Best Practices for Prevention and Defense of Negligent Hiring, Retention and Supervision Claims

June 11, 2021 (41 min read)

By: Darryl G. McCallum, Shawe Rosenthal, LLP

This article addresses the potential for negligence liability that employers face when they hire and/or retain employees who end up causing injury to third parties or other employees.

UNDER MOST STATES’ LAWS, AN EMPLOYER HAS AN obligation to use reasonable care in selecting and retaining employees. An employer violates this duty when it hires or retains an employee that it knows or should know is unfit or incompetent to perform the work required.

Avoiding Liability for Negligent Hiring or Retention

It is important to advise employers to perform reasonable investigations of their employees upon hiring to ensure that each employee’s past does not indicate a tendency that would render the employee unsuitable for his or her position. The nature and responsibilities of the position, the thoroughness of the investigation, and the extent of prior conduct indicating relevant tendencies will often determine the employer’s liability when an employee harms a third party. Employers must be mindful that certain positions will require more thorough investigations based on the level of responsibility and potential for injury. Keeping in mind the employee’s level of responsibility and potential to injure others while performing his or her duties, the employer should take reasonable precautions to investigate an applicant’s background.

In cases about negligent hiring or retention, courts evaluate the adequacy of an employer’s investigations based on several factors, such as:

The risks associated with the position
The extent of the employer’s investigative measures
The discoverability of the employee’s past conduct or history that would indicate a tendency that would render the employee unsuitable for the position

You should advise an employer to be detailed and accurate in documenting its investigative practices and policies to demonstrate a record of consistently using reliable and adequate information in its hiring and retention decisions.

Prompt and consistent investigation of and discipline for employee misconduct can also help shield employers from liability for negligent hiring and retention. By taking prompt and consistent measures, the employer demonstrates its concern for hiring and retaining only qualified and competent employees.¹ Should an employer face a negligent hiring or retention claim, it could point to the record of its history of taking employee misconduct seriously and not retaining employees negligently.

#MeToo Movement

The #MeToo movement in social media based on highly publicized incidents of sexual harassment highlights the importance of a prompt and effective employer response in order to avoid liability not only for sexual harassment claims, but also for negligent hiring, retention, and supervision claims. For instance, in Clehm v. BAE Systems Ordinance Systems² the court held on summary judgment that a company that took prompt action in immediately launching an investigation and eventually terminating a male employee for harassing a female employee could not be held liable for negligent hiring and retention by a second female employee who claimed that the male employee also sexually assaulted her. Unlike her colleague, the second female employee “did not take advantage of BAE’s harassment reporting procedures, of which she was well aware . . . .”³ Having failed to report the alleged sexual assaults to a supervisor, member of management, human resources, or through the company’s ethics help line, the employee could not show that the company had actual or constructive knowledge of the alleged harasser’s misconduct, and thus her negligence claims failed as a matter of law.⁴

Elements of a Negligent Hiring Claim

Negligent hiring claims generally require the plaintiff to prove the following:

The employer did not exercise reasonable care in hiring the employee.
The employee had dangerous tendencies or was incompetent for the job in question.
The employee’s dangerous tendencies or incompetence would have been apparent to the employer had it exercised reasonable care.
As a result of the employer’s failure to exercise reasonable care, the employee or customer suffered injury.⁵

In short, courts hold employers liable for negligent hiring if they fail to conduct a reasonable level of pre-employment screening and consequently overlook evidence of an employee’s dangerous tendencies, so you must advise employers to always conduct good pre-employment screening.

As a general rule, employers have a duty to exercise reasonable care “to select employees competent and fit for the work assigned to them and to refrain from retaining the services of an unfit employee,” which extends to “members of the public who would reasonably be expected to come into contact” with the employee.⁶ The measure of reasonable care is what a person of ordinary prudence would do in view of the nature of the employment and the consequences of employing an incompetent or dangerous individual.

Negligent Retention

A claim of negligent retention requires essentially the same elements as a negligent hiring claim. The difference is the point at which the employer knew or should have known of an employee’s dangerous tendencies. The elements of a negligent retention claim include all of the following:

An employment relationship
Incompetence of the employee
Actual or constructive knowledge of the incompetence by the employer
An act or omission by the employee which caused the plaintiff’s injuries
Proximate causation (i.e., the employer’s negligent retention of the employee was the proximate cause of the plaintiff’s injuries)⁷

Negligent retention claims tend to focus on whether the employer knew or should have known that the employee was unfit for duty. Factors courts consider include the employee’s overall work record, any prior complaints the employer had received about the employee, whether any prior improper behavior by the employee was job-related, and whether any managers or supervisors witnessed any prior improper behavior by the employee. Moreover, in certain jurisdictions, such as Virginia, a plaintiff must allege serious and significant physical injury resulting from the employee’s actions in order to maintain a claim of negligent retention. A plaintiff who alleged emotional harm and physical symptoms such as headaches and nausea resulting from an employee’s alleged sexual harassment could not state a claim for negligent retention.⁸

In Anicich v. Home Depot U.S.A., Inc,⁹ the U.S. Court of Appeals for the Seventh Circuit reversed the dismissal of a complaint alleging negligent hiring, supervision, and retention of a manager whose sexual assault resulted in the death of an employee. The suit was brought by the estate of the deceased employee against Home Depot, and the complaint alleged that Home Depot employed a manager with a known history of sexually harassing, verbally abusing, and physically intimidating his female subordinates. In this instance, the manager allegedly verbally abused a female employee, threw things at her, and monitored her both during and outside her work hours.¹⁰ On one occasion, he required the employee to accompany him to an out-of-state family wedding, threatening to cut her hours or fire her if she refused. While on the trip, the manager allegedly killed the employee and raped the employee’s corpse after the wedding (the manager was eventually convicted of murder and sexual assault and sentenced to life imprisonment).¹¹ The Court of Appeals found that, based on the allegations in the complaint, the manager’s harassing, controlling, and aggressive behavior toward his female subordinates demonstrated that he was particularly unfit for his job and thus that the injury to the employee was foreseeable.¹² The employer argued that the violent attack on the employee was a radical break from the manager’s prior behavior, and thus that no reasonable employer could have foreseen that such violence would occur. The Court of Appeals found, however, that the magnitude of the harm inflicted upon the employee did not by itself render the harm unforeseeable.¹³ The issue of foreseeability was a question of fact, and, the Court reasoned, a reasonable jury could have found, based on the history of the manager’s harassing behavior, that it was foreseeable that he would take “the small further step to violence.”¹⁴

Negligent Supervision

A claim of negligent supervision requires essentially the same elements as a claim of negligent retention (or negligent hiring).¹⁵

These claims often arise where an employee injures a customer or other third party on the employer’s premises or using a vehicle or other property belonging to the employer. When the injury is to another of the employer’s employees, state workers’ compensation laws will normally bar a negligence claim. For more information, see the following section.

Workers’ Compensation Defense to Negligence Claims Brought by Employees

When representing an employer faced with a negligent hiring, retention, or supervision claim by an employee, you should always consider raising workers’ compensation as a defense.¹⁶ Where fellow employees (as opposed to customers or other third parties) bring negligence-based claims against the employer, it can assert a defense that workers’ compensation is the plaintiff’s exclusive remedy and precludes common law claims. An employer’s exclusive liability to an employee—and an employee’s exclusive remedy as against the employer—for negligence arises out of the workers’ compensation laws.¹⁷ This is so even in the context of a claim of negligence premised on alleged sexual harassment or sexual assaults.

However, if plaintiffs can show that their injuries resulted from the employer’s deliberate attempt to injure them, then workers’ compensation will not bar their claim.¹⁸ The conduct must be more than “gross, wanton, wil[l]ful or reckless negligence” to escape workers’ compensation exclusivity.¹⁹

In some jurisdictions, the nature of the injury (whether physical or nonphysical) will determine whether the injury is subject to the exclusivity provisions of workers’ compensation laws. For instance, in Reiber v. Mathew,²⁰ the U.S. District Court for the Northern District of Indiana denied a defendant employer’s motion to dismiss claims of negligent hiring and supervision. In that case, an employee alleged that she was forced to resign from her employment at a healthcare facility because of a doctor’s relentless sexual harassment. The alleged harassment included repeated and unwanted verbal and physical sexual advances toward the employee by the doctor.²¹ The incidents alleged in the complaint occurred in the course of the plaintiff’s employment, arose out of her employment, and resulted in an unexpected (i.e., accidental) injury; thus, such an injury would normally be subject to the exclusivity provisions of the workers’ compensation law.²² However, the court reasoned, the alleged injury sustained by the plaintiff was non-physical in nature.²³ While non-physical injuries may be subject to workers’ compensation exclusivity in some instances, the court reasoned that to be subject to workers’ compensation exclusivity, a disability or impairment must be “more than a refusal, or even emotional inability, to continue to work in a discriminatory and hostile environment . . . .”²⁴ The court noted that while the employee felt she could no longer work for the defendant, she remained fit for employment elsewhere and had in fact applied for numerous similar positions after leaving the employer.²⁵

Liability to Third Parties for Negligence

Unlike an employee, whose injuries are normally covered by workers’ compensation, an injured third party may be able to recover from the employer all damages that its employee’s conduct caused. If an employer does not look deeply enough into an employee’s background prior to hiring the employee, it could face liability to third parties who are injured by that employee’s conduct.

This does not mean that employers should use all means available to investigate job applicants. You must coach employers to walk a fine line when they screen job applicants, because an employer may face liability to applicants if it screens them based on certain impermissible factors, such as mental impairments or arrest (as opposed to conviction) records.

Where an employee is expected to come into contact with the public, the employer must make some reasonable inquiry before hiring or retaining the employee to ascertain his fitness, or the employer must otherwise have some basis for believing that he or she can rely on the employee. The nature and extent of the inquiry that is needed will naturally vary with the circumstances.²⁶

In Cramer v. Hous. Opportunities Comm’n of Montgomery Cty., a tenant of a housing project who was raped by an employee of the county housing commission sued the commission, alleging it was negligent in hiring the employee as a housing inspector. The court held that the tenant was clearly a person to whom the housing commission owed a duty of reasonable care in the hiring of a housing inspector. Yet the commission hired the housing inspector despite the fact that he did not complete portions of his application, including the part of the application that asked whether he had ever been dismissed or asked to resign from any previous job. The commission made no attempt to contact any of the employee’s prior employers or personal references, or to verify any of the information included in the application. As it turns out, the employee had earlier been convicted of robbery and assault, and at the time of his hiring, he was under indictment for rape and related offenses. In holding that a jury was entitled to consider whether there was a causal connection between the commission’s negligence and the tenant’s injury, the court stated:

[W]here the work involves a serious risk of harm if the employee is unfit . . . there is no presumption of competence and there may well exist a duty to conduct a criminal record investigation. Other factors must be considered, including the availability of such information; the cost, inconvenience, and delay in obtaining it; whether other sources, including a previous employment record in the same field, are sufficient to justify a finding of fitness; and whether unanswered questions, negative indicators, or other “red flags” have surfaced during routine investigation. No single factor is dispositive, and the trier of fact must consider all the circumstances to determine whether the failure to obtain a criminal history record constitutes a breach of duty in a given case.²⁷

Thus, an employer that does not make use of the methods available to it in checking into the background of an employee prior to making a hiring decision could face liability for negligence, as did the employer in Cramer.

In Denton v. Universal Can-Am, Ltd.,²⁸ a company was found liable for negligent hiring and retention based on a car accident caused by one of its truck drivers who had been convicted of nine traffic-related offenses in the seven years prior to his applying for a truck driver position with the company. Furthermore, the employer “retained [the truck driver] after he continued to violate its policies and specifically neglected to monitor [his] commercial driver’s license or motor vehicle record after he was hired. That failure resulted in [the truck driver] driving a truck on a suspended license when he hit [the victim].”²⁹ Based on these facts, the court upheld a jury’s $54 million verdict against the company in favor of the victim, who suffered from debilitating injuries as a result of the accident.30

The duty of an employer to control its employees and prevent harm to third parties is not absolute, however. For instance, in Pagayon v. Exxon Mobil Corp.,³¹ an employee got into a fistfight with another employee as well as the second employee’s father, resulting in the death of the father. The father’s family sued, alleging that the employer was negligent in supervising the first employee, and that it failed to take steps to prevent the fight from occurring. While the second employee, whose father was killed in the altercation, had previously complained about two minor incidents of alleged harassment by the first employee, the court held that the two incidents about which the second employee complained were insufficient to make it foreseeable that the first employee would become violent.³² The two alleged incidents involved (1) a lighthearted question about whether the second employee was involved in a sexual relationship with another employee and (2) an allegation that the employee wrongfully and intentionally put an “out of order” sign on the men’s bathroom. The court noted that these two complaints “cannot even arguably have given Exxon reason to think employee friction might injure store patrons.”³³The court further reasoned that “[t]o require every employer to intervene in all such circumstances and hold it liable for any result, however unlikely, would impose too great a burden on the employment relationship.”³⁴

Thus, unlike the Anicich v. Home Depot case discussed above, in which the employer was allegedly aware of prior verbal and physical outbursts by the alleged harasser toward female employees, the facts in Pagayon did not, according to the court, demonstrate that the employee’s violent behavior, which resulted in the death of another employee’s father, was foreseeable.

In Ledet v. Mills Van Lines, Inc.,³⁵ a Massachusetts appellate court held that even though a moving company had been negligent in failing to conduct a criminal background check on an employee who subsequently sexually assaulted a third party, the company could not be held liable for the assault. In Ledet, the employer failed to conduct a criminal background check on an employee at the time of hire, in violation of its own policies. In fact, the employee had an extensive criminal record, including more than 20 arrests, 10 felony convictions, and five incarcerations in three states, including for crimes such as inciting violence, threatening domestic violence, burglary, and aggravated theft.³⁶ The employer hired the employee as a rider-helper on the employer’s moving trucks. While off duty during one of his moving trips, the employee assaulted a woman he saw on the street (who was not a customer of the moving company). The employee ended up pleading guilty to kidnapping and assault and was sentenced to 10–13 years in prison.

The victim of the assault sued the employer for negligence, claiming that the employer’s failure to conduct a criminal background check on the employee was the proximate cause of her injuries. However, the court granted summary judgment to the employer. The court found that the employee’s criminal assault of the plaintiff was not a foreseeable consequence of its negligence in hiring him as a helper. While the employee was driving a moving truck when he saw the plaintiff, the truck was held not to be the instrumentality that led to the assault. The employee, who was off duty at the time, got out of the truck and assaulted the plaintiff, who was walking on the street. Accordingly, the court ruled, his employment did not furnish the means by which he committed a criminal act.³⁷ However, the result in this case might have been different had the plaintiff been a customer of the moving company, or if the employee had been on duty or had lured or dragged the plaintiff into the truck to assault her. Under such circumstances, it would have been easier for the plaintiff to establish that the employment furnished the means by which the employee criminally assaulted her.

Cases Involving Individuals Who Have Frequent Contact with Minors

Additionally, once an employee is hired, it is important for an employer to promptly investigate and respond to any allegations of inappropriate conduct by an employee toward their fellow employees, customers, or clients. This is especially true in the case of schoolteachers, or any other individuals who have frequent contact with minors. Two cases in Minnesota involving illicit sexual contact between a teacher and a minor student illustrate this point. In the first case, Jane Doe 175 v. Columbia Heights Sch. Dist. ,³⁸ the parents of a ninth-grade female student who was allegedly sexually abused by a football coach brought a lawsuit on the student’s behalf against the school district, alleging negligence and negligent supervision. The Minnesota Court of Appeals affirmed the lower court’s grant of summary judgment in favor of the school district. In so doing, the court noted that there was insufficient evidence that the school district was on notice of the football coach’s behavior toward the student, such that the alleged abuse of the student was reasonably foreseeable. The court noted that for purposes of a negligence claim, “there is no general duty to protect another from harm, but a duty to protect arises if there is a special relationship between the parties and the risk is foreseeable.”³⁹ In determining whether the danger is foreseeable, “‘courts look at whether the specific danger was objectively reasonable to expect, not simply whether it was within the realm of any conceivable possibility.’”⁴⁰

While the plaintiff in Jane Doe 175 noted that there were “red flags” that should have put the school district on notice of the coach’s behavior, the court found that the incidents cited by the plaintiff, including (1) one instance where she yelled “I love you” to the coach during a football practice, (2) one instance where she and the coach were seen talking in the school parking lot, (3) one instance where she used an office computer in the team’s weight room office, and (4) one instance where the coach was accompanied by a young girl in the weight room on a Saturday, were insufficient to raise a genuine issue as to whether the alleged sexual abuse was foreseeable.⁴¹ Significantly, the school had a policy in its employee handbook that explicitly stated that dating and sexual relationships between teachers and students were prohibited and directed employees to employ safeguards against any such improper relationships.⁴²

In a later case, the U.S. District Court for the District of Minnesota distinguished the holding in Jane Doe 175, finding that summary judgment for a boarding school was inappropriate where three students alleged sexual abuse by a former teacher, bringing claims against the school for negligence, negligent supervision, and negligent retention.⁴³ In Doe YZ, unlike in Jane Doe 145, the court found that several high-level employees at the school “received specific reports concerning [the former teacher’s] inappropriate sexual contact with students, many of which occurred prior to the abuse of these Plaintiffs.”⁴⁴ The inappropriate behavior that had previously been reported included the teacher’s holding naked dance parties, patting students’ buttocks, and having explicit sexual discussions with students. The court found that these behaviors “are objectively reasonable indicators of a potentially inappropriate relationship with students.”⁴⁵

Thus, based on these two cases, it is apparent that whether an employer will be held liable for negligence based on an employee’s misconduct toward third parties depends on whether there were red flags that should have put the employer on notice of the inappropriate behavior. Unlike the behavior in Doe YZ, the football coach’s behavior in Jane Doe 175 would not have led a reasonable person to believe that there could be inappropriate sexual contact happening between the coach and a female student. Employers should have policies in place that require the immediate reporting of any inappropriate behavior by employees in the workplace, especially in the area of sexual misconduct, so that they can promptly investigate such incidents and take appropriate remedial measures.

Liability of Employers that Perform Background Checks

While the employer has a duty to investigate potential hires thoroughly, it may face liability for digging too deep in certain areas. There are many steps an employer may take to check into an applicant’s background. Depending on the nature of the position in question, you should advise an employer to take some or all of the following steps for conducting appropriate background investigations. As discussed below, if the employer uses a third party to conduct some or all of these types of background investigations, the Fair Credit Reporting Act (FCRA), which covers a wide range of background checks in addition to credit checks, may apply.

Criminal Conviction Record

You should advise employers that the rules for using arrest history and actual convictions to screen job applicants are different. An employer may consider an applicant’s criminal conviction record in its hiring decision provided it is job-related and consistent with business necessity. With regard to convictions, the federal Equal Employment Opportunity Commission (EEOC) emphasizes in its Enforcement Guidance on Consideration of Arrest and Conviction Records in Employment Decisions under Title VII of the Civil Rights Act of 1964 (No. 915.002, Apr. 25, 2012) that employers must consider (1) the nature of the crime, (2) the time elapsed since the conviction, and (3) the nature of the job. The EEOC’s Guidance further suggests that employers should conduct an “individualized assessment” of each applicant to determine if the policy as applied is job-related and consistent with business necessity. It states that “individualized assessment” generally means that an employer informs the individual that he or she may be excluded because of past criminal conduct; provides an opportunity to the individual to demonstrate that the exclusion does not properly apply to him or her; and considers whether the individual’s additional information shows that the policy as applied is not job-related and consistent with business necessity. The individual’s showing may include information that he or she was not correctly identified in the criminal record, or that the record is otherwise inaccurate.⁴⁶

In Texas v. EEOC,⁴⁷ a lawsuit that the EEOC originally brought challenging the state’s ban on hiring felons in certain state agencies, the state questioned the EEOC’s authority to issue its 2012 Enforcement Guidance on Consideration of Arrest and Conviction Records. The U.S. Court of Appeals for the Fifth Circuit agreed with Texas that the Guidance was a substantive rulemaking that is subject to legally required notice and opportunity for public comment under the Administrative Procedures Act, with which the EEOC had not complied.⁴⁸ The Fifth Circuit barred the EEOC from enforcing its Guidance against Texas.⁴⁹ While this ruling prohibits the EEOC from enforcing its guidance against the State of Texas, it does not impact the analysis above about the need for employers to make an individualized assessment regarding the use of criminal conviction records in hiring decisions. Unless and until other courts take the same position as the Fifth Circuit, employers would be wise to continue observing the EEOC’s Guidance, especially because the principles embodied in the Guidance are derived from prior court decisions.

Arrest Record

In contrast, you should advise employers not to collect or use arrest history to screen job applicants. The EEOC has expressed concern regarding the potentially discriminatory impact of criminal background checks on certain minority populations. It asserts in its Guidance that it is never appropriate for employers to use arrest records to screen applicants because doing so may have a disparate impact on African Americans and other minorities.⁵⁰

An employer may require a job applicant to sign a release allowing the employer to access the applicant’s criminal record information for purposes of determining the applicant’s fitness for employment. Note, however, that some state and local laws prohibit an employer from conducting a criminal background check until the end of the first employment interview or even until after the employer makes a conditional offer of employment. Consult the laws in your jurisdiction before advising employers on this issue.

Driving Record

Advise employers to review the driving records of applicants for positions that require employees to use a company vehicle or include a significant amount of driving as a job responsibility. Employers should check these applicants’ driving records before making a job offer, and then periodically throughout employment. When checking an applicant’s driving record, employers should confirm that he or she has a valid driver’s license and review any driving violations, particularly those involving reckless driving and driving under the influence of alcohol.

While the Americans with Disabilities Act (ADA) treats alcoholism as a disability, the law does not protect the current use of alcohol or illegal drugs.⁵¹ Thus, employers have successfully defended against ADA claims where the employer took an adverse action against an employee whose license was suspended because of his or her alcohol or drug use.⁵²

Consumer Reports

You should advise employers that the FCRA imposes significant compliance requirements on employers who use consumer reports in making employment-related hiring, promotion, and termination decisions.⁵³ Failure to follow the FCRA’s requirements could result in liability for civil fines or damages and even criminal prosecution.

The FCRA defines the term “consumer report” broadly as any written, oral, or other communication from a consumer reporting agency bearing upon the consumer’s credit worthiness, credit standing, credit capacity, character, reputation, personal characteristics, or mode of living.⁵⁴ It includes, among other things, motor vehicle, criminal, medical, and credit history records that an employer uses “in whole or in part” to assess an individual’s qualifications for employment. The FCRA applies only to consumer reports that a consumer reporting agency generates. Generally, the FCRA does not apply to an employer’s activities to conduct its own reference checks by contacting former employers or checking public records or documents.

The following guidelines summarize some of the principal requirements the FCRA imposes when an employer uses a consumer report in making employment decisions. Advise an employer that before it obtains a consumer report for the purpose of screening potential employees or using one to make promotion, demotion, or discharge decisions about existing employees, it must first:

Have an employment purpose for obtaining the consumer report (that is, the employer intends to use the report to evaluate a consumer for employment, promotion, reassignment, or retention).⁵⁵
Give the affected individual written notice of the employer’s intention to obtain a consumer report in a document that consists solely of this notice.⁵⁶
Obtain from the affected individual written permission to procure a consumer report on that individual.⁵⁷
Certify to the consumer reporting agency that provided the consumer report that the employer has complied with all applicable FCRA provisions.⁵⁸

Taking Adverse Action Based on a Consumer Report

You should advise an employer that has decided to take an adverse action (such as declining to hire, promote, or retain an employee) based wholly or in part on information in a consumer report that, before taking the action, the employer must provide the affected individual a pre-adverse action disclosure. This disclosure consists of both:

A copy of the consumer report the employer relied upon
A copy of A Summary of Your Rights Under the Fair Credit Reporting Act (FCRA Summary of Employee Rights)⁵⁹

As of September 21, 2018, employers must begin using an updated copy of the summary of rights that includes notice to consumers that they may obtain a security freeze or place a fraud alert on their credit files.⁶⁰

After the employer takes the adverse action, you should make sure that it provides written notice to the affected individual of all of the following:

That the employer has taken the adverse action (e.g., declined to hire, retain, or promote the individual)
The name, address, and phone number—the toll-free number, if there is one—of the consumer reporting agency that provided the consumer report
That the consumer reporting agency that provided the report did not take the adverse action and cannot provide the individual with the specific reasons the adverse action was taken
That the individual has the right to receive a free copy of the consumer report in question from the consumer reporting agency that provided it to the employer if he or she requests it within 60 days from the date of the notice
That the individual has the right to dispute incomplete or inaccurate information in the report with the consumer reporting agency⁶¹

Oral and electronic notice are both acceptable alternatives, but you should encourage the employer to provide written notice instead because it constitutes documentation.

Credit Checks

Whether an employer may use credit scores to disqualify applicants for employment will depend on state and local law. For instance, Maryland’s Job Applicant Fairness Act prohibits employers from using an applicant’s or employee’s credit report or credit history to deny employment, terminate employment, or make decisions about compensation or other terms of employment, with certain limited exceptions.⁶² You must check the laws in your jurisdiction before advising an employer about using credit scores in hiring and other employment-related decisions.

You should advise employers in every U.S. jurisdiction that under the FCRA, if an employer relied on a credit score, in whole or in part, to make an adverse employment decision, then the employer must provide the affected individual with written or electronic disclosure of all of the following:

The credit score that it used
The range of possible credit scores under the credit scoring model used
The date that the credit score was created
The name of the entity that provided the credit score
A list of the key factors, in order of importance, that affected the individual’s credit score⁶³

^{Access to Applicants’ Social Media Accounts}

You must determine whether your jurisdiction has any laws restricting employers’ access to prospective employees’ social media accounts. While it is common for employers to search the Internet for publicly available social media information about prospective employees, many states are now banning employers from requiring job applicants to disclose their social media passwords. For instance, all Maryland employers are prohibited from requiring employees or applicants to turn over passwords needed to access private websites, including social media sites. Specifically, the Internet and Electronic Account Privacy Protection Act bars employers from requiring or even requesting that an applicant or employee divulge his or her “user name, password, or other means for accessing a personal account or service through an electronic communication device.”⁶⁴

Several other states, including New Jersey, Illinois, Arkansas, California, Colorado, Louisiana, Michigan, New Mexico, Nevada, Oregon, Utah, and Washington, have enacted similar laws. Thus, while obtaining social media information about prospective employees may be helpful in the screening process, you should caution employers against requiring applicants to disclose social media passwords.

Can Failure to Monitor an Employee’s Computer Use Result in Liability for the Employer?

At least one court has said yes to this question. In Doe v. XYC Corp.,⁶⁵ a mother brought a negligence action against her husband’s employer on behalf of her minor daughter, seeking to hold the employer liable for her husband’s use of a work computer to post nude photographs of the daughter to a child pornography site. A New Jersey appellate court found that the employer was on notice (based on its own investigation and reports from other employees) that the employee was viewing child pornography on his work computer, and the employer breached its duty to exercise reasonable care to report and/or take effective action to stop the employee’s unlawful activity. Thus, the employer could be held liable for the husband’s inappropriate use of his work computer.

You should advise employers to exercise caution in this area, as the law in most jurisdictions is unsettled. A claim like that in Doe would present a question of first impression in many courts.

Employers Must Take Appropriate Action

Advise employers that to avoid negligent retention and negligent supervision claims they should promptly investigate and take appropriate action to address an employee’s alleged improper activity as soon as they learn of it. Proactive steps that employers should take include:

Providing clear examples in the employee handbook of harassment and other conduct that is inappropriate
Implementing a substance abuse policy and testing program
Providing a clear and detailed complaint procedure in the handbook that allows employees to bypass their management chains
Promptly investigating any reports of workplace harassment, violence, or threats of violence
Providing appropriate training to all employees regarding harassment, workplace violence, and the company’s substance abuse policy

When an employer has to address any behavior by an employee that could negatively impact coworkers, customers, or other third parties, you can recommend actions including:

Disciplining the employee
Removing the employee from a position in which he or she could potentially harm other employees or members of the public
Increasing supervision of the employee
Discharging the employee

Advise employers to document the findings of any investigation into alleged employee misconduct and retain a record of the evidence management relied on to support its decision to act or not to act against the employee.

Impact of Marijuana Legalization Laws on Negligent Hiring and Retention Claims

There has been a wave of legislation throughout the United States legalizing the use of small doses of marijuana or marijuana-derived substances for medicinal or recreational use. While marijuana is still classified as a Schedule I illegal drug under federal law, most states and the District of Columbia have legalized the possession and use of marijuana for medical and/or recreational purposes. This can create a dilemma for employers in maintaining a safe workplace and avoiding liability for negligent hiring or retention. This is especially true in states where the law specifically protects users of medical marijuana from discrimination.

For instance, in a Delaware case decided in December 2018, Chance v. Kraft Heinz Foods Co.,⁶⁶ an employee was operating a shuttle wagon on railroad tracks when the wagon derailed. The employer requested that the employee undergo a drug test, which revealed the presence of marijuana. The employee informed the medical review officer he had a valid medical marijuana card, but the employer terminated the employee nonetheless. The court considered whether the Delaware Medical Marijuana Law (DMMA), which protects medical marijuana users from discrimination, gave an employee the ability to bring a lawsuit even though the DMMA was silent on this point. The court noted that Delaware was one of only nine states whose medical marijuana law expressly prohibits the failure to hire, discipline, or discharge an employee who uses medical marijuana outside of work and tests positive on a drug test. The court concluded that because the DMMA has a specific anti-discrimination provision, the Delaware legislature must have intended to permit the employee to sue under the DMMA.⁶⁷

As of March 30, 2021, the number of states with laws specifically protecting medical marijuana users from discrimination has increased to 16. In addition to Delaware, these states include Connecticut, Rhode Island, Arizona, Illinois, Maine, Nevada, New York, Minnesota, Arkansas, New Jersey, New Mexico, Oklahoma, Pennsylvania, South Dakota, and West Virginia.⁶⁸

Thus, while employers may still use drug tests to screen out employees who may cause harm to themselves and others through their use of marijuana and other drugs, employers in states where marijuana use has been legalized must be careful not to run afoul of state law in making employment decisions based on a positive drug test. The legalization of marijuana in some states for medicinal and/or recreational purposes has made maintaining a zero-tolerance policy more difficult. In those states that prohibit adverse action against employees who are authorized to use marijuana outside of work and test positive on a drug test, the employer will need additional evidence before taking adverse action against an employee. To maintain a safe workplace, a prudent employer would take adverse action against an employee if it appeared that the employee was indeed impaired on the job by his or her marijuana use.

For instance, in Whitmire v. Wal-Mart Stores, Inc.,⁶⁹ the U.S. District Court for the District of Arizona, interpreting Arizona’s Medical Marijuana Act, held that an employer could not rely on a positive drug screen alone to establish that an employee was impaired by marijuana on the job. In Whitmire, the employee suffered a workplace injury and was subsequently required to submit to a drug test, per standard company policy. At the time she took the drug test, the employee informed the drug clinic that she used medical marijuana. She subsequently provided a copy of her medical marijuana card to her employer. After the drug test came back positive for marijuana, the company suspended and ultimately terminated the employee. The employer’s personnel coordinator stated that the company terminated the employee because the coordinator believed that the positive drug test demonstrated that the employee was impaired on the job. The court concluded, however, that the employer had the burden of establishing that the level of metabolites present in the employee’s drug screen demonstrates that marijuana was present in her system “in a sufficient concentration to cause impairment.”⁷⁰ The court found that the employer could not meet that burden because the personnel coordinator was admittedly not qualified to opine as to whether the positive drug test result meant that the employee was actually impaired while on the job. The court ruled that the employer would have had to present expert testimony regarding the significance of the drug test results and the personnel coordinator was not an expert witness.

This ruling means that the employer could not simply rely on a positive test result to demonstrate that the employee was impaired at work. Notably absent from the evidence in this case was any testimony that demonstrated that the employee showed observable symptoms of being drug-impaired while at work. The employer in Whitmire simply attempted to rely on the personnel coordinator’s opinion as to impairment based on the drug test result itself, which the court held was insufficient absent expert testimony that would establish that the employee was impaired based on the test result. Interestingly, at this time, there does not appear to be any test developed that would definitively show impairment, rather than just the presence of marijuana in the system. In fact, according to the National Drug & Alcohol Screening Association, “[l]eading toxicologists worldwide generally agree that impairment testing for marijuana could potentially be decades away.”⁷¹ In addition, “[u]nlike blood-alcohol tests, which quantify the amount of alcohol present and translate it with scientific precision into predicted levels of impairment and risk, no such test exists for marijuana impairment.”⁷² Thus, employers in states that protect medical marijuana users from discrimination need to walk a fine line in attempting to navigate this legal landscape. Drug testing remains an important tool in maintaining a safe work environment and avoiding negligent hiring or retention lawsuits. However, legal protections for employees and applicants who use medical marijuana create potential liability for employers who attempt to rely solely on a positive drug test in making a termination decision.

Darryl G. McCallum is a partner at Shawe & Rosenthal LLP. He concentrates his practice in employment law matters, including the defense of race, sex, and other discrimination suits; sexual harassment claims; and claims involving wrongful discharge. He routinely advises employers on human resources issues. Immediately prior to joining Shawe & Rosenthal, Mr. McCallum was an associate litigation counsel with the Law and Public Policy Department of MCI in Washington, D.C. While at MCI, he provided advice to management on various employment law issues, and litigated employment matters before federal and state courts and enforcement agencies. After law school, Mr. McCallum served as a judicial clerk for the Honorable Robert N. Wilentz, former Chief Justice of the New Jersey Supreme Court. He then spent six years in the litigation group at Shaw Pittman in Washington, D.C., where he concentrated his practice in employment matters, appearing before courts in Maryland, the District of Columbia, and Virginia.

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