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SPECIAL BULLETIN: So I Hired A Felon: An Update On The Law Of Negligent Hiring

| William Joseph Austin, Jr. William Joseph Austin, Jr.

We might call it a Scud theory of recovery.  Like the notoriously inaccurate Soviet missile, negligent hiring is a hit, but mostly a miss, claim for relief that has evolved in the domain of employment law

Background

An employer assuredly has a legally recognized duty to others to select competent employees.  This principle is an integral part of the law of negligent hiring, but when and where it attaches can be enigmatic.  The North Carolina Court of Appeals, for example, spoke the truth when it stated in a 2005 case, "The nature and extent of the duty owed by the employer to injured parties in negligent hiring cases has not been described with great precision in the case law of North Carolina to date."   

All 50 states have recognized some variation on the theme of recovery based on negligent hiring.  The Restatement (Second) of Torts also includes a section entitled "Duty of Master to Control Conduct of Servant."  According to the accompanying commentary, liability on the part of an employer arises only when the unfit or incompetent employee is tortiously "acting outside the scope of his employment."  If the employee is acting within the scope of employment, then the employer may be vicariously liable under agency principles.

The law of North Carolina is an example of how these basic principles play out in practice.  In North Carolina it is said that the employer's duty extends to the protection of "any member of the general public who comes into contact with the employment situation."  It covers third parties where:

  • The employee and the prospective plaintiff are in places where each has a right to be when the wrongful act occurs;
  • The plaintiff meets the employee as a direct result of the employment; and,
  • The employer is to receive some benefit from the meeting of the employee and the plaintiff. 

Once the duty is established, then the elements of a claim for negligent hiring are: 

  • A specific tortious act by the employee;
  • The employee's incompetence or unfitness;
  • The employer's actual or constructive notice of the employee's incompetence or unfitness; and,
  • Injury resulting from the employee's incompetence or unfitness. 

North Carolina Cases

In Little v. Omega Meats I, Inc., an outside salesman named Smith broke into the plaintiffs' home and assaulted them.  Omega Meats had supplied Smith with a company truck and specifically commissioned him to go door-to-door to sell its products.  It was in the course of a work day that Smith parked his truck and broke into the plaintiffs' home with intent to do them harm, not to sell them any Omega Meats.

When Smith first began work for Omega Meats, he had a record of convictions for drug offenses and assault.  During an earlier stint with Omega Meats, Smith was convicted of common law robbery and kidnapping for which he served an active prison sentence.  After Smith was released from prison, he went back to work for Omega Meats and, back on the street again, assaulted the plaintiffs. 

The North Carolina Court of Appeals held that Omega Meats did not have a duty to the plaintiffs on these facts:

In the instant case Smith was not in a place where he had a legal right to be since he broke into plaintiffs' home; Smith and plaintiffs did not meet as a direct result of Smith's relationship with [Omega Meats], since he did not enter plaintiffs' home as a salesman; finally, [Omega Meats] received no benefit, direct, indirect or potential, from the tragic "meeting" between Smith and plaintiffs.

In short, there was an absence of "a nexus between the employment relationship and the injury."  Because there was no legal duty on the part of Omega Meats to protect the plaintiffs, the Court was not required to address Smith's criminal history, Omega Meats' knowledge of it, or the implications of Omega Meats giving him a truck to drive around town.  Thus, Little was a miss for the plaintiffs, and a perplexing one at that. 

A hit for the plaintiffs was the case of White v. Consolidated Planning, Inc.  There, the North Carolina Court of Appeals overturned a trial court's dismissal of a negligent hiring claim made by customers of Consolidated Planning, a financial planning firm.  The plaintiffs' financial advisor, Consolidated Planning's employee, misappropriated their money.  In an interesting twist, the dishonest advisor happened to be the plaintiffs' own son.  Notwithstanding the close family relationship, the Court of Appeals held that the plaintiffs had adequately alleged that Consolidated Planning would have discovered the employee's unfitness had it conducted a reasonable investigation prior to hiring him.  The employee was allegedly terminated by his previous employer for engaging in similar illegal activity and the plaintiffs alleged that an investigation by Consolidated Planning reasonably would have revealed these past improprieties.   

Little and White do offer some contrast, to say the least.  Notably, the author of the opinion in White dissented in Little

The case of Medlin v. Bass was another miss for the plaintiff.  The wrongdoing was the sexual assault of a student by a school principal named Bass.  At his previous place of employment, Bass had also been accused of sexually assaulting a student, a complaint that was never resolved one way or the other.  Bass then obtained employment with the defendant school system.  A representative of the employer school system did speak with a supervisor, principal, and superintendent of the school system where the earlier assault was alleged to have occurred.  In fact, the superintendent had interrogated Bass about the alleged assault.  None of these individuals made the allegations known to the new employer, even though a question was raised about Bass's "sexual proclivities."

The North Carolina Supreme Court upheld summary judgment for the employer school system, stating:  "The foregoing forecast is devoid of evidence that defendants…knew or reasonably could have known of defendant Bass' alleged pedophilic tendencies prior to the incident that is the subject of this lawsuit."  The employer had at least gone to the right people to ask about Bass, albeit with questionable efficacy.

The 1993 case of Stanley v. Brooks was another miss for the plaintiff, and adds yet another wrinkle.  A customer sued a car dealership for a salesman's alleged sexual assault during a test drive.  Three years earlier, the salesman, Brooks, had been charged with first degree sexual offense and first degree burglary, but pleaded guilty to lesser charges.  However, the employer did not do a criminal record check on Brooks.

In its opinion in Stanley, the North Carolina Court of Appeals made reference to "a presumption…that an employer has used due care in hiring his employees."  The burden is then on the plaintiff to show that the employer had actual or constructive knowledge of the employee's incompetence or character.   

In Stanley, the Court said that there was no evidence that the employer had actual knowledge of Brooks' criminal past.  The Court went on to say that "the record is devoid of any suggestion that defendant had any constructive knowledge of Brooks' past, or that defendant did not exercise due care in hiring Brooks."  The only information the employer supposedly had at hand was that Brooks was an excellent car salesman.  The Court continued:  "Although the defendant admits that it did not do a criminal record check on Brooks, we believe that it did not have a duty to do so." 

However, the ease and economy of getting an online criminal record check in 2014 might seem to make the 1993 holding in Stanley at least suspect.  Nevertheless, the 2013 case of Nowlin v. Moravian Church in America does not seem to call into question Stanley or the other misses already discussed.  The North Carolina Court of Appeals in Nowlin affirmed summary judgment against the plaintiffs who advanced several theories of recovery including negligent hiring of a camp counselor.  The plaintiffs alleged that the counselor had sexually assaulted a 16-year-old camper attending the defendants' summer camp.  According to the Court of Appeals, the "undisputed evidence" demonstrated as a matter of law that the employer acted reasonably in hiring the counselor whose alleged harmful conduct to the camper was unforeseeable.  That evidence included the counselor's "personal disclosure indicating that he had not had any criminal conviction," and the fact that he was not listed on the National Sex Offender Registry.  He was also given "a favorable recommendation in a telephone interview with a trusted reference" and had a "very positive" record of employment at the camp where he had been employed the previous summer.  The result of the case is hard to dispute, but the opinion omits a prescription for what information prospective employers should systematically seek.

In light of these authorities, we can say that in North Carolina, a prospective employer is entitled to a presumption of due care, generally does not have the duty to conduct a criminal record check, but does have a duty to at least inquire of the immediate past employer.  Unfortunately, creating a foolproof checklist is an unascertainable goal at this time.

Has The "Information Explosion" Since 1993 Changed Things?

Information of all sorts in this post-Snowden and Twitter® world is easy to come by.  Among other things, reference checks should be as easy as picking up the telephone and calling past employers.  The law of North Carolina, specifically Section 1‑539.12 of the North Carolina General Statutes, provides a current or former employer with a qualified immunity from civil liability and damages for disclosure of information to a prospective employer about a current or former employee's job history or "job performance."  While the statutory immunity will not apply when the aggrieved employee shows by a preponderance of the evidence that the information disclosed was false and the employer who provided the information knew or reasonably should have known that the information was false, good faith error is covered by the immunity. 

The definition of "job performance" for purposes of the statutory immunity is limited to suitability of the employee for re‑employment; the employee's skills, abilities, and traits as they may relate to suitability for future employment; and the reason for the employee's separation in the case of a former employee.  Nevertheless, in tandem with the relative ease of obtaining a criminal background check these days, a prospective employer should be able to perform a pretty good in‑house background check.

In reality, however, things are not so simple.  The prevailing attitude of well‑counseled businesses is to only provide verification of employment and such non‑controversial facts as start and end dates of the employment, and nothing more.

The Problem Of Criminal Records

Then there is the dilemma of what to do with information when you get it.  The modern American ideal recruitment process involves a colorblind decision-maker choosing from a unisex, ageless array of applicants who have no manifest ethnic roots or heritage.  However, statistically, arrests and convictions for criminal acts are more common for certain demographic groups than for others.  Thus, a completely neutral response to negative information can have a "disparate impact" on different groups.  The EEOC has adopted an aggressive enforcement policy when it comes to disparate impacts resulting from background checks.  It has sued Dollar General and BMW for their use of criminal background checks in hiring and firing which, the EEOC alleges, have a disparate impact on African-Americans.

One policy, a source of longstanding controversy and now challenged by the EEOC, has been an employer's requirement of a perfectly clean criminal record.  Statistics demonstrate that such a requirement has a disparate impact on African-Americans and Hispanics.   

In April 2012, the EEOC handed down new guidelines on the subject, entitled:  "Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964" ("Guidance").  The Guidance was intended to protect minority candidates who are disproportionately screened out of consideration for employment due to arrest and criminal records.  The EEOC considers even a facially-neutral policy or practice violative of Title VII if it disqualifies a disproportionate number of members of a protected group and the employer fails to demonstrate that its policy or practice is both job-related (that is, specially related to the position in question) and consistent with business necessity. 

The Guidance stresses that an arrest record, standing alone, may not be used to deny an employment opportunity.  The record of an arrest tells only part of the story as it could have been the result of pure profiling and does not report the ultimate disposition of a charge or possible expungement and other exculpatory information. 

With regard to criminal convictions, in order to satisfy the EEOC's job‑related/business necessity burden, the employer must show that any exclusion based on criminal conduct effectively links specific criminal conduct and its dangers with risk inherent in the duties of the particular position to be filled.  For example, a recent conviction for embezzlement may provide the legal basis for summarily rejecting an individual's application for a job that requires the handling of money, but not for a manufacturing job.  The Guidance encourages prospective employers to undertake a case-by-case analysis that factors in the type of crime that was committed, its recency or remoteness in time, and the nature of the job to be filled.

The Guidance expresses strong preference for just this sort of individualized assessment as the best way for employers to avoid Title VII liability, including dialogue with the applicant about the applicant's criminal history.  For certain, a knee-jerk rejection of an applicant based on an arrest record, or even a criminal conviction made irrelevant by the passage of time or other circumstances, may be sufficient for the EEOC to find reasonable cause to believe that Title VII has been violated.

The courts, however, seem to be taking a dim view of the EEOC's aggressive enforcement policy.  In a thoughtful opinion, a federal district court judge in Maryland focused a critical eye on both the EEOC's theory and its use of expert witnesses.  In the case entitled EEOC v. Freeman, the judge granted summary judgment for the defendant, stating the following in conclusion:

The story of the present action has been that of a theory in search of facts to support it.  But there are simply no facts here to support a theory of disparate impact resulting from any identified, specific practice of the Defendant.

Indeed, any rational employer in the United States should pause to consider the implications of actions of this nature brought based upon such inadequate data.…[T]he EEOC has placed many employers in the "Hobson's choice" of ignoring criminal history and credit background, thus exposing themselves to potential liability for criminal and fraudulent acts committed by employees, on the one hand, or incurring the wrath of the EEOC for having utilized information deemed fundamental by most employers.  Something more, far more, than what is relied upon by the EEOC in this case must be utilized to justify a disparate impact claim based upon criminal history and credit checks.  To require less would be to condemn the use of common sense, and this is simply not what the discrimination laws of this country require.

Due to multiple factors such as the hit‑or‑miss aspects of doing it yourself, as well as the increasing mobility and anonymity of the workforce, employers increasingly feel the need to employ an agency to perform background checks, both to receive more complete and accurate information and to insulate them from claims of negligent hiring.  If a report on an applicant is obtained from a consumer reporting agency ("CRA"), a business that assembles such reports for other businesses, then the process and product are regulated by the federal Fair Credit Reporting Act which explicitly applies if the report is to be used "for employment purposes."  But regardless of whether an employer conducts the search in-house or farms it out to a CRA, the EEOC will apply the same standards to the use of whatever information is obtained. 

Caveat:  "Ban The Box" And "Fair Chance" Laws

Obtaining a criminal history will be further complicated in state and local jurisdictions that have enacted so‑called "ban the box" or "fair chance" hiring regulations.  In those jurisdictions, inquiries about the individual's conviction history must be delayed until later in the hiring process – for example, after the first interview (New Jersey, effective March 1, 2015) or after extending a conditional offer of employment (Hawaii).  In North Carolina, several city and county ordinances have been enacted that regulate criminal record checks in public employment (Carrboro, Charlotte, Cumberland County, Durham, Durham County, and Spring Lake).

Multistate employers will definitely need to research the requirements in each state where they do business.  So far, no statewide "ban the box" laws have been enacted in North Carolina or the states bordering North Carolina that would affect private employers.

Conclusion

With all of this said, if an employer decides to conduct a background check in‑house, our recommendations are as follows:

  • Obtain an employment history and references from the applicant, make inquiries to the past employers and references, but only ask for information related to "job performance";
  • Subject to state or local "ban the box" or "fair chance" laws or ordinances, ask the applicant for a criminal history, but only for convictions;
  • Use 21st Century resources and obtain an online criminal history;
  • If the process turns up contradictions or information that would otherwise disqualify the applicant provisionally, bring it to the applicant's attention and ask for mitigating information; and,
  • Make a final decision based on a "common sense" individualized assessment of the applicant's fitness for the position.

For further treatment of background checks, see "The Past is Never Dead:  Issues in the Search for Quality Employees" (May 10, 2013); and, on the subject of the Fair Credit Reporting Act in particular, "Employers Beware!  Don’t Let A Fair Credit Reporting Act Claim Sneak Up on You" (January 8, 2013).

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© 2016 Ward and Smith, P.A. For further information regarding the issues described above, please contact William Joseph Austin, Jr.

This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.

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