When Employees Rob You Blind

Tue, June 11th, 2013 - 10:29 am - By Gordon Basichis

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Employee theft is a lot like the weather–everybody talks about it, but nobody is entirely sure what to do about it.   Employers implement all sorts of security precautions, but sill employee theft continues at pace.   Since the Recession, there has been a noted increase in employee theft as staff members in desperation attempted to supplement their rapidly slipping lifestyles.

I have written about employee theft on several occasions.  One such article is Another Case of Employee Theft.

With most cases employee theft results in shrinkage. the pilfering of office supplies to the stealing of inventory, there are more  than a few cases where more elaborate schemes result in the theft of hundreds of thousands or millions of dollars.   The more creative thieves set up bogus accounts and funnel money out through that channel while others merely still and try to cook the books.  Most will eventually get caught, but not until the damage is done.

In this recent case, the fashion forward apparel manufacturer, Haute Hippie clothing, found that certain employees allegedly stole enough money out of the corporate till to live flamboyant lifestyles.  According to the article in the Daily News…”Four former employees of the chic clothing label Haute Hippie, along with 10 others, are accused of stealing hundreds of thousands of dollars from the company to finance extravagant lifestyles, according to a New York state Supreme Court filing. Some of those involved allegedly used company credit cards to purchase expensive dinners, drinks, nightclub visits, vacations to California and Washington, clothes, and gym memberships. They also allegedly used company cars as “virtual round-the-clock chauffeur[s],” according to the filing. One defendant in the case allegedly used the funds to finance his dental work as well as $1,800 worth of purchases at an Apple store. The lawsuit accuses an employee in the company’s accounting department of being the mastermind of the theft. An attorney for Haute Hippie said the money scam was exposed last summer, and he added the rapid growth of the company since 2008 had served to hide the misuse of funds.”

While nothing can guarantee prevention of employee theft, a  vigorous pre-employment screening program is vital to assure the employer is not hiring the same thieves who pilfered the preceding company.  Some employers do not press criminal charges, and quite often they will file a lawsuit, which is found in the county civil records search.

Of course, better surveillance techniques, careful monitoring of the accounting procedures.   But in the case of Haute Hippie, one of the accounting staff was allegedly in on the scheme.   So rigorous auditing is well in order.

The employer may not be able to stop employee theft entirely.  But they can limit it and possible assure that the effect doesn’t create total disaster, resulting in the destruction of the company.


New Iowa Bill Calls for Intensified Background Checks on School Workers

Mon, June 3rd, 2013 - 11:39 am - By Gordon Basichis

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The Globe Gazette in Iowa is in an editorial calling for more intensive background checks for school workers.   The heightened employment screening program would be focused on new unlicensed job applicants.  The newspaper’s editorial is in support of a new bill heading for the governor’s signature.

The perceived need for more intensive criminal records background searches comes in the wake of a particular tragedy where a sex-offender abducted a teenage girl.

According to the article in the Globe Gazette…”She would like to see legislation strengthened to require background checks on unlicensed employees working in school districts as well as on new unlicensed workers. The bill headed to Branstad also requires background checks every five years after the first one. Koenigs believes they should be more frequent.”

The article sites while this one particular case is sensational in content there are many lesser offenses that go undiscovered or unreported.

Nevada Now the Tenth State to Restrict Employment Credit Reports

Thu, May 30th, 2013 - 9:49 am - By Gordon Basichis

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Nevada joins nine other states in restricting the use of employment credit reports as background checks.   The new law is scheduled to go into effect October 1st, 2013.

Find below a summary of the new law and the exceptions, issues by Seyfarth Shaw LLP.  This is a great explanation of the new Nevada law.


Nevada Becomes The Tenth State To Prohibit The Use Of

Consumer Credit Reports Or Other Credit Information For

Employment Purposes

Last month we reported to you how Colorado became the ninth state to prohibit employers from using credit information for

employment purposes. Nevada has just become the tenth state.

Senator Parks introduced Nevada’s Senate Bill 127 on February 18, 2013, which was intended to, among other things, “[p]

rohibit[] employers from conditioning employment on a consumer credit report or other credit information.” Nevada

Governor Brian Sandoval signed the bill into law on May 25, 2013 and it goes into effect on October 1, 2013.

Prohibitions Under The New Law:

Chapter 613 of the Nevada Revised Statutes covers “Employment Practices,” including various unlawful employment

practices. Senate Bill 127, as enacted, amends Chapter 613 to add a new unlawful employment practice—employers

conditioning employment on a consumer credit report or other credit information.

The new law adopts a very broad definition of employer to include private employers and “any person acting directly or

indirectly in the interest of an employer in relation to an employee or prospective employee.” With limited exceptions, this

wide array of Nevada “employers” is now prohibited in their attempts to:

• Directly or indirectly, require, request, suggest or cause any employee or prospective employee to submit a consumer

credit report or other credit information as a condition of employment;

• Use, accept, refer to or inquire concerning a consumer credit report or other credit information;

• Discharge, discipline, discriminate against in any manner or deny employment or promotion to, or threaten to take

any such action against any employee or prospective employee: (a) who refuses, declines or fails to submit a consumer

credit report or other credit information; or (b) on the basis of the results of a consumer credit report or other credit

information; or

• Discharge, discipline, discriminate against in any manner or deny employment or promotion to, or threaten to take any

such action against any employee or prospective employee who has pursuant to the new law: (a) filed any complaint or

instituted or caused to be instituted any legal proceeding; (b) testified or may testify in any legal proceeding instituted; or

(c) exercised his or her rights, or has exercised on behalf of another person the rights afforded to him or her.

Exceptions Under The New Law:

When Senate Bill 127 was first introduced, it did not provide for any exceptions from its prohibitions. This meant, for

example, that employees who handle large sums of money—such as bank and casino employees—could not be subjected

to pre-employment credit checks under the state law. Both advocates and opponents of the bill debated this issue at a

February 22, 2013 Senate Commerce, Labor and Energy Committee hearing. The opponents prevailed and the bill now

provides for exceptions from the preceding prohibitions. Under these exceptions, an employer may request or consider a

Seyfarth Shaw — Management Alert | May 29, 2013


Breadth. Depth. Results.

Seyfarth Shaw — Management Alert

Attorney Advertising. This Management Alert is a periodical publication of Seyfarth Shaw LLP and should not be

construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for

general information purposes only, and you are urged to consult a lawyer concerning your own situation and any

specific legal questions you may have. Any tax information or written tax advice contained herein (including any

attachments) is not intended to be and cannot be used by any taxpayer for the purpose of avoiding tax penalties

that may be imposed on the taxpayer. (The foregoing legend has been affixed pursuant to U.S. Treasury Regulations

governing tax practice.) © 2013 Seyfarth Shaw LLP. All rights reserved.

consumer credit report or other credit information for the purpose of evaluating an employee or prospective employee for

employment, promotion, reassignment or retention as an employee if:

• The employer is required or authorized, pursuant to state or federal law, to use a consumer credit report or other credit

information for that purpose;

• The employer reasonably believes that the employee or prospective employee has engaged in specific activity which may

constitute a violation of state or federal law; or

• The information contained in the consumer credit report or other credit information is “job related” or reasonably

related to the position for which the employee or prospective employee is being evaluated for employment, promotion,

reassignment or retention as an employee.

The “job relatedness” requirement from this final exception is met if the duties of the position involve: (a) responsibility for

financial assets or employment with a financial institution; (b) access to confidential information; (c) managerial or supervisory

responsibility; (d) direct exercise of law enforcement authority; (e) responsibility for or access to another person’s financial

information; and of course (because this is Nevada) (f) employment with a licensed gaming establishment.

Remedies Under The New Law:

Senate Bill 217, as enacted, allows for both a private and public right of recovery under a three-year statute of limitations.

Private Right. When an employer violates the new law, the civil remedies available to affected persons include; (a)

employment if they were prospective employees or reinstatement or promotion if they already were employees; (b) payment

of lost wages and benefits; and (c) the award of reasonable costs and attorneys’ fees. The new law also presumably permits

recovery through class actions because it allows an “action to recover” to be brought “[o]n behalf of other employees or

prospective employees similarly situated.”

Public Right. The new law also authorizes the Labor Commissioner to impose an administrative penalty against an employer

(not to exceed $9,000 for each violation) and to bring a civil action against the employer. The administrative penalty is

separate and apart from any civil action brought under the new law.

Recommendations For Employers:

Nevada joins California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Oregon, Vermont and Washington in enacting

legislation to restrict employer’s ability to use credit information for employment purposes. Several other states and the Equal

Employment Opportunity Commission (EEOC) are also focused on this area and additional laws and guidance are expected

this year. Given the Nevada law’s high penalties for non-compliance (civil actions, $9,000 per incident administrative penalty,

and possible class actions) and the national focus on the use of credit information for employment purposes—employers in

Nevada that use credit reports or credit information for employment purposes are well advised to evaluate and reassess their

practices and procedures in anticipation of the new law’s October 1, 2013 effective date.


The Employee Retail Theft Database

Wed, May 29th, 2013 - 3:03 pm - By Gordon Basichis

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For those conducting background checks as part of their employment screening  programs you may find yourself considering the Retail Theft Database Search.   It is an interesting search, a database where retailers contribute information relative to any employees they believe were responsible for theft.   As we all know, in-house shrinkage is a major problem.   But for Corra Group, we wonder as to the veracity of this search, if it is accurate and factual and if at times it doesn’t have its discrepancies.

According to an article in the New York Times….”The repositories of information, like First Advantage Corporation’s Esteem database, often contain scant details about suspected thefts and routinely do not involve criminal charges. Still, the information can be enough to scuttle a job candidate’s chances.

Some of the employees, who submit written statements after being questioned by store security officers, have no idea that they admitted committing a theft or that the information will remain in databases, according to interviews with consumer lawyers, regulators and employees.”

There have been a series of complaints about the retail theft database.  According to the article…”But the databases, which are legal, are facing scrutiny from labor lawyers and federal regulators, who worry they are so sweeping that innocent employees can be harmed. The lawyers say workers are often coerced into confessing, sometimes when they have done nothing wrong, without understanding that they will be branded as thieves.

The Federal Trade Commission has fielded complaints about the databases and is examining whether they comply with the Fair Credit Reporting Act, a federal law aimed at curbing inaccurate consumer information and giving consumers more control, said Anthony Rodriguez, a staff lawyer at the agency.

Screening for suspected episodes of shoplifting is one part of a background check, as companies scour for evidence of criminal convictions or sex-offender registration. Almost all retailers perform background checks, according to a 2011 survey from the federation. But some background-check companies are wary of the theft admissions, which retailers submit to the databases.”

Corra Group suggests employers conduct county criminal records searches as part of their background checking solutions.   We believe this is an accurate search and fair, where all job applicants have a more level playing field when applying for employment.

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