There are a host of must-dos in the recruiting process which many employers ignore, such as verifying the information in resumes and applications, checking backgrounds, properly investigating social media, and using selection tools that predict success. The steps required by the law to prove due diligence in hiring aren’t overly onerous. It’s just that many organizations aren’t doing them.
More than 90% of employers are conducting interviews. Fewer than 20% are conducting background checks.
Every Hire Is A Risk Decision, Not Just An HR Decision
Recruiters are evaluated based on how quickly they can attract new talent. Time to close, the cost of each new hire, and the percentage of offers that are finally accepted are the main indicators of their performance. However, very rarely are risk rates taken into account, which is quite surprising, since hiring someone also means taking a risk. Legal, financial, and reputational risks for the business are assumed from the moment someone agrees to join the organization. If this process is seen as pure bureaucracy, then the real implications are not appreciated.
When it comes to the risks related to hiring new employees, at the very core of it, you will always find the risks related to negligent hiring. This is not just a number on paper, but something that you can see every day in the courtroom, and this aspect of business is no different from any other industry or size of the company.
What Negligent Hiring Actually Means
Negligent hiring is an interesting concept in that it is a device used to hold employers responsible for the harm caused by their employees. It is an exception to the general rule that employers are not responsible for the torts of their employees when those employees are working outside the scope of their employment. Negligent hiring is a type of liability without fault: the employer may not be at fault for the employee’s bad acts. However, the reasoning underlying the doctrine is that the employer is in a much better position to spread the risk of these losses through insurance and other sources of funding than is an innocent bystander or other third party.
Another theory is that employers should not knowingly place unfit people in a position to cause harm. Negligent hiring is really a misnomer because the cause of action is based on the tort of the employee, not the negligence of the employer in hiring the employee. However, the label has stuck. Remember that just as an employer has a right to make a bad hire, it does not have a right to hire the individual with knowledge that they are likely to cause harm.
Negligent Hiring Versus Vicarious Liability
People often confuse these two concepts, but it matters. Vicarious liability covers what an employee does within the scope of their job. A delivery driver has an accident during a delivery. Vicarious liability. A cashier mishandles a customer complaint. Vicarious liability. The harm happened while the person was doing their job. Negligent hiring is about foreseeable risks that existed before the person was ever hired.
Someone with a violent past that the employer didn’t hire to work where they’d be likely to get violent. Someone without the required commercial driver’s license behind the wheel of a delivery truck. Someone without any applicable training operating a forklift. If a company put someone with an undisclosed violent history in a client-facing position and that person then assaulted a customer off-site, vicarious liability might not apply at all.
Negligent hiring almost certainly does because the harm doesn’t have to be job-related. It only has to be traceable back to a risk the employer failed to identify when it had the chance.
The Real Price Tag
A bad recruitment is costly even if there is no trial. According to a CareerBuilder survey that is frequently referenced, 74% of employers have hired an inadequate person for a position, and the average cost of a single lousy recruitment is almost $17,000 when taking into account the money spent on finding candidates, training, and the output lost during that time.
Consequently, the damage awards associated with negligent hiring regularly exceed one million dollars, as well as the legal charges, court charges, and the loss of status. An organization opposing a negligent hiring lawsuit is not simply paying to find a new employee. It is also spending money on court fees, possible retribution, heightened insurance costs, and the business disturbance engendered by a proceeding that may take years. At that point, screening is not an elective HR expense. It is a risk management investment that pays off clearly.
What Courts Actually Mean By “Reasonable Care”
Many employers believe that they’re in the clear so long as they filed some sort of background research. Nevertheless, this is not how the courts perceive this situation. What they actually search for is a consistent process that is well-documented and was used for every candidate, for the type of position in question.
This consistency is more relevant than most people assume. If a criminal background check was not performed for some candidates, but it was for others as they were recommended or it was based on a gut feeling, the lack of consistency will be taken as proof of negligence, and not as a defense. Courts will be stricter with positions deemed as posing a higher risk: those that involve driving, contact with vulnerable populations, cash, or that require someone with fiduciary duty. A company that performs the same lax background check on a warehouse associate and on a home healthcare worker isn’t going to be able to defend that choice.
Additionally, reference verification is part of reasonable care. Contacting a previous employer to confirm dates of employment, role, and reasons for departing will fill the gaps that a criminal background check could not. This is particularly the case with candidates whose alarm signals were raised not due to convictions but because of their performance.
Navigating The Compliance Layer Without Tripping Over It
A lot of companies become anxious at this point, and it’s justified. A screening program that can be defended needs to meet the Fair Credit Reporting Act’s disclosure and consent obligations, go through the correct adverse action steps if a report results in a hiring decision, and comply with EEOC guidelines on reviewing criminal records, which require an individual assessment rather than an automatic disqualification. In addition, various state and local Ban the Box laws prohibit criminal history inquiries until later in the hiring process or otherwise limit the checks that can be run, which means your responsibilities to each applicant depend on where that person is applying from.
Not only does a flawed screening process eliminate a company’s negligent hiring protection, but it exposes the company to a different type of liability related to the procedure used to conduct the background check. That’s why almost no business wants to figure out how to set all this up internally starting from zero.
Partnering with a firm like Direct Screening can provide access to multi-jurisdictional criminal record searches, manage all the necessary FCRA disclosure and adverse action steps, and maintain the same legal-quality screening process, all without putting the pressure on the internal legal team to suddenly become background check experts.
The Speed-Versus-Thoroughness Objection Doesn’t Hold Up
The most common objection to conducting a proper screening is that of time. Employers often want to extend an offer before a competitor snatches up the candidate, and waiting a couple extra days to perform an adequate background check can seem like a costly delay in an already tight labor market.
Yet, when you compare this scenario to the cost of a negligent hiring claim – months, if not years, of litigation; a settlement or jury award in the seven figures; steadily mounting legal bills; and an immeasurable distraction for upper management from everything they should be focusing on – a few business days of screening turnaround are meaningless in that light. Put differently, the objection isn’t to turnaround times at all. It’s that most decision-makers don’t want to pay serious attention to this risk until it’s too late.
The Costs That Never Show Up On A Legal Invoice
Litigation costs resulting from a negligent hiring failure are just the tip of the iceberg. The hidden costs could be even more detrimental.
For instance, violent acts in the workplace that can be traced back to an employee with a violent criminal past don’t just give rise to litigation costs and potential liability. Morale of the entire team or department is destroyed, sometimes irreversibly so. These employees don’t stick around – and “tales from the water cooler” about the incident and the employee in question spread to future recruits. Employee theft and financial fraud at the hands of an unduly hired, financially responsible employee can cripple an organization undetected for months as well as undermine confidence in any financial controls the company believed it had.
From there, the client relationship also deteriorates. A single negative employee in a client-facing role can destroy a client relationship that has taken years or even decades to mature. The cost of damaged reputational capital may not be easily quantifiable, but it is tremendous. Employees scout potential employers by studying them in the media and, thanks to the Internet, searching for them on the Web. News about the settlement of a lawsuit over employee misconduct won’t disappear from Google just because the case has been put to rest.
Building Screening Tiers That Actually Match The Risk
A uniform screening package is not suitable for most companies. It would be excessive for an administrative position with low risk, but at the same time, it would be dangerously inadequate for a position with high safety risks.
A better approach is to determine the level of screening required based on the specific risks associated with the job. For example, if an employee will be driving as part of their role, a motor vehicle record check should be conducted in addition to criminal history checks. Healthcare roles should include license verification and exclusion list screenings along with standard background checks. Roles such as financial controllers or employees with signing authority would require more extensive credit and fraud-related checks compared to a receptionist.
Implementing these job-specific screening standards during the hiring process will ensure that the level of screening matches the level of risk, rather than creating unnecessary obstacles across the board, or leaving gaps in the screening process.
Treat Hiring Like The Risk Decision It Is
The thing is, Enterprise risk management frameworks already consider supply chain risks, cybersecurity risks, and financial risks. And each of those buckets includes controls and – more importantly – budgets to account for them. It’s time your company viewed hiring in the same light.
Pre-employment background checks aren’t something you stuff somewhere in a new hire’s onboarding paperwork. Instead, they’re a control mechanism that safeguards your people, your assets, and the good name your team worked so hard to establish. And if you continue treating them like an afterthought, you might soon find your company in a position where you’re obligated to explain why you didn’t look more closely.
