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Employment Law Worldview

Dear Prudence: ERISA fiduciaries have a continuing duty to monitor trust investments

Posted in Recent Cases

On May 18, the Supreme Court handed down a decision [pdf] in the case of Tibble v. Edison International, confirming that ERISA fiduciaries have a continuing duty to monitor and make prudent decisions regarding trust investments.

Under ERISA, a fiduciary must discharge his or her responsibility with the care, skill, prudence and diligence that a prudent person acting in a like capacity and familiar with such matters would use.  ERISA provides a six year statute of limitations for breach of fiduciary duty claims.  In Tibble, employee-beneficiaries of Edison International’s defined contribution plan sued Edison and others, alleging that the company breached its fiduciary duties by offering retail-class mutual funds that charged higher fees rather than virtually-identical institutional-class funds that charged lower fees.   At issue were three mutual funds added to the 401(k) plan in 1999 and three funds added in 2002. 

The federal district court in California concluded that with respect to the funds added 2002, the employer “failed to exercise ‘the care, skill, prudence and diligence under the circumstances’ that ERISA demands.”  The defendants argued that the claims with respect to the 1999 funds, however, were barred by the statute of limitations, since the decision to designate the funds occurred more than six years before the suit was brought.  The district court agreed, and noted that the plaintiffs failed to show that circumstances changed significantly such that a prudent fiduciary would have undertaken a full due-diligence review of the funds after they were selected.  The Ninth Circuit upheld the district court [pdf], concluding that the act of designating an investment for inclusion in a fund triggered the running of the statute of limitations, and that only a “significant change in circumstances could engender a new breach of a fiduciary duty….”

The Supreme Court disagreed, noting that under the common law of trusts, a fiduciary “is required to conduct a regular review of its investment with the nature and timing of the review contingent on the circumstances.”  Under the duty of prudence, “a trustee has a continuing duty to monitor trust investments and remove imprudent ones.  This continuing duty exists separate and apart from the trustee’s duty to exercise prudence in selecting investments at the outset.” If a plaintiff alleges that a fiduciary breached that continuing duty of prudence, and that breach occurred within six years of suit, the claim would not be barred by the statute of limitations.  

The Supreme Court did not decide, however, whether Edison breached the duty of prudence or the scope of a fiduciary’s ongoing duties.  Rather, the Supreme Court remanded the case to the Ninth circuit to consider those issues in light of the principles of trust law.  The Court noted that after such a review, the Ninth Circuit might conclude that Edison “did indeed conduct the sort of review that a prudent fiduciary would have conducted absent a significant change in circumstances.”  The Ninth Circuit may not have a chance to do so, however, as it appears Edison will be arguing that plaintiffs failed to raise claims of a breach of the ongoing fiduciary duty of prudence below. 


Who is dismissing your staff? New French rules on necessary authority place form over substance

Posted in Recent Cases, Termination

In France notice of dismissal has to be given in writing, but it is not so simple as that.  The signatory to the notice must also have the appropriate authority, and that is a much smaller population than you might think.  This is not just an issue of form – getting this wrong can cost the employer dearly.

Foreign companies with subsidiaries or branchesin France should take particular care as the only people authorised to sign a dismissal letter are essentially “Présidents” and “Directeurs Généraux” (company officers) of limited companies(SAand SAS), “Gérants” in a SARL company, or employees ofFrenchentitiesduly authorised by those company officers. Warning: people who holdAnglo-Saxonjob titles such asVicePresident, Senior Vice President, General Manager, Managing Director, etc.are often notable tovalidlysign a dismissal letter in France.  A senior-sounding job title is not itself enough to confer the necessary authority.  It is an issue of formal legal status as an appropriate officer, not an impressive-looking business card.

If the signatory of the dismissal letter lacks proper authority, it automatically means the dismissal is treated as being without real and serious cause.  That exposes any company with more than 11 employees to damages of a minimum of 6 months’ remuneration plus reimbursement to the Job Centre for 6 months’ worth of unemployment benefits (if the employee has at least two years’ service).   This sanction applies even if objectively there were good reasons for dismissing the employee and even if the defective dismissal notice is then ratified or replaced by another one signed by someone actually authorised to do so.

For further information or if in doubt, please contact us.

(Decision from the French Supreme Court : cass.soc. 20 January 2015, no. 13-24.181)

Top Ten Factors for effective leadership in the Middle East – a personal perspective

Posted in Diversity

Unlike many other regions in the world the Middle East is characterised by a diverse range of nationalities and different cultures. Official estimates suggest that the United Arab Emirates (UAE) alone are host to some 200 different nationalities.

Put in context, such diversity is both an enormous challenge and an opportunity for business. HR functions in particular will need to ensure they facilitate the appropriate people management practices and processes that will achieve competitive advantage and satisfy the career expectations of a largely transient expatriate workforce.

I have worked for a number of years in HR-related capacities in the Middle East and on balance (with no dismissing of the very good work being done in many quarters), I think that these practices and processes are still evolving in the Middle East, North Africa (MENA) region.  This apparent relative lack of sophistication in parts may be due in part to the attitudes, preferences and expectations of the multicultural workforce, a workforce that may for the most part prefer an autocratic style of management.   Put crudely, if you are there to make a quick tax-free buck for a short period and then return home, you may be less concerned about the ability of your employer to look after and develop you in the longer term.  Equally employers could be forgiven for taking the view in the past that the last word in pastoral and man-management best practice might not be necessary when the income and expatriate lifestyle will draw in a solid stream of replacement candidates.  No doubt this is an over-generalisation and attitudes are certainly changing, but they have left a legacy which may take some time to disappear entirely.

Two separate reports provide evidence of the position in these areas: Boston Consulting Group’s (BCG) 2008 Global report ‘How to address HR challenges worldwide through 2015’ did not even include the Middle East in their Global research and HAY Group’s ‘Lift Off-Unleashing performance in the Middle East’ highlighted that the dominant leadership style in the MENA region tends to be coercive, a command and control management style that is indirectly encouraged by employees’ lack of desire for greater autonomy.  However, the recent economic resurgence of Dubai in particular will undoubtedly have created a tougher environment for employers in the battle to retain talent.  Like everyone else, their tactics will have to continue to move away from pure cash towards these softer but differentiating factors.

What then are the implications for talent management and leadership in the region and how can we develop these critical areas to increase competitiveness?

  1. Continue to seek out best practice from around the globe and learn from other organisations about what works and what doesn’t.
  2. Get your recruitment process right hire talented people with potential and go out of your way to develop them.
  3. Develop a robust talent management process that can identify high potentials based on strict objective quantitative and qualitative criteria.
  4. Choose your management carefully and choose your leaders even more carefully.
  5. Assess, develop, evaluate and educate your leaders- know what an effective leader looks like.
  6. Examine and evaluate leaders in the round and not just based on their technical skills.
  7. Incorporate tools and techniques into your selection and development processes that can test a range of competencies, not just their technical abilities.
  8. Look for diversity in leaders- do not attempt to clone leaders or their existing management styles if you want to see those style change.
  9. Regional and sector experience are important but a premium should be placed on international exposure as a means of introducing (almost by osmosis) a more collegiate management style which may bring competitive advantage to a more mature and established workforce.
  10. Cultural sensitivity and religious tolerance are key competencies.

Is the UK’s Fit for Work scheme fit for purpose?

Posted in Disability, Health & Wellbeing, Unfair Dismissal

Time for a quick look at the Guidance issued by the Department of Work & Pensions on the new Fit for Work (FfW) Scheme https://www.gov.uk/government/collections/fit-for-work-guidance.

There are two ways of looking at this.  First, that the Guidance is a gallant attempt to explain in simple terms how this Scheme may (I use the word advisedly) work.  Or second, that it is twenty-four pages of fluff and repetition (the launch dates appear five times in the first seven pages, for example) plus the substantial number of grammatical and punctuation errors which now seem mandatory in official Government guidance on employment matters.  Maybe they have someone whose job it is to take decent English writing and spoil it, just slightly?

However, we should try to rise above the plethora of singular nouns taking plural verbs and look at it the first way, ignoring the faint grinding of teeth that this will cause.

The Scheme provides employers and employees with medical advice and rehabilitation guidance to help people return to work as soon as possible.  This has obvious economic value for both company and country (saving on incapacity benefits and sick pay), plus undoubted therapeutic benefits for the employee.  It applies to staff who have (i) been off sick for four weeks or more; (ii) a reasonable prospect of making some form of return; (iii) not been through the FfW system in the preceding twelve months; and (iv) consented to their referral to FfW.

Referrals can be made either by the employee’s GP or by the employer.  FfW will then make a preliminary assessment (usually based on a phone call with the employee) of all the obstacles to the employee’s successful return.  These will include not just his medical position but also any work and personal factors so as to catch “adjustment disorders”, where the employee is reacting to some unhappy situation or relationship at work but is not actually clinically unwell.  Based on that assessment (or also with input from the employer, if the employee agrees), the FfW consultant will generate a Return to Work Plan.  This will be similar to doctors’ fit-notes in that it will include recommendations to both parties for dealing with those obstacles.  The employee must agree to this being sent to the employer.  Given that he had to agree to the referral to FfW in the first place and that the Plan is of little help if the employer can’t see it, this seems an unnecessary hurdle.  Indeed I think an employer could be justly curious about the contents of a Return to Work Plan which the employee would not let it see, but except in litigation, it would not be able to compel him to produce it.

The Return to Work Plan is a valid substitute for doctors’ fit-notes (you don’t need to get both) but it is expressly designed not to replace employers’ existing internal or external Occupational Health functions.  It might be said also that it is no substitute for an open and honest discussion between employer and employee as to their respective needs from any return to work proposal, and employers should not treat FfW as lessening in any way their own obligations (legal and pastoral) to keep in touch with long-term sick staff.  The Plan can be updated in the light of developments in the employee’s health or the situation at work, but his fresh consent is required before this updated version can be shared with the employer.

While the aims of the FfW scheme are laudable, it should not be forgotten that “employers will continue to have responsibility for managing absences [and deciding] if the interventions/adjustments are reasonable and affordable”.  In other words, FfW does not change the law at all.  It will remain the employer’s obligation to consider reasonable adjustments in possible disability cases, and the absence of any implementable recommendation in the Return to Work Plan will not discharge that burden by itself.

The Guidance makes it clear that employers are under no obligation to comply with those recommendations, but does not say (as perhaps it should have done) that if they don’t do so without good reason, potentially very awkward questions could be asked of them in the course of later unfair dismissal or disability discrimination proceedings.  Whether the employee is statutorily disabled or not, keeping a record somewhere of why a particular FfW recommendation could not be followed will always be a sound investment of time.

Keeping your eyes on the road – are there limits to a UK employer’s monitoring of staff movements?

Posted in Data Protection, Employee Welfare, Privacy, Recent Cases

How would you feel about your employer knowing where you are 24 hours a day?

News reaches us of a claim by an employee dismissed in the US for deleting a smartphone app Xora which her management had required her to install as part of its mobile workforce management systems.  Xora bills itself (with callous disregard for the difference between adjective and adverb) as helping mobile staff work “faster and smarter” by installing a GPS function on their phone.  That allows the employer to know not just where they are at any given time, but how long they have been there and even how quickly they are driving.

Ms Arias was not allowed either to turn her phone off at nights or weekends or to leave it at home, since that could lead her to miss client calls.  She had no objection to the functioning of the app during working hours but deleted it when her boss told her, seemingly not without some note of pride, that it remained both active and actively monitored in the evenings and at weekends.  Now she is seeking what sounds to UK ears as a more than slightly ambitious $500,000, her gross income for nearly 6 years.

But leaving the US position aside, would such a dismissal be fair in the UK?  Put differently, is it unreasonable to require your employees to allow their whereabouts to be monitored out of hours and at weekends?  Especially in circumstances where the employer (allegedly) admits that this is not just a theoretical possibility but is actually happening?

You could say that the employee should not have a problem with it so long as he is not up to anything illicit, and that the employer will rapidly get tired of keeping eyes on his weekend trips to Sainsbury’s and the in-laws.  However, would it be right for the employer to know if its employee were visiting a competitor or risking reputational damage in well-known red-light districts?  The more the employee did not want the employer to know what he was doing, the stronger might become its argument that it should.

But there are legal considerations here too.  Article 8 of the Human Rights Act states that “everyone has the right to respect for his private and family life”.  Building from that, the Data Protection Act guidance requires that “monitoring must be a proportionate response to the risk the employer faces taking into account the employee’s legitimate expectations of privacy” and “personal data must be relevant, not excessive and not retained for longer than necessary for the purpose for which the monitoring is justified”.

There must be an argument that the mere collection, let alone actual monitoring, of movement data for employees who are “off the clock” infringes these principles.  The competitor/red-light district argument has some superficial merit, but these are risks for all your employees, not just the mobile staff.  Therefore if no steps are taken in relation to those other employees, they cannot be a proportionate measure for your people on the road.  A contractual obligation to pick up client calls at weekends is one thing, but an obligation to let your employer know where you are when doing so is something else entirely.

As a result, it is hard to avoid the conclusion that an Employment Tribunal in the UK would see the evening/weekend monitoring as unlawful, any instruction to submit to it as unreasonable, and any dismissal for failure to comply as therefore unfair.  If you disagree, please get in touch.

Scrutinizing Sex Harassment Claims in the Workplace: The Importance of Getting the Investigation Right

Posted in Harassment

For many employers, receiving a complaint of sex harassment (or any other form of harassment or discrimination based on a legally protected category) triggers an audible groan and a begrudging acceptance of the requirement to conduct a workplace investigation.  And given the ever greater demands on the time of the HR and Legal teams that are usually tasked with conducting the investigation, it is not a surprise that “getting it done” sometimes trumps “getting it right.”  However, each workplace investigation truly needs to be conducted with the expectation that the investigation itself potentially will be scrutinized by Plaintiff’s counsel, and a judge, jury, or arbitrator.  Additionally, each workplace investigation needs to be designed and implemented with multiple goals in mind: (1) messaging to the employees participating in the investigation the commitment the employer has to maintaining the right kind of workplace; (2) determining the facts and documenting them; (3) communicating the employer’s support for appropriate workplace conduct; (4) deterring employees considering engaging in conduct similar to conduct underlying the complaint; (5) complying with the employer’s legal obligations and reducing the risk of legal exposure; and finally, (6) addressing and resolving the complaint.


In the fast-paced world of most employers, several of these goals get left out of the equation.  Moreover, in the well-intended desire to complete the investigation promptly, “shortcuts” are often taken that impair the effectiveness of the investigation and make it vulnerable to attack in litigation.  Given that Plaintiff’s counsel has the benefit of hindsight when criticizing or attacking a workplace investigation, it is incumbent upon employers to take extra time and be thoughtful about preparing an investigation and implementing the investigation in a way that will stand up to scrutiny.  Critical issues such as: (1) deciding the scope of the investigation, (2) whether investigation should be conducted by an outside investigator, (3 who should be the decision‑maker as to any discipline of the alleged bad actor if the investigation concludes that discipline is warranted, and (4) who should conduct the investigation, are often not given as much consideration as is necessary.

One of the first lines of attack on any investigation is the skill and training of the investigator, so selection of the investigator is critical.  Unfortunately for most employers, the instinct is often to give the investigation to the person with the least “on their plate,” which frequently corresponds to the person with the least experience or training conducting investigations.  In the event of litigation, plaintiff’s counsel will pick apart the investigator’s experience and any shortcuts or “missed opportunities” apparent in the investigation.  Accordingly, employers need to treat every investigation into alleged unlawful conduct as though litigation was a certainty not merely a possibility.  That means ensuring that someone experienced and competent, aided by access to a qualified employment lawyer, is given the time and tools to conduct a prompt and thorough investigation that will withstand scrutiny.

New rules in France concerning “Umbrella Companies” (“Portage Salarial”)

Posted in Legislation, Recruitment

An Order dated 2 April 2015 has formally defined “umbrella companies” and set out the conditions under which they may operate in France.

New law in 2008 concerning the modernisation of the labour market had said that a national agreement could entrust a professional sector with the task of organising umbrella companies. However, certain provisions of the 2008 law were deemed unconstitutional by the Constitutional Council in April 2014. Consequently, Article 4 of Law No. 2014-1545 dated 20 December 2014 green-lighted the French Government to take “any measure to determine the conditions essential to the exercise of umbrella companies” and this new Order is its response.

Umbrella companies allow an individual to provide his services to a business customer and negotiate the terms of their performance whilst benefitting from the protection of employment status with an umbrella company. The Order states that “The employee has the expertise, qualification and autonomy that allows him to seek his own customers and agree with them the conditions of his performance and price.”  The umbrella company is paid fees by the customer and it then in turn pays the umbrella employee a salary, having retained any social contributions and management fees.  

The new Order sets out:

(i)         the conditions under which an umbrella company arrangement can be used with a business client:  

(a)        A business client cannot enter into a contract with an umbrella company if the umbrella employee is replacing an employee whose employment contract is suspended following a collective labour dispute, or who is performing a particularly dangerous job as referred to in the list in Article L. 4154-1 except as otherwise provided for in the same article (L.1254-4-I. 1 and 2-I L.1254-4 of the Labour Code).

(b)        Umbrella companies are not permitted for job roles that do not require a professional qualification.

(c)        The service activities mentioned in Article L. 7231-1 (for example:  personal services for child care, older people or housework) cannot be subject to an umbrella company contract (L.1254-5 of the Labor Code).

(d)        The provisions of articles L.8231-1 to L.8234-3 and L.8241-1 to L.8243-3 of the Labour Code concerning bargaining and illicit supply of workers (“marchandage and prêt illicite de main d’oeuvre”) are not applicable to umbrella companies (article L.1254-6. of the Labor Code).

(ii)        The types of employment contract permitted (fixed term contract or indefinite term contract) between the employee and the umbrella company:  

(a)        Article L.1254-10 the Labour Code provides a new basis for entering into fixed term employment contracts which benefits umbrella companies and therefore client companies.

(b)        The umbrella company cannot enter into temporary fixed-term common law contracts, e.g. for the interim replacement of an absent employee (maternity/sick leave) or to cover a short-term sudden increase in the activity of the company.

(iii)       the commercial provisions which may feature in the contract between an umbrella company and the end-user client company.

For example, the contract could contain a clause setting out the minimum provisions relating to certain benefits paid by the employee

(iv)       the obligations of the umbrella company (exercise conditions, specific obligations vis-à-vis umbrella employees); and

(v)        the internal governance rules applicable within an umbrella company, professional elections, voluntary profit sharing (“intéressement”), mandatory profit sharing (“participation”) and employee savings plans (“plans d’épargne d’entreprise”). 

The report to the President which accompanied the publication of this Order states that “A system of civil and criminal penalties will shortly be introduced by the law to ensure effective implementation of the defined rules” and that a collective agreement will complete the legal and regulatory measures to bring these changes into fully effective force.

When Judges strike back – UK Tribunal Sexual Misconduct Claimant exposes more than he intended

Posted in Litigation, Misconduct, Recent Cases

A particularly brutal little tale from the Employment Appeal Tribunal this month about what happens when you are sacked for deceiving your employer, bring an Employment Tribunal claim and then lie to the ET too.

Mr G (not his real name, for reasons which will follow – his real name is Mr Roden, also for reasons which will follow) was dismissed by the BBC after allegations were made about an incident of indecency with young men in Glasgow in 2013.  In the course of its investigation the BBC discovered that certain information G had given to it at the time of his recruitment was untrue.   Though denying the Glasgow incident, information came to light of his involvement in an event in Cornwall of a not dissimilar nature in 2005.  No doubt somewhat to its surprise, the Employment Tribunal was shown a photograph of Mr G on that occasion “simulating oral sex with a student dressed as a children’s television character in the presence of another dressed as a different character”.  They may never look at the Teletubbies in the same way again.  That incident had led to his summary dismissal from his job in Cornwall, but in his application to the BBC, Mr G had described the parting as being 5 months later than it was, and as by reason of “concern about potential bad publicity arising from allegations [denied by Mr G] made by two students”.  Under cross-examination Mr G admitted that he had misled the BBC in that respect.  He was dismissed as a result of that dishonesty and no specific finding was therefore made by the Beeb about the truth of the Glasgow allegations.

Mr G claimed unfair dismissal and lost resoundingly, as one might rather expect.  However, the key issue for us here is not the merits of his dismissal but of the Order made by the Employment Tribunal that Mr G’s identity should be anonymised throughout the hearing and permanently thereafter, so preventing the meaningful reporting of what was clearly a cracking story.  The BBC appealed that Order to the EAT.  There the Judge, clearly incensed and not entirely hiding it, was tasked with considering the balance between Mr G’s rights on the one hand and the established public interest in the transparency of judicial proceedings on the other.

Mr G’s case was that the publication of any identifying information about his Employment Tribunal proceedings would leave him unable to rebut a likely public assumption that the Glasgow allegations were true, even though neither the BBC nor the Employment Tribunal had made any finding of guilt in that respect.  He feared “vigilante consequences” and the inevitably very damaging impact on his life of being seen as a sexual predator to young men.  He gave the public no credit for any ability to distinguish in its reaction between unsupported press contention on the one hand and established fact on the other.

The EAT was unimpressed, noting in response that:-

(i)         Mr G had lied to the BBC and then to the ET about his reasons for leaving the Cornwall job;

(ii)        he had brought a claim to a public forum (the ET) knowing that to be the case;

(iii)       he was not the victim of sexual misconduct but an active participant in it (allegedly in Glasgow and most certainly in Cornwall);

(iv)       there was no evidence that the public would be unable to distinguish between an allegation of criminal conduct and a conviction or finding to that effect – indeed, in post-Operation Yewtree days, said the Judge, the public could be said to have become used to famous names being arrested and then acquitted or not proceeded against;

(v)        the BBC was entitled to its public vindication, and to prevent Mr G’s identity being disclosed would also prevent it making clear in references or to other potentially interested parties that he had in fact been fairly dismissed for dishonesty.

And so the permanent anonymity Order was overturned.  On the facts of Mr G’s case, all of this makes perfect sense.  In the only just unwritten subtext of the Judge’s decision, Mr G deserved whatever he got.  What would be unwise, however, is for employers to attach too much precedent value to this decision, especially in relation to (ii) above.  Where genuine allegations of sexual misconduct are being made, it will not be open to the employer to contest an application for anonymity for the Claimant on the grounds that the employee brought it on him/herself by suing in the first place.

In addition, if it is the employer which seeks the restricted reporting order, it seems that the Employment Tribunal will not accept without clear evidence that public association with alleged conduct of that sort will lead to anything more than temporary embarrassment, to be effectively dispelled if untrue by a reported decision to that effect.  Personally I think that this is harsh – 3.9m votes for UKIP show that some parts of the public will believe almost anything, and the reality is that news of the allegations will almost always attract more noise and coverage than a subsequent Tribunal “acquittal” – “Company Behaves Correctly Shock” just doesn’t sell newspapers.

Private lives v saving lives: privacy intrusions of little consequence when drug testing

Posted in Health & Safety, Labour & Employment, Union, Workplace Safety

There has been a long running battle in Australia about whether an employer, when testing for drug use, can ask employees to provide a urine sample. Many unions have resisted the introduction of urine testing, arguing that saliva testing is sufficient and, as such, the process of sampling urine is an unjustified invasion of privacy. Employers, however, want to have both methods available, arguing that saliva testing has recognised limitations.

Last month, the Fair Work Commission (Commission) sided with an employer by granting them the right to perform both saliva and urine testing on its employees for drug use.

The significant issue in this case arose from the Construction, Forestry, Mining and Energy Union’s (Union’s) firm opposition to random urine sampling on the grounds that saliva testing ‘provided superior or equivalent means for identification of the presence of drugs’ and, as such, the right to perform random urine and saliva testing was an ‘unreasonable / unjust obligation on employees’.

After careful consideration, the Commission backed the employer’s proposal for random saliva and urine testing on the grounds that the ‘evidence in this case, as with previous matters … has established that each method has certain benefits and shortcomings’ with urine sampling successfully detecting ‘intoxication associated with long-term drug use’ and saliva testing enabling the ‘detection of more acute intoxication associated with recent drug use’.

With this in mind, the Commission found that the necessity to protect the health and safety of employees through the adoption of urine and saliva sampling for drug testing ‘significantly outweigh[ed] any privacy detriments that could be identified’.

In summary, the Commission described the contest in this case ‘as a choice between private lives or saving lives’ and in upholding an employer’s right to randomly sample both saliva and urine, the Commission ‘opted for saving lives’.

Construction, Forestry, Mining and Energy Union v Port Kembla Coal Terminal Limited [2015] FWC 2384 (8 April 2015)

New York City to Employers: No More Credit Checks!

Posted in Discrimination

Last week, New York City Mayor Bill DeBlasio signed into law a bill that expands the New York City Human Rights Law and makes it an unlawful discriminatory practice for employers to request or use consumer credit history for employment purposes or otherwise discriminate against an applicant or employee based on their consumer credit history.  New York City has joined Chicago and 10 states in limiting the use of credit checks by employers.  While the New York City law contains a number of exemptions, the exemptions are narrower than those in most of the other jurisdictions, most of which exempt financial institutions and banks entirely.  In contrast, the New York City law provides exemptions for current and prospective employees:

  • employers required to have security clearances under federal or state law or by a national securities exchange, registered securities association or registered clearing agency;
  • working as police or peace officers;
  • working in a position in which a high degree of public trust has been reposed and that is subject to background investigation by the department of investigation;
  • working in a position in which an employee is required by law to be bonded or possess security clearance under City, state or federal law;
  • working in a non-clerical position having regular access to trade secrets, intelligence information or national security information;
  • working in a position having signatory authority over third-party assets worth $10,000 or more, or that involves a fiduciary duty to the employer with the authority to enter financial agreements of $10,000 or more on behalf of the employer; or
  • working in a  position with regular duties that allow the employee to modify digital security systems established to prevent the unauthorized use of the employer’s or client’s networks or databases.

Importantly, the law has its own definition for “trade secrets” which excludes general proprietary company information such as handbooks and policies as well as the use of client, customer or mailing lists.

Violations can result in civil penalties of up to $125,000 ($250,000 for willful violations), and aggrieved employees and prospective employees can sue to recover front pay, back pay, hiring/reinstatement, compensatory and punitive damages and attorneys’ fees.

The new law goes into effect on September 3, 2015.  Employers with employees in New York City should review their credit check policy to ensure they are in compliance with the new law.