Are Insurance Companies Undermining the Fair Hiring of Ex-Offenders?

“Negligence” is not a good thing in any context, but when it’s part of a legal statement, it can mean costly liabilities.

Negligent hiring and retention can be the basis for lawsuits. As an employer, when one of your employees harms a customer or fellow worker or causes other damage, you have tactics at your disposal, including background screening, to identify risky applicants and avoid hiring them.

But it is impossible to eliminate every potential risk.

Job applicants frequently exaggerate, fail to disclose, or outright lie on applications and in resumes in order to improve their odds of getting that job. The hidden risks they pose can and sometimes do surface at the worst possible time.

The point of insurance is to help manage risks like these. You purchase liability insurance that includes protection against actions of employees who inflict some kind of harm on the business or your workforce or customers. One purpose of the insurance is to defray the costs of lawsuits for negligent hiring and retention.

Insurance companies that offer this kind of insurance are exposed to potentially large payouts, so they set underwriting criteria to clarify, mitigate the risk, and restrict the circumstances under which they would pay (thereby managing their own risks). One of the possible underwriting criteria might be to exclude hiring ex-offenders on the theory that past behavior is predictive of future behavior.

Public Policy vs. Insurance Underwriting: What to do?

Joe Palazzolo, writing in the Wall Street Journal, points out that this underwriting criterion is a direct contradiction of the public policy goal of getting more jobs for ex-offenders. In many cases, liability policy restrictions are triggered when a background check reveals a criminal history, making it necessary to reject the applicant even if he or she is otherwise qualified. With the vast majority of employers now using criminal background checks as part of the hiring process, the odds of an ex-offender finding work are diminished.

Further, restrictive insurance requirements like these give employers an incentive to adopt “blanket” exclusion policies that reject any job applicant with a criminal history. However, when employers follow policies like this they increase the chances that they will attract the attention of the Equal Employment Opportunity Commission (EEOC), which sees blanket exclusion policies as potentially discriminatory.

Employers can get caught between insurance requirements and the desire to reduce the risk of discrimination under employment law. While there is no perfect, single resolution to this problem, it may be possible to negotiate with an insurance company to relax restrictions based on the value of a claim or the design of the background check. For example, the EEOC is supporting the use of “individualized assessments” to help avoid excluding ex-offenders who are otherwise qualified and who may not pose a risk for the specific job in question. Perhaps the insurance company would consider accommodating companies in the efforts to abide by EEOC Guidance in exchange for some limit on the liability coverage.

Human risk is pervasive and sometimes hard to assess. But employers can better navigate the competing pressures of insurance and law with well-designed, individualized background screening.


hiring ex offenders

About MichaelGaul

Michael is a results-oriented marketing executive with over two decades of experience in employment screening, physical security, and business process management. Michael has deep experience in human capital risk management and a passion for educating business leaders and HR professionals on strategies that tangibly protect their interests. Michael serves on the Board of the Secure Cash and Transport Association (SCTA) and is a member of the Professional Background Screening Association (PBSA), and the American Society of Industrial Security (ASIS).
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