA. When the use of medical marijuana is asserted to avoid a disqualification, the Agency will request a copy of the employee’s valid registry identification card.
The term “under the influence” is not defined in the MMMA. Consequently, the Agency explained that “fact finding will seek material facts which demonstrate that an individual’s use of medical marijuana put the safety of persons or property at risk.” The Agency stated that it will continue to provide all parties protest and appeal rights of its (re)determinations where any party disagreeing with the Agency’s (re)determination may protest or appeal the decision as warranted.
Recreational marijuana is now legal in Michigan as a result of Proposal 1’s passage in November 2018. However, Proposal 1 does not provide the same protections for recreational users as the MMMA provides for medical marijuana users. Proposal 1 does not prohibit an employer from disciplining an employee for violation of a workplace drug policy or for working while under the influence of marijuana. Nor does Proposal 1 prevent an employer from refusing to hire, discharging, disciplining, or otherwise taking an adverse employment action against a person with respect to hire, tenure, terms, conditions, or privileges of employment because of that person’s violation of a workplace drug policy or because that person was working while under the influence of marijuana. Given this, it is unlikely that an employee who tests positive for recreational marijuana user will qualify for unemployment compensation benefits.
Illinois Governor Signs Employer-Friendly Amendments to Recreational Marijuana Law
On June 25, 2019, Governor J. B. Pritzker signed legislation making Illinois the eleventh state to approve marijuana for recreational use. Recreational use of marijuana will be permitted by law beginning January 1, 2020. The Illinois Cannabis Regulation and Tax Act (the “Act”) explicitly permits employers to adopt “reasonable” zero-tolerance or drug-free workplace policies, so long as such policies are applied in a nondiscriminatory manner. When the Act was initially passed, employers expressed concern that they might have to prove an employee was under the influence of cannabis when an employee failed a drug test. Employers also expressed concern regarding whether they could conduct random drug tests.
In order to address these issues, the Illinois General Assembly amended the Act via a trailer bill, Senate Bill 1557, during the fall legislative session. On December 4, 2019, Governor Pritzker signed the legislation into law as Public Act 101-0593. The changes took effect with the governor’s signature. The amendments clarify an employer’s ability to conduct pre-employment and random drug tests (employers may also conduct reasonable-suspicion and post-accident tests), and to take action due to a failure of a drug test. The amendments specifically provide, “Nothing in this Act shall be construed to create or imply a cause of action for any person against an employer for actions taken pursuant to an employer’s reasonable workplace drug policy, including but not limited to subjecting an employee or candidate to reasonable drug and alcohol testing, reasonable and nondiscriminatory random drug testing, and discipline, termination of employment, or withdrawal of a job offer due to a failure of a drug test.” 410 ILCS 705/10-50 (e)(1). Despite this employer-friendly amendment, workplace drug policies still must be both reasonable and nondiscriminatory. While the amendments clarified several concerns expressed by employers, the amendments did not address what a “reasonable” policy is. As such, employers may want to review their workplace drug policies and give additional thought to standards of reasonableness.
End of the Road: Eighth Circuit Upholds $3.3 Million Fee Award Against the EEOC For Frivolous Claims
Synopsis: After over a decade of litigation between the EEOC and trucking company CRST Van Expedited, the Eighth Circuit recently affirmed a federal district court’s order requiring the EEOC to pay $3.3 million in attorneys’ fees to CRST for pursuing claims that it knew or should have known were frivolous and failing to satisfy its pre-suit obligations under Title VII. As such, it is the largest fee award entered against the Commission in 2019.The ruling is EEOC v. CRST Van Expedited, Inc., No. 18-1446 (8th Cir. Dec. 10, 2019).
The case began in 2007 when the EEOC filed suit against CRST after a female driver alleged that two male trainers sexually harassed her during a training trip. The EEOC eventually sued CRST under § 706 on behalf of a group of approximately 270 female employees, claiming that CRST was responsible for severe or pervasive sexual harassment and that it subjected its female employees to a hostile work environment. The district court ultimately barred the EEOC from seeking relief for individual claims on behalf of all but 67 of the women, found that the EEOC had not established a pattern or practice of tolerating sexual harassment, and dismissed the suit. Finding that CRST was the prevailing party and that the EEOC had failed to satisfy its pre-suit obligations, the district court entered a startling attorneys’ fee sanction of nearly $4.7 million against the EEOC.
On appeal, the Eighth Circuit affirmed the dismissal of all claims but those pertaining to two women and vacated the fee award, determining that CRST was no longer the “prevailing party” because the EEOC now had active claims. On remand, the EEOC settled one claim and withdrew the other. Thereafter, CRST again sought attorneys’ fees and was again awarded over $4 million. However, on the second appeal, the Eight Circuit again reversed the district court’s fee award, holding that CRST was not a prevailing party under Title VII because the dismissal of the claims concerning EEOC’s failure to satisfy its pre-suit obligations was not a ruling “on the merits.” In addition, the Eighth Circuit reversed the fee award because the district court failed to make individualized findings in granting summary judgment against the other 78 women. The Eighth Circuit directed the district court to make such individualized findings and barred it from awarding fees for the claims that had been dismissed as a result of the EEOC’s failure to satisfy its pre-suit obligations. CRST appealed the ruling to the U.S. Supreme Court, which reversed and remanded. The Supreme Court held that a favorable judgment on the merits is not a requirement to be a “prevailing party” for purposes of awarding attorneys’ fees. On remand, the Eighth Circuit vacated its prior judgment and remanded back to the district court for additional proceedings consistent with the Supreme Court’s opinion. In 2017, the district court, after engaging in individualized inquiries, found that most of the EEOC’s claims on behalf of 78 claimants for sexual harassment were “frivolous, unreasonable, and/or groundless.” It further found that the dismissal of the 67 other claims as a result of the EEOC’s failure to satisfy its pre-suit obligations constituted a “material alteration” of the parties’ legal relationship, thereby justifying a fee award. After settling on a method of fee calculation, which involved a “per-claimant-average-fee,” the district court ultimately issued a fee award of $3,317,289.17. Subsequently, the EEOC appealed the fee award again to the Eighth Circuit.
The Court’s Decision
On December 10, 2019, the Eighth Circuit affirmed the district court’s $3.3 million fee award against the EEOC, holding that the district court did not abuse its discretion in calculating the fee award. Citing the Supreme Court’s Christiansburg opinion (which held that fee awards to a prevailing defendant are permissible if the plaintiff’s lawsuit was “frivolous, unreasonable, or without foundation”), the Eighth Circuit found that, after conducting individualized inquires, the district court did not abuse its discretion in determining that 71 of the claims it had dismissed on summary judgment were frivolous and that a fee award was warranted.
The Eighth Circuit also upheld the district court’s method of fee calculation pursuant to the Fox standard. In ., 563 U.S. 826 (2011), the Supreme court held that “a court may grant reasonable fees to the defendant” where “the plaintiff asserted both frivolous and non-frivolous claims,” “but only for costs that the defendant would not have incurred but for the frivolous claims.” The Supreme Court made it clear that trial courts have “wide discretion” in applying this standard. The appeals court took no issue with the district court’s fee calculation method, as it determined that the district court “carefully and thoroughly examined the supporting documentation that CRST…provided in support of its fee request” in crafting its calculation.
The EEOC made several arguments against both the determination that it had brought frivolous claims and the method used to calculate the fee award. Most notably, the EEOC argued that its lawsuit was not frivolous because it reasonably believed it had satisfied the Title VII pre-suit requirements and that the district court erred in granting fees because CRST had not established that any fees were incurred solely in defense of a frivolous claim.
The Eighth Circuit rejected the EEOC’s arguments. It opined that the EEOC could not hold a reasonable belief that it satisfied its pre-suit obligations when it actually “wholly failed to satisfy them.” The Eighth Circuit also determined that the district court’s methods of calculating the fee award, which involved subtracting unrecoverable amounts from the original fee award and then creating an average fee per claimant, achieved “rough justice” and was acceptable under Fox. In so holding, the Eighth Circuit reiterated that “frivolous claims may increase the cost of defending a suit in ways that are not reflected in the number of hours billed,” and that CRST was not required “to provide detailed, minute-by-minute documentation of the work it specifically performed on each individual claim that the court has determined are frivolous, unreasonable and/or groundless.”
Implications for Employers
Even despite the reduction in the attorneys’ fees award from $4.7 million to $3.3 million, the Eighth Circuit’s ruling is a stunning victory. This case continues to serve as a warning to the EEOC to avoid rushing through its mandatory pre-suit duties in an effort to catch employers off-guard in litigating claims. When the EEOC engages in these tactics, this ruling can be used by employers to hold the agency accountable