XYZ Manufacturing Inc. has grown steadily and now has more than 2,000 employees in 22 states and expanding international operations. An industry upturn has inspired a hiring initiative, although recruiters have been careful to avoid bad hires by employing methods such as background checks. Many staff additions will be in the sales, marketing and technical support departments, and these employees will travel domestically and internationally to call on and support customers.
XYZ Manufacturing's HR director has become increasingly concerned about the growing number of employees living and working in other states, and understands that compliance with only federal laws and the company's home-state laws may not suffice.
I asked several experienced labor and employment attorneys about this concern. What should XYZ Manufacturing be worried about? Although we lack space to cover all possible perils, this article explores several important ones: background checks, leaves of absence, compensation, immigration and taxes.
In a 2010 Society for Human Resource Management survey, 92 percent of responding HR professionals indicated that their companies conduct criminal background checks and 87 percent indicated that their companies conduct credit background checks on applicants for some or all positions.
Most background checks are covered by the federal Fair Credit Reporting Act (FCRA) and various state mini-FCRAs. Despite the term "credit" in their titles, these laws apply to all types of background checks—criminal, motor vehicle, employment or professional references—if they are conducted through a fee-paid third party known as a consumer reporting agency.
The federal and state laws create a complex set of requirements, with costly penalties possible for each instance of noncompliance. In March 2011, a national employer settled for $5.9 million after the employer allegedly failed to wait a reasonable amount of time after receiving background check results before taking adverse action. In April 2011, another national employer settled for $2.6 million after it allegedly obtained background checks without first securing applicant consent.
XYZ Manufacturing has the challenge of complying with the FCRA and state background check laws in the 22 states where it has facilities. It also needs to review the state laws where the applicants reside when they apply and where they reside when the background checks are run.
The U.S. Equal Employment Opportunity Commission has long held that background checks must be job-related and consistent with business necessity. But in recent months, the commission has stepped up its interest in background checks, holding public meetings in 2011 on the subject of credit and criminal background checks and hinting at new guidance on background checks as early as this summer.
Stephen Woods, an Ogletree Deakins shareholder in Greenville, S.C., and head of the firm's Background Check Advice Group, says, "Background check class actions are one of the new hot types of lawsuits being filed by plaintiffs' attorneys, because of the number and variety of federal and state requirements. Employers should take another look at their background check processes in light of the new crop of lawsuits."
Leaves of Absence
Previously, multistate employers could rely on the fact that compliance with the federal Family and Medical Leave Act (FMLA) sufficed. However, leaves of absence have become the target of many state and local legislative initiatives. Although the FMLA does not require paid time off, state laws in California and New Jersey require paid time off in certain circumstances. And, local ordinances requiring paid time off are on the books in San Francisco and Washington, D.C. Philadelphia requires paid leave only for city contractors and subcontractors.
James Paul, a shareholder in Ogletree Deakins' St. Louis office, warns that employers can easily overlook state or local requirements by focusing only on FMLA responsibilities. Many state laws replicate the act's reasons for protected leave, but employers' compliance is triggered at lower thresholds than the FMLA's threshold of 50 employees.
Many states also grant statutory protections to employees for circumstances not usually covered by the federal law. Illinois, for example, has particularly detailed domestic violence, school visitation, military leave and blood donation laws. Other states have even broader organ and bone marrow donation laws for public and private employees.
Other frequently overlooked state law differences concern workers' compensation benefits and job protection. Any time a leave of absence is based on an underlying work-related injury or accident, employers must comply with the FMLA. The act's requirements are almost always triggered when an employee cannot work due to work-related injuries or illnesses. But employers also should check workers' compensation laws in the state where the employee works.
Some state laws prohibit a discharge directly linked to an employee's claim for workers' compensation benefits, and restrict whether and how an employer may change benefits or employment status. Oklahoma, for example, prevents termination of group health insurance benefits and termination of employment during any period of temporary total disability—even if the employer has otherwise valid reasons for discharge.
Other state laws can prohibit an employer from requiring employees to use accrued paid time off during a workers' compensation leave—even though the federal law generally allows such a requirement. Accrued paid time off is considered "earned wages" in some states but not in others, causing additional legal concerns for HR and payroll departments.
Many states grant statutory protections to employees for circumstances not usually covered by federal law.
Yet another potential pitfall lurks in state disability discrimination laws, which are similar to the federal Americans with Disabilities Act, and can require leaves beyond the FMLA's 12 weeks when doing so would be a "reasonable accommodation."