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Winds of change
As 2011 speeds forward, regulators are working at an unprecedented pace to effectuate the Dodd-Frank Act. The Securities and Exchange Commission, Federal Deposit Insurance Corporation, Commodity Futures Trading Commission, Board of Governors of the Federal Reserve System, and the new Financial Stability Oversight Council are collectively responsible for at least 230 rulemakings. Many more are likely to follow from these and other agencies. In 2005 and 2006, the SEC issued, on average, fewer than 10 new substantive rules. It must now issue approximately 100 rules, 60 of them by this July. And the CFTC, which issued a total of 11 substantive rulemakings in 2005 and 2006 combined, must now render nearly 40 by July.
The thrust of Dodd-Frank will be far reaching and have a significant impact on diverse sectors. Although uncertainties will remain, banks, finance companies, commercial lenders, insurers, private equity and hedge funds, the securitization industry, exchanges and clearinghouses, and municipalities, among others, are all likely to feel the consequences of the new law to varying degrees, with costs and benefits depending on sector and size.
Today's business bankers are protecting themselves from second-guessing regulators and are very cautious about making lending decisions, and thus the new world order of banking is bringing changes to the amount of information businesses have to provide in order to obtain credit. Media reports indicate that many bankers are nervous about a federal "super- regulator" having much more power than the multiple federal banking regulators have now individually. And, according to various banking and legal sources, they are conducting massive due diligence on borrowers.
Staying on the forefront of the changes and trends, Scherzer International contacted officials at the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Commission (FDIC) to answer questions about how they view the role of background investigations in the financial industry, including whether regulators look at banks more favorably or scrutinize them less if the bank has a policy of conducting thorough background investigations on borrowers (companies and principals.) The OCC has not yet responded, but a source with the FDIC said that the Commission does not have a clear stand on, or necessarily promote, background investigations, but it is certain that if a bank fails, the FDIC is critical on compromises if proper due diligence was not conducted. |
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Tracking industry's hot topics
Background investigations did not violate contract employees' privacy rights
On January 19, 2011, in NASA vs. Nelson, the Supreme Court ruled in favor of the federal government allowing it to conduct background investigations on contract employees, including asking questions such as whether the individuals had received counseling or treatment for illegal drug use within the past year, and conducting open-ended inquiries of their references. The Court also held that the background investigations did not violate the contract employees' constitutional rights to informational privacy where the inquiries were reasonably related to the government's interest, and where the documents produced were protected from disclosure by the Privacy Act. In the Court's Opinion, Justice Alito noted that "the questions challenged by respondents are part of a standard employment background check of the sort used by millions of private employers" and added that "since 1871, the President has enjoyed statutory authority to "ascertain the fitness of applicants" for the civil service "as to age, health, character, knowledge and ability for the employment sought," Act of Mar. 3, 1871, Rev. Stat. §1753, as amended, 5 U.S.C. §3301(2). Although the Court did not directly address negligent hiring, its dicta may be relied upon for guidance in determining not only certain employers' rights with respect to background checks, but also their responsibilities.
Lawsuit shows legal risks in using information from social media
A settlement was reached January 18, 2011 in a civil rights case C. Martin Gaskell v. University of Kentucky, whereby the University agreed to pay Gaskell and his attorneys $125,000. Gaskell was a leading candidate in 2007 to be the director of a new observatory at the University of Kentucky; however, he was denied employment allegedly in part because of his apparent views on evolution. Media reports and court documents stated that during the candidate selection process, committee members conducted searches on Gaskell on the Internet, and discovered his personal Web site, which contained an article entitled "Modern Astronomy, the Bible, and Creation" among other notes. The sources also reported that "Gaskell had given lectures to campus religious groups around the country in which he said that while he has no problem reconciling the Bible with the theory of evolution, he believes the theory has major flaws. He recommended students read ... critics [of evolution] in the intelligent-design movement."
According to the newspaper The Courier-Journal, the University "acknowledged that concern over Gaskell's views on evolution played a role in the decision to choose another candidate." But it argued that this was a valid scientific concern, particularly with regard to the prospect that "Gaskell's views on evolution would interfere with his ability to serve effectively as director of the observatory. And there were other factors, including a poor review from a previous supervisor and UK faculty views that he was a poor listener."
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Legal experts say that litigation resulting from employer misuse of social media information is likely to rise, at least until more case law is established. And even if the company prevails in such lawsuits, there may be reputational risks as the cases grab the national spotlight.
In February, a National Labor Relations Board judge will rule whether American Medical Response of Connecticut illegally fired a worker after she criticized her boss on Facebook. In what labor officials and lawyers view as a ground-breaking case involving employees and social media, the NLRB stepped in to argue that workers' criticisms of their supervisors or companies on social networking sites are generally a protected activity and that employers are violating the law by punishing workers for such statements.
American Medical denied the board's allegations, stating they are without merit, and that "the employee was discharged based on multiple, serious complaints about her behavior." The company added that "the employee was also held accountable for negative personal attacks against a coworker posted publicly on Facebook..."
In another pending case, filed in Georgia against a school district, a former high school teacher is claiming that she was essentially forced to resign over Facebook photos that showed her drinking alcohol during a European vacation.
And in a case settled in 2009, two workers in New Jersey sued their employer, Hillstone Restaurant Group, after they were fired for violating the company's core values. According to court documents, their supervisors gained access to postings on a password-protected Myspace page meant for employees but not managers. The jury found that the employer violated the federal Stored Communications Act and the equivalent New Jersey law, and awarded the employees $3,403 in back pay and $13,600 in punitive damages. Hillstone appealed before the parties reached an undisclosed settlement.
Labor relations pros caution that before taking any adverse action based on social media postings, the employer should consider whether the information could be construed as a complaint or report of inappropriate or unlawful behavior. This includes, but is not limited to discrimination, harassment, unpaid overtime and other wage violations, or any activities that may trigger an employee's whistleblower protection.
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Update on our featured charity
The Library Project
The work to create a school library for the Richard Merkin Middle School and Gertz-Ressler High School continues! Thanks to donations of time and money, the library now has shelving and furniture, as well as artwork painted by the students. The e-learning component is also well underway, but the greatest challenge lies ahead and that is to fill those shelves with books! If you or your company would like to help by donating for the purchase of books, please visit the RMMS or GRHS library fund site. |
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