Quirky Question # 26, Background Checks

Quirky Question # 26:

We are desperately trying to hire someone for a position we have had open for far too long.  Perhaps our standards have been too high because we haven’t been able to find the right candidate.  I recently interviewed a very impressive candidate and would like to extend him an offer.  I have not been successful in tracking down some of his references.  Moreover, there appear to be a few gaps in his employment history.  My intuition tells me to slow down but I do not want to lose this applicant.  How important is it to pin down all of the relevant background information?

Dorsey’s Analysis:

I’d answer your question with one of my own: What’s your tolerance for risk?

A few other questions flow from my first inquiry. Would you be putting any members of the public at risk if you hired this applicant and he did not turn out to be the person you expected? For example, will he be operating dangerous machinery? Or, alternatively, will he, in his role as your employee, have unsupervised contact with the public? Yet a third example – will he have access to your customers’ financial data or manage any customer funds? As these questions are intended to demonstrate, there are many different types of jobs that potentially expose the public, and correspondingly, your company, to risk.

Putting aside for a moment the public interest, a corollary inquiry is whether you would be putting the company at risk if he engaged in any wrongful conduct? For example, will the employee have access to corporate funds? Will he be a spokesperson for the company? Will he have independent authority to enter into contractual agreements that legally bind the company? Will he be entrusted with serving any of the company’s critical accounts? Again, I ask these questions to illustrate that there are a variety of different types of positions where non-performance (or worse, misfeasance) could jeopardize important corporate interests.

Lastly, thinking solely of your selfish interests, what would be the ramifications for you personally of a problematic hiring decision? Would your job be at risk if it turned out that he was not the person he represented on his resume? Would your job be at risk if he injured a member of the public, or a co-worker? Would your job be on the line if he damaged an important customer relationship?

If your answers to any of these questions increase your anxiety, I’d suggest you rely on your intuition, hold off on this hiring decision, and wait until you are able to get additional information. Worst case scenario – you lose a talented applicant whose resume checks out and a position that has been open for some time (admittedly longer than you would like) remains unfilled. Best case scenario – your company avoids a disaster.

The legal theory that you need to be attuned to is a claim for negligent hiring. The basic notion behind this theory is that companies are obligated to exercise an appropriate standard of care when making hiring decisions. The appropriate standard will depend on the nature of the position and the risks the individual poses to members of the public or co-employees. To use a fanciful example, if you were hiring a person with the responsibility for guarding weapons-grade uranium, your due diligence better be damn thorough. Conversely, if you are hiring someone to cut the lawn in front of your company headquarters, perhaps your background checks could be a bit less rigorous.

The seminal Minnesota case on this subject, Ponticas vs. K.M.S. Investments, 331 N.W.2d 907 (Minn. 1983), was decided 25 years ago. The fact pattern of Ponticas was troubling. A company was hiring someone for the job of resident manager for an apartment complex. The person hired for that job would receive a master key for approximately 200 apartments. The company hired someone without making any effort to check the references he listed on his resume. As it turned out, the references he listed were family members (mother and sister). In addition, the company making the hiring decision failed to explore the multi-year “gaps” in the applicant’s employment. As it turned out, the gaps reflected time the applicant spent in prison.

Without any of this information, the company hired Dennis Grafice, a 25-year old with a troubled past, including sporadic employment, criminal convictions for multiple offenses, and incarceration. Not long after he had been hired, Grafice used the master key he had been given to access a tenant’s apartment and sexually assaulted a woman whose husband was out of town on business. She sued the company on the ground that it had been negligent in hiring this individual. The Minnesota Supreme Court accepted the plaintiff’s legal theory, stating “an employer has a duty to exercise reasonable care in view of all the circumstances in hiring individuals who, because of their employment, may pose a threat of injury to members of the public.” The court emphasized that companies needed to perform “reasonable investigations” into an applicant’s background, a concept that took into consideration the nature of the position and the risk to the public.

Although negligent hiring cases decided since Ponticas, whether in Minnesota or other jurisdictions, often have involved hiring decisions that have placed dangerous individuals in contact with the public, these are not the only contexts where this legal theory has been accepted. For example, one case involved a hospital’s retention of an individual to coordinate a kidney transplant unit. This individual, who could not read medical charts, was unaware that one of the kidneys implanted in a patient was cancerous, ultimately leading to the death of the recipient. Another case involved an individual who kept loaded weapons at a Boy Scout camp, one of which was fired and accidentally struck a child. Other cases involve situations involving ex-felons who were entrusted with customer funds, only to later embezzle those monies. Moreover, we now live in a time when technological advancements can exacerbate risks, as the $7 Billion loss at the French Bank, Societe Generale, in January 2008, all attributable to the deception of one rogue trader, dramatically illustrates.

So, trust your intuition. Speak with the references the applicant has listed on his resume. Find out their relationship to the applicant. Determine what the applicant was doing during the “gaps” on his resume. Maybe there is an innocent explanation for these breaks in his employment history – perhaps he was a very happy and successful stay-at-home dad. You need to find out whether the explanation is innocent or something else. Until then, don’t make the offer. There will always be another qualified candidate for the position you are trying to fill.

Dorsey & Whitney

Dorsey is a business law firm, applying a business perspective to clients' needs. We make it our first priority to know the context in which you do business - your market, your competitors, your industry.

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