EPA’s Proposed Waters of the U.S. Rule: Does It Regulate Puddles? – Environmental Protection Agency

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In a leaked draft, EPA was seen to have been contemplating explicitly excluding puddles from regulation, but, in the end, didn’t do so. EPA provided an explanation as to why, but the rule is so broad, we think EPA’s explanation may not be completely relevant. In other words, because the rule is so broad, many puddles actually might fall under federal jurisdiction. The reason is the host of new definitions proposed by EPA. Previously undefined terms like tributary, neighboring, and floodplain are all now defined, and in a way that creates a web of federal jurisdiction. Here’s how:

  1. The rule starts with an initial list of jurisdictional areas, which includes (a) waters that are, have been, or could be used in interstate commerce, (b) interstate waters, and (c) the territorial seas.
  2. The rule then adds to this list all tributaries of these waters. Tributary gets defined for the first time as any feature with a bed and bank that contributes flow to any water on the initial list. Many features, like dry arroyos and mountain channels, have bed and bank even though they only flow when it rains or the snow melts:
  3. The rule then continues, adding to the list of jurisdictional waters all waters that are adjacent to the initial waters and their tributaries. Adjacent is “bordering, contiguous or neighboring.”
  4. EPA then defines neighboring for the first time to include any water in the floodplain or a riparian area of the initial waters and their tributaries. These also get new definitions. Floodplain is an area along a water, formed by sediment deposition and inundated during moderate to high flows. Riparian area is one bordering any water where surface or groundwater “directly influence the ecological processes and plant and animal community structure in that area.”

The end result is that areas are jurisdictional, as far upstream as one can find a bed and bank, and as far outward from that bed and bank as the area “directly influences” the area’s ecology or is formed by sediment and gets inundation from high flows. That is a lot of area. To give you a sense of the potential breadth of areas “subject to inundation,” this map shows in blue the flooding along the Mississippi River in 2011 and the counties/parishes at risk of significant flooding:

Fully one-third of Arkansas was covered. One half of the counties in Illinois were at risk.

This brings us back to puddles. In the proposal’s preamble, EPA says it removed puddles from the “not jurisdictional” list for clarity, not to imply they are jurisdictional.

Some puddles, it says, are not jurisdictional. The language of the rule, however, suggests that puddles are arguably jurisdictional if they are in floodplains or riparian areas. The fact that puddles aren’t always wet may not be decisive: EPA considers streams which flow only when it rains or snow melts to be jurisdictional and identifies dry features as “water”:

We’re not saying that EPA would take the position that puddles are jurisdictional – our only point is that the language of the proposed rule is so broad that it could. And we haven’t even started on the “significant nexus” test.

This is the second in a series of posts regarding EPA’s proposed rule redefining “waters of the United States” under the Clean Water Act.

For Part One, click here.

Photo credits, from top: Photo of the Las Cruces Arroyo from Wikipedia. Mississippi River map from the US Census Bureau. Photo of a wetland from the Arid West Region Regional Supplement to the Corps’ Wetland Delineation Manual.

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Mind Regulations When It Is Time To Mine

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The Department of Labor recently issued a reminder to employers involved in themining industry. As spring (slowly) approaches, surface mines will reopen. As miners head back to the job site and prepare equipment for the new season, potential for injury is high.

Of the 12,000 metal and nonmetal mines overseen by the Mine Safety and Health Administration (“MSHA”), almost half are operated on a seasonal basis, closing for winter when conditions make operations too difficult. According to MSHA information, injuries at seasonal mines climb sharply in the spring. MSHA is vested with the power to enforce compliance with mandatory safety and health standards as a means to eliminate fatal accidents; to reduce the frequency and severity of nonfatal accidents; to minimize health hazards; and to promote improved safety and health conditions in the Nation’s mines.

Miner operators and managers should review safety information available at http://www.msha.gov and take the time to educate employees on the numerous hazards associated with the job. Always keep in mind that employers are responsible for providing a safe workplace; employee injuries are not only detrimental to operations, but can be costly – both financially and reputation-wise.

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U.S. Supreme Court Clarifies That Severance Pay is Taxable—in Most Cases

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On Tuesday, March 25, 2014, the U.S. Supreme Court, in an 8-0 decision, ruled that severance payments made to employees who are involuntarily terminated are taxable wages under the Federal Insurance Contributions Act (FICA).  Quality Stores, Inc., et al., 12-1408.  The Court reversed the Sixth Circuit Court of Appeals ruling in favor of Quality Stores, which was seeking a $1 million tax refund based on its argument that severance payments were not covered by FICA and were excluded from taxation based on the Internal Revenue Code.  The Court’s ruling resolved a split between the Sixth Circuit and the Federal Circuit, and ended a legal battle with more than $1 billion at stake in potential tax refunds to employers involved in 11 separate cases with more than 2,400 refund claims.

Quality argued that its severance payments to terminated employees were actually supplemental unemployment compensation benefits (SUB), which are not considered “wages” under the Internal Revenue Code.  According to the company, “a SUB payment is a type of payment that—although made by an employer to [its] former employee—nonetheless does not meet the statutory definition of ‘wages’ because it is not remuneration for services.”  The Court noted that the severance payments were made only to employees and were based on employment-driven criteria including the position held, the employee’s length of service with the company and salary at the time of termination.  Relying on the “broad definition of wages under FICA,” the Court ruled that severance payments to employees who are terminated involuntarily are taxable under FICA.

However, in its decision the Court noted IRS revenue rulings that severance payments tied to the receipt of unemployment compensation benefits “are exempt not only from income tax withholding but also FICA taxation.”  Thus, employers appear to continue to be able to make severance payments not taxable through a carefully crafted structure linking the severance payments to the employee’s receipt of unemployment compensation benefits.

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Northwestern Scholarship Football Players Found to be Employees Eligible for Union Representation

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Peter Sung Ohr, the Regional Director for Region 13 of the National Labor Relations Board issued a Decision and Direction of Election pertaining to the effort of the Northwestern University football players to unionize. The Regional Director found that scholarship football players at Northwestern University are “employees” within the meaning of the National Labor Relations Act and eligible for union representation. The Regional Director found appropriate a bargaining unit composed of “all football players receiving a grant-in-aid football scholarship and not having exhausted their playing eligibility.”

The Regional Director used the common law definition of employee in reaching his decision. Under the common law test, a person is an employee if he performs a service for another, under a contract of hire, for compensation, and is subject to the other’s right of control. He found the following:

  • The scholarship football players perform a service (playing football) for compensation (a scholarship)
  • The scholarship players’ commitments to play football in exchange for the scholarship constitutes a contract for hire
  • The scholarship players are under the control of the University for the entire year, including in-season and out-of-season workouts, restrictions on their entire personal life and detailed regulations players must follow at the risk of losing their scholarship

The Regional Director decided the NLRB’s 2004 Brown University decision, in which the NLRB found graduate assistants not to be employees of the university, to be inapplicable here because playing football is not part of the players’ academic degree program. However, he wrote that even if the Brown University test was applied, the scholarship football players would be found to be employees. He noted:

  • The scholarship players are not primarily students due to the 50-60 hours a week during the season that they devote to football
  • The scholarship players’ football “duties” do not constitute a part of their academic degree requirements
  • The academic faculty does not supervise the players’ football duties; rather, coaches who are not part of the faculty do so
  • The grant-in-aid football scholarship is not need-based like the financial aid other students receive but is given solely in exchange for playing football

The Regional Director rejected two additional arguments made by the University:

  • He decided the scholarship football players are not “temporary employees” (who are generally ineligible to participate in collective bargaining) because they work more than 40 hours a week during the season, work year round, expect to work for 4-5 years and play football as their prime consideration
  • He did not include the “walk-on” players in the bargaining unit. He found that they are not employees within the meaning of the NLRA because they do not receive a scholarship and are not subject to the conditions for its receipt

The University now has until April 9, 2014 to file a Request for Review to appeal the Regional Director’s ruling to the NLRB in Washington, D.C.

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EEOC Sues Wal-Mart Stores East for Disability Discrimination – Equal Opportunity Employment Commission

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Cockeysville Store Refused to Accommodate Applicant With End-Stage Renal Disease, Federal Agency Says

Wal-Mart Stores East, LP violated federal law when it refused to employ an individual with end-stage renal disease as a store associate because she needed a reasonable accommodation during the hiring process, the U.S. Equal Employment Opportunity Commission (EEOC) charged in a federal lawsuit it announced today.

The EEOC charges that following a successful interview, the assistant store manager at the Walmart store in Cockeysville, Md., offered Laura Jones a job as an evening sales associate, contingent on passing a urinalysis test for illegal drugs.  When Jones said that she cannot produce urine because she has end-stage renal disease, the assistant store manager told her to ask the designated drug testing company about alternate tests.

That day, Jones went to the drug testing facility as directed and was told that while the facility did offer other drug tests, such as a mouth swab/saliva test, the employer had to order the alternate drug test.  Jones then called the assistant store manager, relayed this information and even offered to pay for an alternate test if Wal-Mart would order it.  Instead of ordering an alternative drug test as a reasonable accommodation to Jones’s disability, the EEOC charges that the assistant store manager replied that she had “called the corporate office” and that Jones could not be hired if she did not pass a urinalysis test.  Jones’s application was closed for failing to take a urinalysis within 24 hours.

Such alleged conduct violates the Americans with Disabilities Act, which requires employers to provide a reasonable accommodation, including during the application and hiring process, unless it can show it would be an undue hardship.  The ADA also prohibits employers from refusing to hire individuals because of their disability.

The EEOC filed suit (EEOC v. Wal-Mart Stores East, LP, Civil Action No. 1:14-cv-00862-JKB) in U.S. District Court for the District of Maryland, Baltimore Division, after first attempting to reach a voluntary pre-litigation settlement through its conciliation process.  The EEOC seeks injunctive relief prohibiting Wal-Mart from discriminating based on disability, equitable relief that provides equal employment opportunities for individuals with disabilities, and lost wages, compensatory and punitive damages and other affirmative relief for Jones.

EEOC Philadelphia Regional Attorney Debra M. Lawrence pointed out that this is the third lawsuit the EEOC has filed in the last year against employers who refused to provide alternative drug tests, such as a saliva test or blood test, to applicants who requested and needed that reasonable accommodation.  The other lawsuits involving this issue are EEOC v. Kmart Corporation; Sears Holdings Management Corporation; Sears Holding Corporation, filed in U.S. District Court for the District of Maryland (Civil Action No. 13-cv-02576) and EEOC v. Fort Worth Center of Rehabilitation, filed in U.S. District Court for the Northern District of Texas (Civil Action No. 3:13-cv-1736).

“While an employer may require applicants to undergo a drug test, these lawsuits should send a strong message to all employers that they simply cannot have a blanket, inflexible policy or practice of requiring only a urinalysis test, regardless of the circumstances,” said Lawrence.  “Paying attention to federal disability law and making a minimal effort to accommodate this applicant would have saved everyone a lot of trouble.”

EEOC Philadelphia District Director Spencer H. Lewis, Jr. added, “Wal-Mart evidently thought Ms. Jones was qualified for the position because it made her a job offer.  When it refused to permit her to take an alternative drug screening test and revoked the job offer, the company lost the talent and services of a qualified employee as well as violating federal law.”

The EEOC enforces federal laws prohibiting employment discrimination.  Further information about the Commission is available at its website, www.eeoc.gov.  The Philadelphia District Office of the EEOC oversees Pennsylvania, Maryland, Delaware, West Virginia and parts of New Jersey and Ohio.

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State Intellectual Property Office of China (SIPO) Announces Graphical User Interface (GUI) Related Design Becomes Patentable Subject Matter as of May 1, 2014

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Recently announced by the State Intellectual Property Office of China (SIPO), graphical user interface (GUI) design patent applications will be accepted beginning on May 1, 2014. Revised on March 17, 2014, the amended Patent Examination Guidelines will now include provision for GUI on an electrified device screen as patentable matter, including dynamic or animated GUI. The new standards will exclude applications not related to human-machine interaction, leaving video game interfaces, decoration wallpapers, and web page layouts unprotected under the revised examination guidelines. This change from SIPO comes as increasingly more devices across numerous industries are relying heavily on GUI innovation.

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Robert Greene Sterne

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Sterne, Kessler, Goldstein & Fox P.L.L.C.

Leaders in Higher Education Call for Immigration Reform

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As the immigration reform debate endures in the House of Representatives, leaders in higher education are continuing their call for improvements to the nation’s immigration system.

Most recently, presidents of 28 Catholic and Jesuit colleges and universities united in a fast for immigration reform on Ash Wednesday (March 5, 2014). In doing so, they joined the “Fast for Families” movement, which reignited the immigration debate last fall when the movement’s leaders, supported by many members of Congress and The President, fasted for twenty-two days on the National Mall in Washington, D.C. Students have not been far behind in the campaign to reform the nation’s immigration system. In February, one hundred and fifty students from nine Catholic colleges and Universities held a Student Summit on Immigration Reform.

These are just a few of the continuing calls made by members of the higher education community for Congress to pass immigration reform. In late 2013, leaders of more than one hundred colleges and universities across the United States wrote to their Congressional representatives to support the overhaul of the immigration system.

In many ways, our nation’s colleges and universities are on the front lines of our broken immigration system. Roughly a third of their graduate students in STEM fields are foreign nationals – in some states it is well over half. Leaders in higher education see how often our immigration policies prevent the nation from retaining and capitalizing on these talented individuals and create obstacles to growth.

The higher education community is hopeful that its continuing efforts will prompt the Congressional leadership to renew its efforts to pass meaningful immigration reform.

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Nataliya Rymer

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Greenberg Traurig, LLP

United States Expands Sanctions in Response to Activities in Ukraine, Names First SDNs (Specially Designated Nationals)

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Early March 18, 2014, President Obama signed an Executive Order (E.O.) expanding on E.O. 13660, which was issued on March 10, 2014.  In addition to naming specific persons subject to the restrictions of E.O. 13660, including former Ukrainian President Viktor Yanukovych, the new E.O. expands the sanctions previously announced in response to recent actions of the Government of the Russian Federation in Crimea to include any person who is determined to:

  • Be an official of the Government of the Russian Federation;
  • Operate in the arms or related materiel in the Russian Federation;
  • Be owned or controlled by, or to have acted or purported to act for or on behalf of, directly of indirectly:
    • a senior official of the Government of the Russian Federation; or
    • a person whose property and interests in property are blocked pursuant to this order; or
  • Have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of:
    • a senior official of the Government of the Russian Federation; or
    • a person whose property and interests in property are blocked pursuant to this order.

Effective immediately, all property and interests in property that are in the control of U.S. persons (including foreign branches) will be blocked, and subject persons will be prohibited from entry to the United States.  The complete list of blocked persons is available here.

As the situation in Ukraine continues to unfold and sanctions are expanded, U.S. companies should be particularly cautious in screening transactions in the region and maintaining records.  In addition, companies with affiliates in the European Union should be mindful of changes to EU sanctions that could impact business in the region.

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Letters Of Intent For On-Site Solar Energy Transactions

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An increasing number of retail, office, industrial and warehouse/distribution property owners are utilizing electricity generated by on-site photovoltaic (also referred to as “pv” or “solar”) systems to meet a portion of their properties’ electrical energy needs. The pv systems can be located on the roofs of buildings, in parking fields, on open areas of the property or on two or more of these locations.

One of the most common methods that property owners are using to obtain such on-site solar-generated electricity is to enter into a power purchase agreement, often referred to as a “PPA,” with a solar developer, frequently referred to as a “provider.” In a PPA, the property owner, often called a “host,” provides leasehold or license rights on its property to the provider for the installation and operation of the pv system, and the provider sells the electricity that the pv system generates to the host. The provider generally owns all of the governmental and utility company incentives provided in connection with the pv system, and the host usually owns the net metering rights for the pv system.

However, the negotiation of a PPA frequently takes more time and is more complex than the economic benefits of the PPA to the provider and the host warrant. One of the major reasons for this problem is that the typical initial letter of intent (“LOI”) for a PPA transaction frequently fails to address the issues that often cause the most difficulty when the host and provider attempt to negotiate and finalize the PPA itself. The balance of this article sets forth several of these additional issues that should be included in a PPA LOI and explores methods of ameliorating the conflicts they create between the provider and the host.

Electricity Rate Cap

Many LOIs include a cap on the rate that the provider will charge the host for the electricity that the pv system generates. The cap usually provides that the rate that the provider charges to the host cannot exceed the rate that that host’s regulated local electrical utility, referred to in this article as the “Utility,” or the host’s third-party power supplier, charges the host for electricity at the property in question.

However, in setting this cap, it is important to remember that the Utility charges the host, whether or not the host also has a third-party power supplier, for many items other than the electricity itself, some of which are based on electricity consumption and some of which are static. Accordingly, when the host and provider agree on the rate cap in the LOI, they should clearly state what portions of the Utility and third-party power provider rate are included in determining the cap.

Interconnection Agreement

In order to operate a pv system and to obtain net metering for the excess electricity that the pv system generates, the Utility requires that its customer, usually the host, sign an interconnection agreement. The terms of the interconnection agreement are set forth in the Utility’s tariff and are, hence, non-negotiable. While the host must sign the interconnection agreement, most of the undertakings in the interconnection agreement are the responsibility of the provider under the PPA. Accordingly, the LOI should provide that the host will sign the interconnection agreement and that each party will agree to perform its obligations under the interconnection agreement, while indemnifying the other party for its failure to do so.

Purchase Of Excess Electricity

Pv systems by their nature cannot provide all of a property’s electricity needs all of the time. Additionally, in most jurisdictions, either the Utility or a government regulator limits the size of the pv system, so that it will not generate more than a maximum percentage (for example, 80 percent) of a property’s electricity usage. However, notwithstanding these circumstances, there are times when the pv system will generate more electricity than the property is using, causing the Utility meter to run backwards, referred to as “net metering.” In many jurisdictions, usually by means of the interconnection agreement, the Utility will pay the host or credit the host’s future electric bills for the amount of this excess electricity.

For this reason, most PPAs provide that the host will purchase all of the electricity the pv system generates and own all the net-metering credits. However, before entering into a PPA, a host should review its third-party electricity supply contracts to make sure that they do not contain prohibitions against pv or other on-site systems or do not contain minimum usage requirements. The PPA and LOI should

also address the situation where the property becomes vacant, because most net-metering programs have limitations on how much excess electricity the Utility has to buy.

Electricity Production Guaranty

Many hosts assume, in their financial planning for a property’s operation, that the pv system will generate a minimum amount of electricity in each calendar year. Accordingly, they request a production guaranty. If the host wants a production guaranty, this should be set forth in the LOI. Additionally, the adjustments to the guaranty for weather, system shutdowns and force majeure events should be spelled out.

Taxes

Many jurisdictions provide limited sales and use tax exemptions on the sale of electricity from on-site pv systems and exclusions from increases in real property taxes by reason of their location on a property. However, other jurisdictions do not provide such exemptions or the exemptions are very narrow and do not apply to every situation. Accordingly, the host and provider should determine whether or not a tax exemption exists or applies before they enter into a LOI. If the exemption is available, the LOI should set forth which party is responsible for obtaining it. If no exemption applies, the LOI should set forth which party is responsible for the particular tax.

SNDAs

Most properties are subject to mortgage secured debt. Under the Uniform Commercial Code, as adopted in most jurisdictions, the PPA can provide that the pv system is the personal property of the provider, not a fixture, and thus not subject to the lien of the mortgage on the property. However, most loan and security agreements for most mortgages also provide for security interests in the personal property located at the property. The language in these documents is often extremely broad. Additionally, the provider needs access rights over the property to install and repair the pv system and rights to place the pv system on the property. PPAs generally provide these rights as leasehold or license rights. Finally, many mortgages require mort- gagee consent for the installation of pv systems on the property.

Accordingly, the LOI should set forth whether or not, and at whose cost, the host will obtain subordination, non-disturbance, attornment and lien waiver agreements (“SNDAs”) from all current and future holders of mortgages on the property. Such a provision can provide for the sharing of the cost to obtain the SNDA between provider and host, with a waiver or cancellation option if the cost exceeds a certain amount.

Non-interference With PV System And Property Access

Many retail tenants, in particular, have consent rights over the roofs of their stores, rights to install HVAC systems and antennas on their roofs and exclusive rights over certain parking lots and common areas. The provider cannot allow its pv system to be moved, damaged or shaded. Additionally, the provider needs laydown, storage and parking areas for its installation, repair and maintenance of the pv system. Accordingly, the LOI should address tenant consents and lease and OEA amendments, if required, in order to insure non-interference with the pv system and necessary provider access. The LOI should also address which party is responsible for obtaining the consents and access and non-interference rights and at whose cost. Additionally, the LOI can provide for a non-penalty termination of the PPA if these consents and rights cannot be obtained.

Temporary PV System Relocation, Removal Or Shutdown Most PPAs have a term of 15 to 20 years. During such a time period, roofs often have to be repaired and parking lots resurfaced. The cost to relocate or temporarily remove and reinstall a pv system is significant. Additionally, the cost to the provider in lost electricity revenue and more importantly lost incentive revenue can be substantial. Accordingly, the LOI should set forth which party will bear these costs or how they will be shared. Cost sharing may shift later in the term of the PPA because the provider’s loss of incentive revenues will likely be less and the need for repairs will be more likely to occur.

PV System Purchase Options

If the PPA is going to provide for a purchase option, the LOI should address at what times in the term the host can exercise its option and set forth the method for determining the fair market value of the pv system at the time of the exercise of the option, including what factors will be used in determining the value of the pv system.

Assignment

The LOI should state when, under what terms and to whom the parties can assign their rights under the PPA and whether a party and, if applicable, its guarantor, remains obligated under the PPA after an assignment.

Limitations On Liability

The LOI should specify whether the parties will be responsible for consequential damages, whether there will be absolute limitations on all damages, including indemnification obligations, and the dollar amount of these limitations.

Parental Guaranties

Most pv systems are owned through a single-purpose entity whose only asset is the pv system, and most shopping centers are owned by single-asset, single-purpose entities. Accordingly, the provider and the host should determine in the LOI if they are going to provide parental guaranties to each other and under what terms.

Conclusion

While the list of issues this article covers is by no means exhaustive, the author hopes that it will be helpful in streamlining the negotiation of PPAs.

This article appeared in the March 2014 issue of The Metropolitan Corporate Counsel. The views and opinions expressed in this article are those of the author and do not necessarily reflect those of Sills Cummis & Gross P.C. Copyright © 2014 Sills Cummis & Gross P.C. All rights reserved.

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Kevin J. Moore

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Sills Cummis & Gross P.C.

EEOC & FTC Issue Joint Background Check Guidance

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The U.S. Equal Employment Opportunity Commission (EEOC) and the Federal Trade Commission (FTC) issued joint informal guidance concerning the legal pitfalls employers may face when consulting background checks into a worker’s criminal record, financial history, medical history or use of social media.  The FTC enforces the Fair Credit Reporting Act, the law that protects the privacy and accuracy of the information in credit reports. The EEOC enforces laws against employment discrimination.

The two short guides, Background Checks: What Employers Need to Know andBackground Checks: What Job Applicants and Employees Should Know, explain the rights and responsibilities of both employers and employees.

The agency press releases state that the FTC and the EEOC want employers to know that they need written permission from job applicants before getting background reports about them from a company in the business of compiling background information. Employers also should know that it’s illegal to discriminate based on a person’s race, national origin, sex, religion, disability, or age (40 or older) when requesting or using background information for employment.

Additionally, the agencies want job applicants to know that it’s not illegal for potential employers to ask someone about their background as long as the employer does not unlawfully discriminate. Job applicants also should know that if they’ve been turned down for a job or denied a promotion based on information in a background report, they have a right to review the report for accuracy.

According to EEOC Legal Counsel Peggy Mastroianni, “The No. 1 goal here is to ensure that people on both sides of the desk understand their rights and responsibilities.”

Article by:

Jason C. Gavejian

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Jackson Lewis P.C.