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Human Resources

Reality Check

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This article was published in the July 2015 issue of STORES Magazine.

Thorough employee screening is an essential — and extensive — process

Retailers preparing for the holiday season are eager to hire qualified candidates and get them ready to hit the floors in November — in 2014, up to 800,000 seasonal employees were hired to help out with the holiday shopping season. While onboarding new employees quickly and efficiently is important, the level to which they are screened varies.

Almost all retail employers perform background checks, according to NRF survey data, looking at everything from criminal and address history to employment and education verification.

A 2012 survey from the Society for Human Resources found that 52 percent of HR directors that used background checks did so to reduce legal liability for negligent hiring, while 49 percent did so to provide a safe work environment. Forty-five percent of employers used credit checks to reduce or prevent theft.

There are myriad federal and local laws that mandate how retailers can perform background checks and what information they can use to evaluate candidates and make personnel decisions. Likewise, there are myriad reasons to check backgrounds.

Potential threats

One of the key purposes of a background check is to screen out potentially nefarious candidates. According to the Global Retail Theft Barometer, shrink cost retailers $128 billion worldwide in 2014. In the United States, 42.9 percent of retail loss was attributed to fraud or theft from employees.

There’s also the threat from mentally unstable employees who could be a danger to themselves or the public. Recent high profile shooting incidents have raised discussions about identifying potential or existing employees with mental issues. Of the 160 active shooter incidents identified by the FBI between 2000 and 2013, 80 percent occurred in the workplace.

Employers are hesitant to hire candidates with serious criminal records. According to the SHRM survey, 96 percent of respondents said they would not make a job offer to a convicted violent felon; 74 percent said they would not make a job offer to a non-violent felon. While theft is a top concern for retailers, it’s not always identifiable on a background check unless the person has been convicted of a crime.

Chris Dyer, CEO of employment screening company PeopleG2, says few people wake up and say, “I’m going to steal something today.” Dyer says insider employee theft is usually opportunistic in nature. While it can’t always be predicted, he says there are patterns or “flags” employers can find in background checks — a spotty or intermittent work history could be a sign of behavioral problems at previous jobs, for instance.

“There are invisible patterns that you can pick up,” says Dyer. “There’s a lot more to it than just [criminal] convictions.”

PeopleG2 handles an average of 40,000 transactions each month using “private eye” techniques to review files. That information is relayed to clients for further investigation or decision-making. Dyer says the company helps employers engage in background screening in compliance with the Fair Credit Reporting Act.

Retailers also have to worry about protecting customer information. Fraudsters have been known to approach retail employees to take part in card skimming schemes. Mark Silver, senior vice president and chief security officer of First Advantage, says that with regular access to credit cards, debit cards and sensitive information, employees can be a big hole in the security chain and raise the potential for liability claims.

Contractor employees

Retailers frequently vet vendors and service providers, but the companies they hire are only as good as their employees. Dyer says retailers need to ensure contractors are taking due diligence with their own background checks. Third-party vendors should have a clearly established and written background check policy.

“I would encourage retailers to look for contractors that do ongoing, periodic screening of their employees,” Silver says. “You should also ensure they have the appropriate security systems.”

Target’s massive data breach that put the personal data of up to 40 million shoppers at risk was found to have been caused by hackers that broke into the retailer’s network with credentials stolen from a third-party refrigeration and HVAC systems maker. The Home Depot was also hit via a third-party vendor’s name and password that provided access to the company’s network — along with 53 million customer email addresses and 56 million credit card accounts.

The vendors had no complicit involvement in either case, but the circumstances have served to raise awareness of retailers’ potential vulnerabilities outside their own operations.

Graphic depicting people too

“Backgrounds really help us determine someone’s level of truthfulness, their ethics and integrity.” — Jennifer Farrelly, Lorna Jane

Character and behavioral insight

Silver says retailers should have a stated policy on the level or degree of financial or criminal background that is “acceptable” in a potential hire. He says there needs to be a solid framework for decision making on hiring, or as events unfold.

While a DUI conviction on a record is certainly an issue for a retail employee that drives on the job, it may be acceptable for a backroom clerk. Financial problems, such as bankruptcy, an abnormal amount of debt or a history of late payments, may not be an issue for a driver but could be for someone who is in a financial position. A spotty work history with a high level of turnover could be a sign of an underlying problem.

“Retailers need to know this kind of information, but they also need to have a policy in place to determine what is acceptable and what is not,” Silver says.

Jennifer Farrelly, human resource manager for women’s apparel retailer Lorna Jane, utilizes the services of People G2 to verify past employment and educational history. Farrelly says it’s not only about what they find in the history, but spotting inaccuracies and untruthfulness. The third-party verification data is “devoid of any emotion,” she says, and helps them make decisions and judgments on who they’re dealing with.

“Backgrounds really help us determine someone’s level of truthfulness, their ethics and integrity. … The only way we can attempt to predict someone’s behavior is how they acted in the past.”

Managers often make security and compliance decisions with background information that could be years, even decades, old.

Dynamic risk

Raj Ananthanpillai, CEO of software company InfoZen, says while 85 percent of employers check backgrounds before hiring, most do little, if anything, after the person is hired — leaving a “black hole” of potential issues that can arise later. He says traditional one-time background screening methods aren’t adequate to meet the insider threat environment that many retailers face today.

Managers often make security and compliance decisions with background information that could be years, even decades, old.

“People are dynamic and so is the risk that they pose to organizations,” says Ananthanpillai, who advises that continuous monitoring is especially important in retail because of seasonal hiring and the high turnover rate. Retailers have a pattern of doing brief background checks to get workers on the floor as soon as possible. Those who don’t use continuous monitoring may not be aware that one of their drivers was arrested for a DUI or that a cashier was arrested for theft at another store.

“Some may hire six months before the holiday season, then they don’t do a background check after that,” Ananthanpillai says. “Or they never check … for years [after they’re hired]. It’s after they’re hired that things can happen.”

InfoZen’s IDentrix uses a cloud-based technology that aggregates publicly available identity attributes including criminal and court records. Patterns of risky behavior (which can be defined by users) are sent out to employers via automated alerts. Stakeholders can then investigate the alerts and decide if any further action is needed. Ananthanpillai says the solution can be tailored to meet the security challenges of any organization and comes with pre-packaged options for various sectors and job roles.

IDentrix will soon allow employers to assign employees a “risk ID score.” Similar to a FICO score, it will analyze a variety of factors to provide an easy-to-understand, 360-degree view of an employee’s risk level. The system involves monitoring, detection and verification to transform manually intensive data analysis into an automated and operational process.

The Legal Landscape

With varying legal options, there’s a good deal of gray area in how retailers use background information in theory and practice.

Most of the use of background checks is covered under the Fair Credit Reporting Act of 1970. Retailers must be concise in how they obtain background information, how they disclose it to candidates and how they use it to make employment decisions. Even in an at-will state, they must ask for authorization in a manner that is clear and conspicuous.

The penalties can be stiff. Dollar General agreed in October 2014 to pay $4 million to settle claims the company didn’t properly notify 200,000 job applicants about their background checks. Publix, Whole Foods Market, Dollar Tree and Michaels have also been named in recent suits. Nearly 100 cities and 17 states have adopted the “ban the box” law which prohibits employers from asking about criminal history on the application.

Federal law does not prohibit employers from asking about criminal history, though it does prohibit them from discriminating when they use criminal history information. Federal law has also established that an arrest is not proof that the individual engaged in criminal conduct. While an arrest record alone may not be used by an employer to take negative employment action, it can trigger an inquiry into whether the conduct underlying the arrest justifies such action.

Chris Dyer, CEO of employment screening company PeopleG2, says retailers need to have appropriate counsel to ensure they’re abiding by all federal and local laws. “It’s really important to make sure you’re getting accurate and complete information and that the applicants are getting served correctly,” he says.

The use of credit report requests have been on the decline — some states now bar employers from using them altogether. A 2012 survey on the use of credit checks from the Society for Human Resources found that 47 percent of employers surveyed used credit checks in hiring decisions. However, 80 percent of those who used credit checks said they still hired candidates with negative information in their credit reports.

Federal guidelines allow retailers to access credit reports only if they have a compelling business reason. So while accessing a credit report may not be warranted for a stock clerk, it may be warranted for a position in finance.

“I would not be comfortable as an HR director under current legislation pulling someone’s financial information,” says Jennifer Farrelly, human resource manager for women’s apparel retailer Lorna Jane. “We don’t know why someone may have filed bankruptcy or be late [on bills].”

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