Brokerage Ops the March 2016 issue

Thinking Outside the Box

When should you ask someone if they have a criminal history?
By Scott Sinder Posted on February 23, 2016

I recently previewed an article discussing the trend toward banning questions about criminal conviction history as part of an initial job application. Ironically, this trend is juxtaposed with insurers’ rising interest in conducting their own background checks of individual producers as part of the appointment process. 

State and local ban-the-box laws appear to be overridden in the insurance context by federal law that prohibits certain classes of former felons from gaining willful employment in the insurance business. That said, nothing in the federal law requires private-sector employers to conduct their own independent background checks.

Federal law prohibits certain classes of former felons from gaining willful employment in insurance.

We can leave that to the regulators.

Nineteen states enforce ban-the-box laws, which generally prohibit asking job applicants about their criminal history during the application process. Seven of those states (Hawaii, Illinois, Massachusetts, Minnesota, New Jersey, Oregon and Rhode Island) and the District of Columbia apply the prohibition to private-sector employers. Another 27 local governments have enacted similar prohibitions that apply in the private sector. At least 14 cities also bar vendors and contractors from doing business with them if they exclude felons early in the hiring process. 

President Obama has asked Congress to do the same for federal jobs. He also ordered his administration to stop asking candidates for most federal jobs about criminal history until later in the process. Strange bedfellows Senators Rand Paul, R-Kentucky, and Cory Booker, D-New Jersey, are teaming up again to pass legislation that would allow nonviolent offenders to eventually have their criminal records sealed.

In the immortal words of Arlo Guthrie in “Alice’s Restaurant:” “Friends, they may think it’s a movement.” But as you might expect, there are a few problems.

The details of the ban-the-box prohibitions vary from jurisdiction to jurisdiction. Jennifer Mora, an attorney who specializes in advising employers on background check practices, says the biggest challenge for employers operating in states that regulate these practices is simply understanding the precise requirements of the applicable rules.

“Some jurisdictions allow an employer to inquire about criminal history after an interview, while other jurisdictions require the employer to wait until after making a conditional offer of employment,” she writes. “Some of these laws also require employers to conduct an ‘individualized review’ before rejecting an applicant with a conviction record, which is similar to the review the Equal Employment Opportunity Commission recommends as a best practice.”

Satisfying Section 1033

Further complicating things, 18 United States Code Section 1033 bars your firms and any individual “who is engaged in the business of insurance” from “willfully permit[ting]” participation “in the business of insurance by an individual who has been convicted of a felony involving dishonesty or breach of trust.” Section 1033 also gives state insurance regulators the authority to waive the prohibition for a convicted felon on a case-by-case basis.

For more than 15 years, The Council has recommended firms deploy a standardized hiring process, including asking all applicants whether they have been convicted of a felony for a covered offense, which would bar participation in the industry pursuant to the Section 1033 requirements. There are two basic justifications for this.

  • First, the prohibition on “willfully permit[ting]” an individual who has been convicted of one of the covered classes of felonies to participate in the business of insurance cannot be read to require an affirmative background check under the applicable case law. Instead, it likely can be read to require some level of basic inquiry. 
  •  Second, if you do ask, receive negative answers and then later learn the employee did have a prior conviction, you could then terminate the employee based on the application misrepresentation. That would comply with your 1033 obligations. If you do not ask, you may face a lawsuit for unfair termination in non-employment-at-will jurisdictions.

Most, if not all, of state ban-the-box laws that apply to private-sector employment can be read to exempt employers who are required by law to inquire into criminal history as part of the hiring process. Thus it does not appear these regimes apply directly to you and your firms. But they likely do regulate the hiring practices of many if not most of your clients. So you need to be aware of them.

You may be working with carrier partners who are invoking Section 1033 to defend their requests to perform their own criminal background checks on individual producer appointees. I don’t believe anything in Section 1033 mandates such inquiries. You also must grapple with the practical reality that your producers generally have multiple appointments and the transaction cost of submitting to multiple background checks is significant.

In states where criminal background checks are incorporated into the licensure and renewal process, it’s difficult to envision a justification for individual checks. One of the many benefits of the National Association of Registered Agents and Brokers (NARAB)—when it’s up and running—will be that every NARAB member will have to clear a regulatory criminal background check as a condition of membership. This should eliminate insurers’ interest in performing their own checks.

For many reasons, that day cannot come soon enough.

Scott Sinder Chief Legal Officer, The Council & Partner, Steptoe & Johnson LLP Read More

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