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FTC will review legality of employee theft databases

Apr 11, 2013 Quinn Thomas

The practice of itemizing cases of identity theft has been around for some time. Major corporations such as Target and CVS subscribe to these databases according to The New York Times. This service has been implemented into many of the background screenings companies conduct when hiring new employees.

The issue is a major one for U.S. businesses, as employee theft accounts for $50 billion in losses per year according to the Department of Commerce. However, the use of these databases has come under scrutiny with the Federal Trade Commission, which is set to examine whether these services adhere to the stipulations outlined by the Fair Credit Reporting Act (FCRA).

Depending on the outcome, there could be huge implications for the 96.6 percent of the U.S. retail firms that use background checks to investigate job applicants, according to the National Retail Federation. More interestingly, close to 40 percent of those companies have their loss prevention teams perform the checks, showing just how important controlling theft is for American businesses.

Part of the issue, the New York Times noted, is that most employees are unaware that they are part of these databases. Litigation against many of these theft archiving firms is ongoing as many people claim they've been turned down for jobs because of their inclusion on lists of in-house thieves.

However, the need and desire for corporations to control losses has led to them monitoring employee theft more carefully.

Follow the law
According to legal firm Perkins Coie, there are several potential legal issues that the database operators and the companies that use them could face. The most obvious one is defamation. If a report they hold is inaccurate, they could easily face a lawsuit. Though employee theft history monitoring is an emerging trend for companies that execute background checks, there is little knowledge of how the process works and therefore it may be difficult for novices to ensure it is totally legal.

Making sure any report a company provides to a theft database is crucial in avoiding litigation Perkins Coie says. Also, making sure any such service that businesses employ adheres to FCRA standards is important. Even if inaccurate information was provided as a result of incompetence from another party, the company that uses that data is still legally responsible for its actions.

Sticking to analyzing consumer credit reports and other information that can provide a comprehensive profile of a potential hire may be the best practice for businesses conducting background checks. However, if employee theft is a major concern, businesses need to make sure FCRA standards are strictly followed.