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Are Job Applicant Criminal Background Checks Legal?

Does your small business conduct criminal background checks on job applicants? If so, a recent settlement agreement between Pepsi Beverages and the U.S. Equal Employment Opportunity Commission (EEOC) illustrates the legal dangers you may run into if you don’t use such background checks carefully.

According to reports of the settlement, Pepsi ran background checks on job applicants and refused to hire individuals with arrest records (but no convictions) and individuals convicted of minor offenses, as well as those convicted of more serious crimes. The EEOC determined that Pepsi’s policy disproportionately affected African Americans and that more than 300 African Americans who might have received job offers from the company were excluded.

To settle the EEOC’s charges against it, Pepsi paid a $3.1 million fine. The company also agreed to revise its criminal background check policy and offer jobs to qualified applicants who were previously excluded under its former policy.

The Pepsi settlement highlights the legal minefield that your small business can inadvertently wander into if it runs criminal background checks on prospective employees. Under federal law, hiring policies that could have a disproportionate impact on minorities or other protected groups may be illegal, even if you do not intend to discriminate against anyone.

According to the EEOC, an arrest record, without a resulting conviction, is not a useful hiring tool because everyone—including a prospective employee—is presumed innocent until proven guilty. Further, excluding applicants convicted of minor crimes, particularly if the incident occurred years ago and is not related to the particular job at issue, may be deemed irrelevant to the hiring process.

There’s nothing wrong with wanting your company to be staffed by honest and trustworthy individuals, and used correctly, criminal background checks can help you weed out individuals who might genuinely present a problem in the workplace. However, if you do run criminal background checks on prospective employees, you should avoid using the background checks to make blanket hiring decisions.

Instead, evaluate each prospective employee’s record on a case-by-case basis, taking into consideration whether the offense is related to the position at issue. In addition, consider giving the applicant the opportunity to explain or dispute any arrest or conviction information you discover. Taking steps like these will help ensure that your criminal background checks continue to be a useful hiring tool, without running afoul of the law.

By: Guest blogger Steven Koprince, an attorney with Petefish, Immel, Heeb & Hird, LLP in Lawrence, KS. Mr. Koprince’s practice emphasizes government contracts and small business law.

Employees and Salary Discussions—Is Your Policy Valid?

There’s nothing many small business owners hate more than employees discussing their salaries with one another.  After all, what your small business pays its employees may vary considerably, based not only on factors like experience and educational level, but things like productivity and how well the employee negotiated his or her salary before starting work.  To curb hurt feelings (and limit requests for raises), some small businesses have adopted policies prohibiting their employees from discussing their salaries with each other.  The problem?  These policies may not be legal.

In a case recently decided by the Court of Appeals for the First Circuit, National Labor Relations Board v. Northeastern Land Services, Inc., 645 F.3d 475 (2011), a company required a new employee to sign a contract stating that “the terms of this employment, including compensation, are confidential” and that disclosure “may constitute grounds for dismissal.”  The company later fired the employee for allegedly violating the confidentiality provision.

The National Labor Relations Board determined that the confidentiality provision was illegal and that, consequently, firing the employee for violating it was also illegal.  The First Circuit agreed.  It upheld a NLRB order requiring the company to reinstate the former employee, pay him back pay, and rescind the confidentiality provision in all of its employment contracts.

As a small business owner, it can be tempting to require that your employees keep their salary information to themselves.  However, at least under the NLRB’s current interpretation of the law, salary confidentiality provisions can be more trouble than they are worth.

By: Guest blogger Steven Koprince, an attorney with Petefish, Immel, Heeb & Hird, LLP in Lawrence, KS. Mr. Koprince’s practice emphasizes government contracts and small business law.

What to do in the Event of a Double-dip Recession

Just when we thought the economy might be on the upswing, fears of a double-dip recession have hit both Wall Street and Main Street. The New York Times recently asked small-business owners what they’re doing differently in this time of economic uncertainty. Some good advice can be gleaned from what the entrepreneurs had to say:

  • “I mortgaged plants and put $11 million in the bank, paying 5 percent interest, as an insurance policy because I don’t know if there is going to be another credit crisis.”
  • “[I]f I see that sales start to drop 10 to 15 percent in a week and see that it’s a trend over the next two or three weeks, I’ll start cutting. The water cooler, and other extras like employee lunches, will be the first to go. After that, I’ll consider asking the staff to take pay cuts, which I prefer to layoffs. Last time, I was the first to take a pay cut. I brought my salary down to what I needed to pay rent and eat bologna.”
  • “As economic news worsens, a small business tends to get paid later and later, if at all. I’ve learned that when the going gets tough, you’ve got to stand up for yourself and show that you’re the least likely person to be bullied….We took two steps. First, we hired an ex-Army Ranger who had served in Iraq to chase down receivables….The second thing we did was let it be known that we’ll fight over a $100 invoice….In this economy, you have to get your teeth out and fight.”
  • “We’re just starting a catering company…but we’re doing it in a very slow-growth mode….In the past, we would have probably purchased an existing building and converted it; you know, we would’ve gone out and borrowed a million or two million dollars.”
Have you changed the way you run your business recently in anticipation of another recession? What do you plan to do if fears of another recession become reality?

Don’t Be a Victim of This Yellow Pages Scam

You receive a fax from what you think is the Yellow Pages. The fax includes the “walking fingers” logo we’re all familiar with. The fax asks you to update your information for your local Yellow Pages listing. What would you do?

If you’re like the thousands of business owners in the U.S., Canada, and Australia who did receive this fax and didn’t read the fine print, you’d probably fill in your contact information and send the form back without a second thought.  Unfortunately, what the fine print revealed is that by returning the form, these business owners agreed to pay $89 a month for a two-year listing on a non-Yellow Pages online business directory.

This scam is alleged to have been perpetrated by a company based in Europe called Yellow Pages Marketing B.V., which collected millions of dollars in fees from U.S. small business owners alone. The company is now the target of a lawsuit filed by the Federal Trade Commission (FTC).

We’ve all heard this before, but it bears repeating: Always read the fine print.

For more on this scam, see The Wall Street Journal’s In Charge blog.

Why You Should Encourage Employees to Take Vacations

Businesses offer vacation time to their employees for a number of reasons. It boosts morale. Employees return to work with recharged mental batteries. And generous vacation policies attract new employees. Can it also uncover fraud?

Two of The Wall Street Journal’s blogs, In Charge and The Juggle, describe novel vacation policies at two different companies. One company pulls an employee’s name out of a hat each month; that employee is required to take two weeks off the following month. (Some workaholic employees don’t want their names to be chosen, if you can believe it.) Another offers employees who take off two consecutive weeks another two weeks of vacation time.

Why force employees to take time off? These companies say workers need time off to recharge. Employees are also forced to keep their co-workers in the loop on their projects, so no one employee is indispensable.

And, it seems, requiring employees to take time off helps uncover fraud, if there is any. Comments from readers note that employees involved in any ongoing fraud, like embezzlement, hate going on vacation. Fraudulent activity requires constant attention to prevent discovery, and forcing employees to take time off will usually bring the fraud to light.

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