CWS 3.0: November 28, 2012

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Background Screening Adds to Misclassification Risk?

Background screening can be a potential minefield for those looking to extend contingent workforce programs internationally. Employment status is under increasing political scrutiny in many countries so hirers of contingent labor need to start paying closer attention to the impact that background screening may have in terms of increasing the risk of misclassification.

In general terms, European countries afford more rights to individuals with regard to their personal privacy than many other parts of the world. Unlike the U.S., for example, a European’s right to privacy generally trumps an employer’s right to collect information about a potential employee or contractor, and a hirer may not always be entitled to sensitive personal information about a contractor.

In the developing world, laws concerning background screening are still emerging, though the trend seems to be favoring the more restrictive approach to screening commonly found in Europe rather than the less-regulated U.S. approach. For example, China embraced the European model of employment rights with its 2008 workforce legislation.

A key question to consider is whether the end-user should conduct the background screening on agency workers or contractors rather than the agency that is providing the worker. In this respect, companies need to consider the extent to which they should intervene in the selection of contractors beyond competence and expertise. A CW manager’s natural inclination may be to apply the same background screening requirements used for in-house employees to contractors.

Most courts, tribunals or tax authorities would not necessarily assume that the screening of itself was evidence of an employment relationship. However, the more that procedures applied to contractors resemble those that apply to traditional, in-house employees, the greater risk that a court, tribunal or tax authority will regard the relationship as one of disguised employment. Another consideration is that, where the role is in an industry and/or position with a high risk profile (from a financial, national security or safety-critical perspective), the other legal/commercial considerations may well outweigh the employment status risk considerations. Clearly, there is much to consider. The safest option would always be to outsource background screening to a third party such as an MSP or staffing company.

The golden rule is to keep things in proportion and only do what is reasonably necessary. If the extent of the screening appears disproportionate to the requirements of a short-term temporary/contract assignment, then this may affect the legal perception of the role. According to Kevin Barrow, a recruitment process outsourcing and managed service provider specialist at international law firm Osborne Clarke, “If background screening extends into personality profiling involving, for example, taking references as to team-working ability, then the screening may have drifted too far into concepts relevant to long term employment rather than assignment-specific competence, and as such be evidence of employment status.”

Any sensible background screening policy will specify exactly to whom the policy applies, as different positions and different types of employment status will generally require different screening methods. “Some background screening is highly personal to the candidate (such that a replacement would take a long time to find) and therefore effectively makes the hire a ‘personal service’ engagement,” Barrow explains. “There are some employment rights and tax obligations in some countries which are triggered merely by the existence of this personal service element irrespective of whether the worker is genuinely self-employed or the extent of supervision the hirer does or does not exercise over the worker.”

This is a complicated area and legislation is still evolving, especially as it relates to the use of social media as a screening method. As an example of the potential complexity, companies conducting background screening in the U.K. will need to be cognizant of the Employment Rights Act (1996), Equality Act (2010), Human Rights Act (1998), Immigration Asylum and Nationality Act (2006), Rehabilitation of Offenders Act (1974) and the Rehabilitation of Offenders (Northern Ireland) Order (1974), as well as the Trade Union Reform and Employment Rights Act (1993). And the U.K. is by no means the most bureaucratic country in this respect.

Given the need to be fully aware of country-specific employment status, tax and contractual risk issues, companies that do plan to screen potential contingent workers should always ensure they get appropriate legal advice and be sure their staffing partners and/or MSP are in compliance.

When it comes to a global background screening process for temporary agency workers and contractors, there is no simple solution that will suit all companies. As in many aspects of contingent labor provision, it is a matter of establishing the right balance to match your risk appetite.

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