Talent Acquisition Compliance

June 20, 2023

Don’t Skip Reference Checking, Even if It Seems Pro Forma

?Past is often prologue, to paraphrase Shakespeare, so employers should verify the past employment of those they’re interested in hiring, particularly since organizations might be liable if they hire someone who later harms someone else, according to Lester Rosen, an attorney and CEO of Employment Screening Resources in Novato, Calif. On June 13, he walked attendees of the SHRM Annual Conference & Expo 2023 in Las Vegas through the process of past employment verification.

This process may seem like an empty exercise because former employers usually only tell prospective employers the start date, end date and job title of the individual, but Rosen said it should be done anyway as part of due diligence in the hiring process. He also recommended ways to try to squeeze out a little more information than is typically given—to wind up, in other words, with more of a reference check than an employment verification.

“Don’t start with the hard stuff,” Rosen said. Instead, ask for the start date, end date and job title, then ask what the job entailed and if the candidate was able to do that. Be sure to document that the prospective employer made these good-faith efforts to check on the applicant’s work history.

Who Should Verify Past Jobs?

Rosen said past job verification is typically done by someone in one of three different roles:

The hiring manager. The advantage of the hiring manager verifying past employment is that they know the position that is being filled. But it’s hard to train managers not to ask illegal questions. And often, they’ll conduct only one interview and think that’s all they need to do—”one and done,” Rosen remarked.
HR. The advantage of HR verifying past employment is that the person likely will do a thorough job, but the disadvantage is HR doesn’t know the position as well as the hiring manager, he said.
A background-checking firm. This may just be a clerical person running through a checklist, and the process could result in a recommendation of who not to hire rather than who to hire, Rosen said.

Responding to Past Employment Verification Requests

Rosen explained that he wasn’t recommending that employers share more than the start date, end date and job title if someone contacts them for employment verification. To tell more risks getting sued for defamation, he said.

He cited one instance where a medical group’s employees gave a glowing review of a former hospital employee who they “knew was a disaster waiting to happen with a drug problem.” A court later ruled that the medical group should not have misrepresented the employee’s record.

When it comes to responding to past employment verification requests, “legally, silence is golden,” Rosen said.

He recommended employers use the following strategies if asked for a reference:

Have a written policy, and be consistent.
Keep all information with a central source.
Clearly document who is asking and what information is given and by whom.
Get written releases from employees, but be aware this won’t protect employers from defamation claims if they’re brought.
If there is a lawsuit, give only basic information to inquiring parties to avoid claims of retaliation.

Occasionally, an employer will give a negative reference for someone. If that’s going to be the case, Rosen recommended:

Informing the employee at their exit interview that the employer will give a negative reference so it doesn’t come as a surprise.
Making sure the information staff shares with a prospective employer is correct.
Stating facts to the prospective employer and avoiding conclusions.
Including favorable facts.
Making sure the employee’s personnel file is accurate.

Tread Carefully

“Be really careful about contacting a person’s current employer” without their express permission, Rosen said, noting that this could result in the person being fired. If the prospective employer then decides not to hire the applicant, they may sue as a result.

May 16, 2023

How to Prepare to Update I-9s Completed Remotely

?Attorneys recommend organizations that have to update hundreds—sometimes thousands—of remotely completed I-9s should create an action plan which includes communication and training.

Employers that began conducting virtual employment eligibility verifications during the pandemic should begin physical inspections of completed I-9 forms as soon as possible in anticipation of the Aug. 30 deadline.

U.S. Immigration and Customs Enforcement (ICE) announced that the pandemic-era flexibility extended to the Form I-9 process is coming to an end July 31, followed by a 30-day grace period to comply with physical Form I-9 document inspection requirements. This means employers that were conducting the I-9 process virtually over the last three-plus years will be required to conduct a physical inspection of original documents related to those prior remote I-9 completions by Aug. 30.

“Since March 20, 2020, there has been an exception to the in-person I-9 verification requirements, allowing documentation to be virtually reviewed for certain remote employees,” said Amy Peck, an attorney in the Omaha, Neb., office of Jackson Lewis. “For at least a year, the Department of Homeland Security and immigration attorneys have been encouraging employers who have been using the temporary flexibility to prepare for the end of that program. The White House announced that the COVID-19 Public Health Emergency would end on May 11, so this announcement is not wholly unexpected. Now, with less than three months to go, all employers must prepare for compliance.”

Having an Action Plan

First, employers will need to identify all the I-9 forms requiring updates, said Dawn Lurie, senior counsel in the immigration practice group of Seyfarth’s Washington, D.C., office. “How you do this depends upon how your company stores I-9s—paper or electronically—and how you organize your system. Hopefully, you’ve been tracking your completed ‘COVID’ I-9s from the start.”

Lurie recommended creating an action plan that includes:

Communicating with the entire workforce, outlining timing for compliance, and setting repercussions for not cooperating.
Deciding whether to perform the physical inspection of documents at the worksite or use an offsite third-party authorized representative to complete in-person inspections.
Training employees on conducting the physical document inspections and how to update I-9 forms. “Ensure they are aware of the nuanced rules surrounding documents not found on the List of Acceptable Documents and automatic extensions of employment authorization documents,” she said. It’s also important to remember that employees can present their choice of eligible identity and work authorization documents when updating the forms—they do not need to present the same documents they initially presented.

The virtually completed I-9s should have been annotated in the Additional Information field with “COVID-19” as the reason for the delayed in-person inspection, Peck said. “This must be updated by annotating ‘documents physically examined’ with the accurate date and the name of the person who conducted the review in Section 2 of the I-9.”

Lurie said that how you update your I-9 forms will depend on whether you use paper I-9s or an electronic I-9 system. “Each electronic I-9 vendor, hopefully, offers a specific workflow to update COVID I-9s,” she said. “Companies using electronic I-9s should work with their vendor to understand how to identify remote COVID I-9s in the system, confirm a workflow exists to update these remote COVID I-9s with a physical inspection and ensure the system tracks the completion of updates to remote COVID I-9s.”

Future of Virtual Review Is Uncertain

ICE plans to publish a final rule later this year that would clarify when alternatives to in-person inspection of identity and employment authorization documents in the Form I-9 process are permissible. A proposed rule was published in August 2022.

May 2, 2023

Court Dismisses DOJ Case Targeting No-Poach Agreement

?A federal court ruling on April 28 offered some reassurance to HR professionals and employers that use no-poach agreements.

The U.S. District Court for the District of Connecticut dismissed an antitrust case, U.S. v. Patel, which involved a jet-engine manufacturer that had a no-poach agreement with several outsourcing firms that competed for the manufacturer’s projects.

“While we remain concerned about the risk of applying antitrust laws too broadly, this decision is an encouraging signal,” said Emily M. Dickens, SHRM chief of staff and head of public affairs. “HR professionals depend on a high degree of certainty and predictability to carry out their responsibilities. The court’s decision to dismiss the charges in U.S. v. Patel provides some relief and clarity on the application of antitrust laws to everyday business practices.”

SHRM previously filed a friend-of-the-court brief because it was concerned about the government criminalizing actions by HR professionals and business executives that traditionally have been viewed as normal business practices.

“There are a myriad of legitimate business considerations that are necessary to having certain procedures related to hiring in place, such as workforce continuity, minimizing disruption, encouraging collaboration among business partners, investment in employees and increased hiring in the market to fulfill the client’s demands,” SHRM stated.

Background

In general, it’s illegal for a group of businesses to agree to suppress wages or not compete for certain employees, even if their motivation is to reduce labor costs, according to federal guidance on the topic.

The U.S. Department of Justice (DOJ) brought criminal charges against a group of Connecticut HR executives for restricting the hiring and recruiting of aerospace engineers. The grand jury indictment alleged that six executives in the aerospace industry conspired to uphold illegal no-poach agreements between their companies from 2011 to 2019 in violation of the federal Sherman Act, a federal antitrust law that outlaws agreements that unduly constrain trade or commerce.

The indictment claimed that a manager chastised suppliers who recruited another company’s employees and that he threatened to punish those suppliers by taking away access to projects. It also said the group of companies recognized the mutual financial benefit of this no-poach agreement, including reducing labor costs.

Rule of Reason

In some situations, the rule of reason can be applied to allow no-poach agreements. Mergers, acquisitions and large collaborative projects are examples of when the rule of reason may apply. SHRM has said that no-poach agreements are sometimes lawful when attempting to partner with multiple staffing firms for the same project.

The DOJ argued that the rule of reason didn’t apply in this case because the no-poach agreement constituted a horizontal market allocation, where competitors at the same market level structure a labor market in order to minimize competition. However, the corporate executives said it wasn’t a horizontal market allocation because it involved a vertical commercial relationship between the manufacturer and its outsourced providers.

The court concluded the no-poach agreement was not illegal because the hiring restrictions frequently changed and allowed for exceptions, which suggests that often hiring was permitted, sometimes on a broad scale. “No reasonable juror could conclude that there was a cessation of meaningful competition,” the court stated.

The analogy between market allocation and no-poach agreements sometimes hasn’t held up in court. The DOJ has brought several cases that allege per se illegal no-poach activity, but has had a few high-profile court losses, noted Jessica Maurer, an attorney with Mayer Brown in Chicago. She said this is not the first or the last criminal case that will be seen in this area of the law in the future.

“I think the DOJ’s lack of success in these criminal prosecutions shows that judges and juries have a hard time seeing [the analogy] in practice,” said Brandon Bigelow, an attorney with Seyfarth in Boston.

To avoid federal agency enforcement actions, employers should make sure HR professionals get training to stay updated on changes in federal law.

It’s a good idea to include antitrust training in their programming for senior executives, sales and human resource staff, so they are aware of potential traps for the unwary, Bigelow said. “Forewarned is forearmed.”

May 1, 2023

DOJ Case Targeting No-Poach Agreement

?A federal court ruling on April 28 offered some reassurance to HR professionals and employers that use no-poach agreements.

Background

Rule of Reason

To avoid federal agency enforcement actions, employers should make sure HR professionals get training to stay updated on changes in federal law.

April 4, 2023

Updated FCRA Consumer Rights Notice Is Required, Now Available

?The Consumer Financial Protection Bureau (CFPB) released an updated “Summary of Your Rights Under the Fair Credit Reporting Act” notice for employers to use before conducting background checks. The agency has provided a grace period until March 20, 2024, for mandatory compliance.

The updated notice that employers and screening firms should begin using contains nonsubstantive changes, explained Michelli Rivera, an attorney in the Atlanta office of Fisher Phillips. “For example, … formatting corrections and updated contact information for the CFPB and other federal agencies,” she said.

Even though the changes are minor, the new notice must be provided to applicants and employees when conducting background checks and when taking an adverse employment action in response to a background check, in compliance with the federal Fair Credit Reporting Act (FCRA).

“Before employers can take an adverse employment action, based in whole or in part on information in a background-check report, the FCRA requires employers to follow a pre-adverse/adverse action process,” Rivera said. “During this process, employers are required to provide applicants and workers with a copy of their report, a summary of their rights under the FCRA and other FCRA information.”

The latest version of the notice will replace the version published in October 2018. English and Spanish versions are available here.

“We recommend that you begin using the updated notice as soon as possible to get ahead of the compliance deadline and ensure that applicants and workers are provided the correct contact information for the agencies listed in the notice,” Rivera said.

“Notably, you do not need to provide the updated notice to anyone who you have already given the prior notice. You should simply ensure that you are using the most current version of the notice moving forward.”

March 8, 2023

FTC Extends Comment Period on Proposed Noncompete Rule

?The Federal Trade Commission (FTC) has extended its public comment period until April 19 on its proposed rule to ban noncompete clauses. We’ve gathered articles on the news from SHRM Online and other outlets.

Comment Deadline Had Been in March

Prior to its extension, the comment deadline on the proposed rule had been March 20. FTC Commissioner Christine Wilson said she would have supported extending the public comment by 60 days rather than 30 “given that the proposed rule is a departure from hundreds of years of precedent and would prohibit conduct that 47 states allow.”

(FTC)

SHRM Has Raised Concerns About Proposed Rule

Following the issuance of the proposed rule, Emily M. Dickens, chief of staff and head of public affairs for the Society for Human Resource Management (SHRM), said that the proposal was overly broad and could potentially harm businesses that depend on noncompetes to thrive. She cited very small, emerging industries where crucial know-how cannot be safeguarded through nondisclosure agreements alone. Although “there are jobs where it makes no sense to have noncompetes,” Dickens said, “this kind of blanket ban is going to stifle innovation.”

(SHRM Online)

Health Care Opposition

The American Hospital Association has come out against the FTC’s proposed noncompete rule. “Congress has not granted the FTC the authority to act in such a sweeping manner,” wrote the association’s General Counsel and Secretary Melinda Reid Hatton to FTC Chair Lina Khan. “Even if the FTC had the legal authority to issue this proposed rule, now is not the time to upend the health care labor markets with a rule like this.”

(Fierce Healthcare and American Hospital Association)

Reason for and Impact of Proposed Rule

When the proposed rule was released, Khan said that noncompete clauses “block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand.”

In a press release, the agency further stated that it believes noncompete clauses negatively affect competition in labor markets by suppressing wages and labor mobility. The clauses also, according to the agency, prevent new businesses from forming, stifling entrepreneurship and hampering innovation.

(Fisher Phillips and FTC)

Comment Period

The comment period provides an opportunity for stakeholders to voice concerns about the FTC’s proposed rule. More than 16,000 comments have been received to date and nearly 9,000 have been posted.

(JD Supra and Regulations.gov)

January 6, 2023

Feds Push to End Noncompete Agreements

The Federal Trade Commission (FTC) released a proposal on Jan. 5 to ban noncompete agreements that restrict mobility among employers. Some employers and attorneys are concerned the rule could hamper retention efforts and their intellectual property.

In the Jan. 5 proposal, the FTC said noncompetes constitute an unfair method of competition and therefore violate Section 5 of the Federal Trade Commission Act. It concluded that noncompetes suppress wages, stifle innovation and make it harder for entrepreneurs to start new businesses. It estimates that ending noncompetes would increase American workers’ earnings between $250 billion and $296 billion per year.

Under
the proposal, employers could not ask paid or unpaid employees, independent
contractors, interns, volunteers, or apprentices to sign a noncompete agreement. The proposed rule would apply retroactively, so employers would have to give notice to employees and former employees that existing noncompete agreements have been rescinded within 45 days of the rule’s implementation.

“There is at least a reasonable likelihood that the FTC will adopt this rule in some shape or form in 2023,” said Mark Goldstein, an attorney with Reed Smith in New York City. “It would effectively change how many, if not most, U.S. companies operate from the perspective of retaining key talent and safeguarding against employees taking the company’s ‘secret sauce’ and duplicating it right across the street.”

“The FTC’s proposed new rule is of tremendous significance,” said David Woolf, an attorney with Faegre Drinker in Philadelphia. “Although there has been talk about noncompete abuses for years, particularly the last few years, that talk has focused almost exclusively on curbing those abuses, for example around banning the use of noncompete restrictions for low-wage workers. In its proposed rule, the FTC goes further than 47 states, which to date have been the legislative bodies addressing the proper scope of non-competition restrictions.”

Broad Application

Emily Dickens, chief of staff and head of public affairs for the Society of Human Resources Management, said the proposed FTC rule is overly broad and could potentially harm businesses that depend on them to thrive. She cited very small, emerging industries where crucial know-how cannot be safeguarded through non-disclosure agreements alone. Although “there are jobs where it makes no sense to have noncompete,” Dickens said, “this kind of blanket ban is going to stifle innovation.”

Employers may need to consider whether certain clauses in their employment agreements function as a noncompete clause in practice.

“The ban is drafted broadly not only to prohibit pure noncompetition clauses, but also agreements that are de facto noncompete clauses. It includes the examples of an overly broad [nondisclosure agreement], as well as a provision that requires repayment of training costs where the repayment amounts are not reasonably related to the costs of the employer incurred for training the worker,” said Christopher Banks, an attorney with Crowell & Moring in San Francisco. “The examples of a de facto noncompete do not include non-solicitation or non-servicing clauses, i.e., clauses that prohibit doing business with certain customers, although arguably would be within the ambit of the rule’s prohibitions. This will be a major source of litigation.”

The commission “sweeps up in its ban legitimate, pro-competitive restrictions, such as restrictions applicable to senior executives and tech workers, as well as other situations where the employee receives a tangible benefit for agreeing to the non-competition restriction,” Woolf said.

Attorneys also raised concerns that the agency had exceeded its authority.

“Traditionally this would fall under the purview of the Department of Labor,” said Lauri Kavulich, an attorney with Clark Hill in Princeton, N.J., and Philadelphia. “The fact that the FTC is stepping into employment issues under the antitrust umbrella is out of the ordinary.”

The FTC described noncompetes as “a widespread and often exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses. By stopping this practice, the agency estimates that the new proposed rule could increase wages by nearly $300 billion per year and expand career opportunities for about 30 million Americans.”

State Laws

California, Colorado, Illinois, Maine, Maryland, New Hampshire, North, Dakota, Oklahoma, Oregon, Rhode Island, Virginia and Washington have already banned or restricted the use of noncompete agreements, but the FTC proposal would make a nationwide policy.

“Many states already have rendered unenforceable or outlawed non-compete agreements, however, it is a patchwork of laws national employers have to navigate,” said Kavulich. “Other restrictive covenants, such as nonsolicitation of employees and customers/clients and confidentiality agreements/trade secrets are still enforceable, and in light of this, employers need to make sure they are protecting their employees, customers and confidential information if noncompetes are essentially outlawed, and an employee can now go to a competitor. This will be the most pressing issue for employers after compliance with this rulemaking by rescission of noncompete agreements.”

The public and employers can submit comments on the proposal within 60 days after the Federal Register publishes the proposed rule. The rule would take effect 180 days after the final version is published. However, “there is likely to be a significant wave of litigation challenging this rule,” said Marlene Williams and Scott McLaughlin, attorneys with Ogletree Deakins in Houston.

January 4, 2023

Challenge to ‘No-Hire’ Agreement Proceeds

?Takeaway: The appeals court’s decision in this case highlights the caution that companies—whether operating as part of a franchise system or as competitors—must exercise in entering into formal or informal agreements relating to the retention of employee talent. In the current labor market, it may be tempting for competing businesses to enter into informal agreements or understandings to prevent staff departures, as well as rehiring of former employees. However, it is not uncommon for federal and state regulators to investigate arrangements that may implicate the Sherman Act or similar state antitrust statutes.

?The 11th U.S. Circuit Court of Appeals found that plaintiffs’ claims under the Sherman Act could proceed because the defendants’ “no-hire” agreements amounted to “concerted action” in restraint of trade under the act.

The majority of Burger King Corp. (BKC) restaurants are independently owned franchise establishments, while the remainder are corporate-owned restaurants. BKC grants franchisees a license in exchange for a franchise fee and a percentage of royalties generated from operations. In addition to the franchise fee and royalties, Burger King requires franchisees to agree to various nonfinancial obligations set forth in a franchise agreement.

Between 2010 and 2018, such franchise agreements contained, among other obligations, a provision that provided, in part, that “[n]either BKC nor franchisee will attempt … to entice or induce, or attempt to entice or induce any employee of the other or of another franchisee of BKC to leave such employment, or employ such employee within six months after his or her termination of employment with such employer, except with the prior written consent of such employer.”

The plaintiffs, all of whom worked for various Burger King franchisees between 2010 and 2018, filed suit against BKC and related entities in the U.S. District Court for the Southern District of Florida, alleging that the no-hire agreement constituted a violation of Section 1 of the Sherman Act. Section 1 of the act prohibits any “contract, combination in the form of trust or otherwise, or conspiracy” that creates a restraint on trade or commerce. BKC and its related entities filed a motion to dismiss the plaintiffs’ complaint, arguing that BKC and the various franchisees were not separate actors for purposes of the Sherman Act and thus were not capable of engaging in concerted action for antitrust purposes. The district court granted the motion.

On appeal, the 11th Circuit began by noting that the relevant analysis for determining whether the act applies to a particular situation is whether the “arrangement” at issue is between separate economic actors and whether such actors are capable of independent decision-making. The court also noted that the relevant inquiry is not whether the actors engage in decision-making for all business purposes, but only whether the decision giving rise to alleged antitrust violations involved concerted decision-making and action.

Applying these principles to the no-hire agreement between BKC and its franchisees, the court observed that, “though they certainly have some economic interests in common, each separately pursue their own economic interests when hiring employees.” Further, the franchise agreement itself made clear that competition could—and indeed did—exist among BKC and the franchisees with respect to labor.

In sum, the court concluded that “there’s just no question that Burger King and its franchisees compete against each other and have separate and different economic interests.” The court also noted the fact that each franchisee is an independent decision-maker with respect to hiring decisions. Given the foregoing, the court reversed the district court’s dismissal of plaintiffs’ complaint and concluded that the case could proceed.

Arrington v. Burger King Worldwide Inc., 11th Cir., No. 20-13561 (Aug. 31, 2022).

Jonathan E. O’Connell, SHRM-SCP, is a lawyer with Odin, Feldman & Pittleman PC in Reston, Va., where he focuses his practice on counseling employers regarding human resources matters.

October 11, 2022

Social Security No-Match Letters Return

?International law firm Littler has reported that after a COVID-19-related hiatus, Social Security no-match letters are back.

“During the early months of the pandemic, the Social Security Administration [SSA] took a break from issuing no-match letters to employers,” said Shireen Karcutskie, an attorney in Littler’s Miami-area office. “It appears that toward the end of 2020, however, the SSA has resumed this practice.”

In 2019, the SSA resurrected the practice of sending out employer correction request notices, also known as no-match letters, to notify employers about discrepancies between a worker’s Social Security number and government records. The agency sent out the notifications with regularity from 1993 through 2012, when the practice was stopped due to various complaints and lawsuits.

“No-match letters notify employers of a discrepancy in an employee’s information between the SSA’s records and the employee’s Form W-2,” Karcutskie said. “The no-match letters request employers to review the discrepancies through a designated SSA online portal, inform employees of the no-match and submit corrected information on a Form W-2c within 60 days. If the discrepancy is not addressed, employers could face serious immigration compliance issues.”

Hundreds of thousands of employers received the notifications in 2019.

The return of the no-match letters set off concerns about a range of compliance issues and fears that employers will fire workers they believe might lack work authorization.

“It’s fairly short, seemingly benign, and often directed at your payroll or tax department, but make no mistake about it—this letter can open a Pandora’s box full of I-9 compliance issues, with no easy answers,” said John Fay, president of the LawLogix division of Hyland Software, a company headquartered in Phoenix that specializes in cloud-based I-9, E-Verify and immigration compliance services.

It’s important to know that the letter does not mean that an employee is not authorized for employment and an employer cannot use the letter alone as a basis to take adverse action such as suspending, firing or discriminating against an employee, just because his or her Social Security number or name does not match SSA records, said Ali Brodie, a partner and co-chair of the Immigration Practice at Fox Rothschild based in the Los Angeles and Denver offices.

Mismatches could result from a variety of reasons, including typographical errors, name changes, fraud and identity theft.

[SHRM members-only HR Q&As: What action should employers take in response to Social Security no-match letters?]

Employer Responsibilities

There are four main compliance areas to consider:

The need to correct the records mismatch.
Tax reporting obligations.
Anti-discrimination provisions.
Immigration and I-9 requirements.

“No-match letters have had a long and somewhat complicated relationship with immigration and I-9 compliance,” Fay said. “The former Immigration and Naturalization Service and its successor, Immigration and Customs Enforcement (ICE), have historically told employers that receipt of one of these seemingly innocuous letters actually creates an affirmative duty to investigate the reason for the discrepancy. ICE does not want employers to ignore what could be telltale signs that an employee is actually not authorized to work. The agency has even warned that failure to follow up with an employee in certain circumstances could lead to a finding of constructive knowledge of unauthorized employment.”

But acting on no-match discrepancies is not that simple. The Immigrant and Employee Rights section of the Department of Justice has stated that receipt of a no-match letter on its own does not mean that the employer has constructive knowledge of unauthorized employment, and taking action “may be considered an unfair documentary practice or evidence of discrimination based on citizenship, national origin or immigration status,” Fay said.

“Employers could potentially face discrimination lawsuits for being overly zealous in responding to no-match letters,” said Becki Young, a partner at Grossman Young & Hammond in Silver Spring, Md. “For this reason, it is recommended that employers establish and implement a written policy and procedure for responding to no-match letters and for maintaining records of their responses. Employers should be careful to apply the policy consistently to all employees to avoid claims of discrimination.”

Steps for Employers

Fay outlined the following steps for employers that receive a Social Security no-match letter:

Register online with the SSA’s business services system to find out which workers have discrepancies in their SSA files.
Inform affected employees of the no-match notice and ask that they confirm the name and Social Security number reflected in their employment records.
Advise the workers to contact the SSA to correct their SSA records. Give employees a reasonable period of time to do this.
Stay in contact with the affected workers to learn and document the status of their efforts to address and resolve the issue.
Review documents the employee chooses to offer that show the mismatch is resolved.
Submit any employer corrections to the SSA.

Fay reminded employers not to attempt to reverify the employee’s employment eligibility by requesting the worker to complete a new Form I-9, produce specific I-9 documents to address the mismatch or require verification of a resolution with the SSA.

Karcutskie added that organizations should prepare for how they will respond to no-match letters, including who will be assigned to respond, how the process will work and what records will be kept. Employers should also consider self-auditing their I-9 files, which can help them identify and correct discrepancies, and discussing the process with immigration counsel, she said.

October 6, 2022

How Can Employers Best Use the Work Opportunity Tax Credit?

The nonprofit investigative news outlet ProPublica recently published a scathing report on the use—or, in its estimation, misuse—of the federal Work Opportunity Tax Credit (WOTC). In light of that investigation, employers and staffing agencies may be wondering how to properly take advantage of the tax credit.

When Congress approved the Work Opportunity Tax Credit in 1996, lawmakers intended to spur the full-time hiring and retention of workers from disadvantaged backgrounds. Instead, the $2 billion program is doling out hundreds of millions of dollars per year in subsidies for temporary jobs, the ProPublica investigation found. ProPublica’s analysis of WOTC applications in nine states showed that almost one-fourth of the jobs certified for the tax credit between 2018 and 2020 were with staffing agencies.

[SHRM members-only resource: Work Opportunity Tax Credit Express Request]

In the federal government’s 2021 budget year, more than 2 million WOTC certifications were issued. For most eligible employees, the maximum tax credit is $2,400.

So how can employers and staffing agencies capitalize on the WOTC without running afoul of the system?

Washington, D.C., employment attorney Ayesha Whyte said it’s critical to fill jobs with candidates “who have consistently faced barriers to employment.”

“It should not be used just for employers to cut their tax liability,” Whyte said. “Employers should earnestly seek to employ the chronically unemployed and give them an opportunity to learn job skills and give them long-term employment.”

To receive the minimum tax credit (representing 25 percent of a worker’s wages), a company need only employ a worker for 120 hours, or three weeks of full-time work, ProPublica pointed out. Employers can qualify for the maximum credit—40 percent of a worker’s wages, up to $2,400—after only 10 weeks.

Employers and staffing agencies that do plan to claim the WOTC must gather the required information from workers, said Eric Sarver, a New York City attorney who specializes in labor and employment law.

“It is vital for staffing firms and employers to make sure that prospective employees or applicants know that they are not required to provide this type of information to any employer. However, if an employee is amenable to the WOTC, then the employer must obtain certification for that individual,” Sarver said.

For instance, an employer or staffing agency must gather proof from the state workforce agency that a future employee is a member of one of the WOTC’s target groups, such as military veterans and formerly incarcerated people, according to Sarver. In order to secure that proof, IRS Form 8850 must be completed and submitted to the workforce agency. He noted that additional paperwork might be required.

Certified public accountant Paul Miller, managing partner of Woodland Hills, Calif.-based accounting firm Miller & Co. LLP, added that an employer or staffing agency must be consistent “in applying ethics and fairness when hiring candidates that fall within one of the 10 designated WOTC categories of workers.”

Furthermore, an employer or staffing agency must keep accurate records for every WOTC-eligible employee, Miller said.

“The biggest challenge for employers may simply be meeting the certification and filing requirements,” he said.

For their part, staffing agencies and organizations are pushing back against the findings of the ProPublica investigation. One of those agencies, TrueBlue, placed about 615,000 workers in 2021.

ProPublica said TrueBlue, which owns the day-labor firm PeopleReady, reported receiving tax credits—described as being “primarily” from the WOTC—worth $114 million over the past 10 years. This amounts to 29 percent of its pretax income. Those credits slashed TrueBlue’s federal income taxes by 69 percent.

A spokesman for TrueBlue praised the WOTC as a “sound federal program” that extends a “second chance in life” to people who otherwise might be unable to get a job. The temporary jobs that TrueBlue provides thanks to WOTC “offer more than a paycheck,” he added.

“These jobs create unique opportunities to learn and strengthen skills as well as provide a path to permanent employment for many who otherwise may face challenges entering the workforce,” the spokesman said. “The ability to do this is critical to our mission of connecting people and work and [to] our commitment to nondiscriminatory employment opportunities for all.”

Despite the humanitarian intentions of companies like TrueBlue, Whyte noted that some employers and staffing agencies exploit the WOTC program for their own benefit.

Employing a WOTC-qualified person for only one year gives an employer “just enough time to secure the tax credit and then terminate and replace them with another hire to receive the tax credit year after year. This would save an employer approximately 40 percent of an employee’s salary every year,” Whyte said.

John Egan is a freelance writer based in Austin, Texas.