Month: May 2014

USING A WILL TO FORGIVE DEBT

Florida law allows a decedent to forgive certain debt upon his or her death.  For example, a holder of a promissory note who wishes to forgive the outstanding debt that has not been paid upon his or her death may do so through his will.  Problems arise, however, when the estate is insolvent.

In Lauritsen v. Wallace, 67 So. 3d 285 (Fla. 5th DCA 2011), William Wallace issued a promissory note to his son.  Eleven days before his death, Mr. Wallace signed a will clearly and unambiguously forgiving his son’s debt.  Upon his death, Mr. Wallace’s estate had significant debt and insufficient assets to pay off that debt.  The court found that because Mr. Wallace’s estate was insolvent, he could not forgive his son’s debt.

To understand this outcome, one must first understand a few concepts of Florida law.  First, a promissory note is an asset of the holder.  Thus, when a decedent holds a promissory note that has not been paid, that promissory note will be considered an asset in the decedent’s estate.  Second, when a decedent attempts to forgive a debt in his will, that forgiveness is considered a bequest.  Finally, the estate’s assets must be used to pay the estate’s costs and other expenses before the assets are devised to beneficiaries according to the decedent’s will.

The Lauritsen case applied these concepts to come to its conclusion.  The only asset that Mr. Wallace had upon his death that could pay his estate’s administrative costs, debts, and expenses was Mr. Wallace’s interest in the promissory note issued to his son.  Because, a will’s forgiveness of debt is considered a bequest, such bequest can only be given effect after the estate’s debts are paid off.  Thus, because Mr. Wallace’s estate was insolvent, his will’s attempt to forgive his son’s debt could not be given effect.

Mr. Wallace’s son argued that the debt forgiveness should be given effect because Mr. Wallace’s will was a “signed writing.”  Under Florida law, the holder of a promissory note can lawfully renounce his rights against the debtor in a signed writing.  The court disagreed.  A will depends on the Probate Code for its authority.  A will therefore is not an isolated “signed writing” but must be admitted to probate to be given effect.  Mr. Wallace’s attempt to forgive his son’s debt was a bequest, not an isolated signed writing.  As a bequest, it cannot be given effect until the estate’s debt is paid.

Lauritsen demonstrates the problems that could arise when an estate is insolvent.  If one intends to forgive a debt upon his or her death, the better approach would be to include such wording in the debt instrument itself.  A clause in a promissory note forgiving the debt upon death of the holder might have avoided the issue in Lauritsen.

Probate attorney Peter T. Mavrick represents clients in probate, trust, and guardianship litigation.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.

SPENDTHRIFT TRUSTS AND DISCRETIONARY TRUSTS: PROTECTING TRUST ASSETS FROM CREDITORS

A spendthrift trust protects the trust assets against most creditors.  To be valid under Florida law, a spendthrift trust must restrain both voluntary and involuntary transfers of the beneficiary’s interest.  In other words, one cannot validly set up a trust to keep creditors out while simultaneously allowing the beneficiary to freely transfer his interest in the trust.  However, once the trustee makes a payment to the beneficiary of a spendthrift trust, creditors could make a claim on that payment.

Discretionary trusts give the trustee discretion in making payments to the beneficiary.  Under Florida law, a discretionary trustee who refuses to make payments to the beneficiary generally cannot be forced to make those payments by a creditor.  Therefore, when a trust includes a spendthrift clause and a discretionary clause, creditors may be lawfully excluded from ever reaching the trust assets.  However, spendthrift and/or discretionary trust are susceptible to some creditors’ claims, e.g., alimony or child support.

Miller v. Kresser, 34 So. 3d 172 (Fla. 4th DCA 2010), is an example of the protection that Florida law offers to spendthrift trusts.  Elizabeth Miller established a trust naming her son, James Miller, as the beneficiary and naming her other son, Jerry Miller, as trustee.  The trust included a valid spendthrift clause and gave Jerry, as trustee, full discretion to make payments to James.  In 2007, a creditor obtained judgment against James for $1,019,095.82.  The creditor then sought to recover on his judgment from James’ trust.

The creditor attempted to pierce the spendthrift trust on the grounds that James, the trust beneficiary, exercised exclusive dominion and control over the trust assets.  The creditor argued that while the spendthrift clause was legally valid in form, Jerry had turned over management and control of the trust to James.  Jerry simply rubber-stamped James’ decisions regarding the trust.  The court found that even though James had, in practice, dominion and control over the trust assets, he did not have express control, i.e., the trust did not provide for his control.  Instead, Jerry had sole discretion to make payments.  The creditor was therefore unable to reach James’ trust assets.  The court also found that because the trust was also a discretionary trust, the creditor could not force Jerry to make a payment to James.  “There is no law in Florida suggesting that a beneficiary’s creditors may reach trust assets in a discretionary trust simply because the trustee allows the beneficiary to exercise significant control over the trust.”  Miller, 34 So. 3d at 176.

More recently, in Zlatkiss v. All American Team Concepts, LLC, 125 So. 3d 953 (Fla. 5th DCA 2013), another Florida district court found that the Florida statute upholding the validity of spendthrift trusts was constitutional.  In Zlatkiss, the beneficiary of a spendthrift trust signed a personal guarantee on a $350,000 loan.  When the beneficiary failed to repay the loan, creditors attempted to reach the trust assets by arguing that Florida’s protection of spendthrift trusts is unconstitutional because it bars creditors’ access to the courts.  The court upheld the constitutionality of spendthrift trusts and found that the Florida Constitution protects a person’s access to the courts, but does not protect the ability to enforce a judgment.

These cases show that Florida law offer spendthrift trusts substantial protection from most creditors.  Even when a trustee abandons his responsibilities to manage and distribute the trust property, Florida law focuses on the terms of the trust and not the actions of the trustee or beneficiary.  The amount of protection offered to a trust therefore depends substantially on proper drafting.  As long as the spendthrift/discretionary trust is properly drafted, most creditors will not be able to reach the trust assets.

Florida Probate Attorney Peter T. Mavrick represents clients in probate, trust, and guardianship litigation.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.

CONTRACT PROVISIONS FOR ATTORNEY’S FEES: FLORIDA’S RECIPROCITY LAW AND THE AMERICAN RULE

The “American rule” holds that each party to a lawsuit will pay for his or her own attorney’s fees regardless of who prevails in the case.  Unless a statute or contractual provision says otherwise, Florida courts will apply the American rule.  For that reason, contracts oftentimes contain provisions stating that if litigation arises under the contract, the losing party must pay the prevailing party’s attorney’s fees.

Florida statutory law, however, requires reciprocity.  In other words, if “a contract contains a provision allowing attorney’s fees to a party when he or she … enforce[s] the contract, the court may also allow reasonable attorney’s fees to the other party when that party prevails … with respect to the contract.” Fla. Stat. § 57.105(7).  For example, the following contractual provision is not reciprocal: “Buyer shall pay for Seller’s attorney’s fees if Seller prevails in a claim against Buyer.”  The terms of the contract grant only Seller, not Buyer, the right to attorney’s fees upon prevailing.  However, because Florida law requires reciprocity, Florida courts generally will read that contractual provision as also granting Buyer a right to attorney’s fees upon prevailing in a suit to enforce the contract.

In Fla. Hurricane Prot. & Awning, Inc. v. Pastina, 43 So. 3d 893 (Fla. 4th DCA 2010), a homeowner entered into a contract with a contractor to install shutters.  The contract included the following provision: “Purchaser [i.e., the homeowner,] is responsible for all costs of collection including Attorney’s fees.”  Fla. Hurricane Prot. & Awning, Inc., 43 So. 3d at 894.  The contractual provision is not reciprocal, i.e., it grants only the contractor the right to recover attorney’s fees from the homeowner.  After the contractor failed to install the shutters, the homeowner sued for breach of contract and prevailed.  Relying on Florida’s reciprocity statute, the homeowner sought attorney’s fees from the contractor.  While the trial court agreed with the homeowner and awarded her attorney’s fees, the appellate court disagreed.

The appellate court in Fla. Hurricane Prot. & Awning, Inc. found that the contract between the homeowner and the contractor allowed the contractor to recover attorney fees only in relation to a “collection” action, not a general breach of contract action.  As the court found, Florida’s reciprocity law “is designed to even the playing field, not expand it beyond the terms of the agreement.”  Fla. Hurricane Prot. & Awning, Inc., 43 So. 3d at 895.  Had the contractor brought a collection action against the homeowner and lost, Florida’s reciprocity law would have required that the homeowner be entitled to her attorney’s fees.  However, because the homeowner brought suit alleging a breach of contract, the contractual attorney’s fees provision was never triggered.  In the absence of a contractual provision holding otherwise, the American rule controls, and the homeowner must pay for her own attorney’s fees.  As the court found, “[t]o rule otherwise would be tantamount to re-writing the contract between the parties.  This we will not do.”  Fla. Hurricane Prot. & Awning, Inc., 43 So. 3d at 895-96.

Florida’s reciprocity law will grant reciprocity, nothing more.  As the above case demonstrates, courts will not use Florida’s reciprocity rule to rewrite or expand a contract.  As with many contractual disputes, proper drafting is key.

Peter T. Mavrick represents businesses in commercial litigation, labor/employment law, and trade secret and non-competition covenant litigation. This article is not a substitute for legal advice tailored to a particular situation. Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.

PROPERLY DRAFTING A WILL: TRUE INTENT VS. INTENT STATED IN THE WILL

In interpreting a will, Florida law holds that the intention of the testator is the controlling factor in the analysis.  However, Florida law also provides that the testator’s intention should be gleaned from the four corners of the will.  Aldrich v. Basile, 2014 Fla. LEXIS 1027, at *12 (Fla. Mar. 27, 2014) (“The testator’s intention as expressed in the will controls, not that which she may have had in her mind”).  If the will is not valid under Florida law, Florida courts generally will not consider it.

Ann Aldrich wrote her will on an EZ Legal Form that she bought online.  She listed all her possession on the will and handwrote instructions directing that all of her “possessions listed” should go to her sister.  Ms. Aldrich further wrote that if her sister dies before her, “all listed” possessions should go to her brother.  Having listed all her possession on the will and devising them as she wished, Ms. Aldrich signed the will and had two witnesses sign the will in accordance with Florida law.  Had her story ended here, Ms. Aldrich’s intent would have been properly reflected on a valid will.

Three years after Ms. Aldrich wrote her will on the EZ Legal Form, her sister died leaving about $122,000 in cash to Ms. Aldrich as well as land.  Following her sister’s passing, Ms. Aldrich handwrote an additional document.  The handwritten document stated as follows: “This is an addendum to my will .… Since my sister … has passed away, I reiterate that all my worldly possessions pass to my brother.”  Aldrich, 2014 Fla. LEXIS 1027, at *6.  Ms. Aldrich signed the handwritten document and her daughter signed it as the sole witness.  Shortly thereafter, Ms. Aldrich passed away.  Ms. Aldrich’s handwritten document shows that her intent in drafting her will was to pass all her worldly possession to her brother if her sister died before her.  The Florida Supreme Court, however, held that the cash and land that Ms. Aldrich inherited after drafting her will was not disposed of by her will and must pass by intestacy.

As the Florida Supreme Court noted, Ms. Aldrich’s will was not ambiguous.  To the contrary, the will was very specific.  The will directed that all of Ms. Aldrich’s “possession listed” should go to her brother if her sister dies before Ms. Aldrich.  Because the cash and land were not “listed” in the will, Ms. Aldrich did not properly dispose of those assets in her will.  Had the will included a residuary clause, i.e., a provision regarding the remainder of Ms. Aldrich’s estate, the outcome might have been different.  However, because Ms. Aldrich’s valid will was very specific as to which assets should pass to her brother, the Florida Supreme Court “cannot infer from the four corners of the will, without adding words to the document, that in making provision for the property she owned on that day that she also intended to make provision for any property that she stood to gain in the future.”  Aldrich, 2014 Fla. LEXIS 1027, at *17.  As to Ms. Aldrich’s handwritten addendum, because the document was not properly signed by two attesting witnesses, it had no legal effect as a testamentary instrument.  As Justice Pariente explained in her concurring opinion, “although this is the correct result under Florida’s probate law, this result does not effectuate Ms. Aldrich’s true intent.”  Aldrich, 2014 Fla. LEXIS 1027, at *21 (Pariente, J., concurring).

Aldrich highlights two important aspects of Florida probate law.  First, Florida law requires that the testator’s intent as stated in the will govern the interpretation of a testator’s will.  As Aldrich demonstrates, the testator’s “stated” intent does not always coincide with his or her “true” intent.  Second, as with any legal document, proper drafting is essential.  As Justice Pariente noted, “the ultimate cost of utilizing such a [pre-printed] form to draft one’s will has the potential to far surpass the cost of hiring a lawyer at the outset. … I therefore take this opportunity to highlight a cautionary tale of the potential dangers of utilizing pre-printed forms and drafting a will without legal assistance.  As this case illustrates, that decision can ultimately result in the frustration of the testator’s intent, in addition to the payment of extensive attorney’s fees.”  Aldrich, 2014 Fla. LEXIS 1027, at *22-24 (Pariente, J., concurring).

Probate attorney Peter T. Mavrick represents clients in probate, trust, and guardianship litigation.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.

RESTRICTIVE PERSONAL COVENANTS VS. RESTRICTIVE REAL COVENANTS

Generally, under Florida statutory law, restrictive covenants, e.g., non-competition covenants, must be signed by the person against whom the covenant will be enforced.  A restrictive covenant cannot be enforced against an individual who did not sign the restrictive covenant.

In Winn-Dixie Stores, Inc. v. Dolgencorp, Inc., 964 So. 2d 261 (Fla. 4th DCA 2007), Winn-Dixie Stores, Inc. (“Winn-Dixie”) entered into a lease with a landlord that granted Winn-Dixie the exclusive right to sell groceries at a particular shopping plaza.  The restrictive covenant in the lease stated that other stores in the plaza could sell groceries only if they did not devote more than 500 square feet to those groceries.  Thereafter, Dolgencorp, Inc. (“Dolgencorp”) leased a location at the plaza and devoted more than 500 square feet to grocery items.  Winn-Dixie sued to enforce the restrictive covenant.  Dolgencorp argued that because it never signed the restrictive covenant, the covenant could not be enforced against Dolgencorp under Florida law.  While the trial court agreed with Dolgencorp, the appellate court found that the restrictive covenant was enforceable against Dolgencorp even though Dolgencorp never signed the covenant.  The appellate court’s decision is rooted in the distinction between personal covenants and real covenants.

A personal covenant is a provision in a contract that creates personal contractual obligations.  For example, a restrictive covenant contained in an employment agreement is a personal covenant.  On the other hand, a real covenant is a provision contained in transaction involving real property—for example, a restrictive covenant contained in a lease of real property.  Generally, if a real covenant touches and  involves the land and was meant to bind all subsequent purchasers of the land, then the real covenant is said to “run with the land” and will bind all subsequent purchasers or lessees of the land who had notice of the covenant.

The appellate court in Winn-Dixie Stores, Inc. found that the covenant contained in Winn-Dixie’s lease “ran with the land.”  The restrictive covenant touched and involved the land because it affected the mode and enjoyment of the land.  The restrictive covenant also was meant to bind all subsequent purchasers and lessees because the lease contained a provision stating that “it is a covenant running with the land.”  Winn-Dixie Stores, Inc., 964 So. 2d at 264.  Finally, because Dolgencorp is an experienced commercial tenant with 7,800 stores in 32 states, “Dolgencorp had reason to know of the existence of Winn-Dixie’s restrictive covenant,” and therefore had sufficient notice.  Winn-Dixie Stores, Inc., 964 So. 2d at 266.  Because the restrictive covenant was a real covenant that ran with the land, it could be enforced against Dolgencorp even though Dolgencorp never signed the restrictive covenant.

More recently, Big Lots Stores, Inc. attempted a similar argument against Winn-Dixie’s enforcement of its restrictive covenants in Winn-Dixie Stores, Inc. v. Dolgencorp, LLC, 2014 U.S. App. LEXIS 4143 (11th Cir. Mar. 5, 2014).  The federal appellate court, applying Florida law, held that because Winn-Dixie’s restrictive covenant was a real covenant that ran with the land, courts can “enforce a covenant running with the land against non-signatory co-tenants.”  Winn-Dixie Stores, Inc., 2014 U.S. App. LEXIS 4143, at *73.

The above cases serve as a reminder that Florida law on restrictive covenants recognizes a distinction between personal covenants and real covenants.  While restrictive personal covenants must be contained in a writing signed by the person against whom the covenant will be enforced, restrictive real covenants that run with the land can be enforced against co-tenants who have not signed the restrictive covenant.

Peter T. Mavrick has successfully represented many businesses in trade secret and non-competition covenant litigation.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.

FLORIDA COURT HOLDS THAT THE RENUNCIATION RULE DOES NOT APPLY TO SELF-SETTLED TRUSTS

Under Florida law, if a person wishes to contest the validity of a legal instrument, i.e., a will or trust, he or she cannot simultaneously benefit from that instrument.  The “renunciation rule” requires that an individual challenging the validity of a legal instrument return the payments or benefits that he or she received under that instrument.  The renunciation, however, is qualified, not absolute.  In other words, the party challenging the validity of the legal instrument would be entitled to those payments he or she received should the challenge be unsuccessful and the legal instrument declared valid.  The bottom line is that a person cannot unfairly hold inconsistent positions regarding a legal instrument, i.e., a person cannot accept and keep payments from a will or trust while simultaneously challenging the validity of that will or trust.  Like all rules, however, there are exceptions.  One such exception was recently articulated by a Florida district court in Fintak v. Fintak, 120 So. 3d 177 (Fla. 2d DCA 2013).

Edmund Fintak created a trust for his own benefit that was entirely funded by his own assets (a “self-settled” trust).  The self-settled trust was created to provide regular payment to Mr. Fintak for his health, education, and support.  In addition to the regular payments, the self-settled trust included a provision requiring payment from the trust upon Mr. Fintak’s written demand.  The self-settled trust also provided that upon Mr. Fintak’s death, the trust assets were to be divided into equal parts and distributed to his six children.  Two of Mr. Fintak’s children served as co-trustees.

After executing the trust, Mr. Fintak accepted and kept several payments from the self-settled trust.  However, when the co-trustees refused to pay Mr. Fintak the $30,000 that he demanded, Mr. Fintak filed a complaint challenging the validity of the trust.  The co-trustees argued that under the renunciation rule, Mr. Fintak could not challenge the validity of the trust because he accepted and kept trust payments.  The court disagreed.

In Barnett Nat’l Bank v. Murrey, 49 So. 2d 535, 537 (Fla. 1950), the Florida Supreme Court stated three rationales for the renunciation rule: (1) it protects the trustee in the event that the trust is held invalid, (2) it demonstrates sincerity of the person challenging the legal documents and avoid vexatious challenges, and (3) it makes the property readily available for disposition at the outcome of the challenge.

The court in Fintak found that none of the three rationales applied to Mr. Fintak’s case.  First, application of the renunciation rule would not serve to protect the co-trustees if the trust is held invalid because Mr. Fintak was legally entitled to the trust assets regardless of the outcome of the challenge.  Second, the risk that Mr. Fintak’s challenge is insincere or vexatious is mitigated by the fact that Mr. Fintak is challenging the validity of his own prior act rather than the act of another party.  Finally, because Mr. Fintak was lawfully entitled to receive the benefits of the self-settled trust even if the trust never existed, application of the renunciation rule would not work to ensure that the property is available for disposition to the rightful owner at the outcome of the challenge.

Because the rationales behind the renunciation rule did not apply to the case, the court in Fintak refused to mechanically apply the rule, to do so “would be to elevate form over substance.”  Fintak, 120 So. 3d at 184.  Thus, the court held that “the settlor of a self-settled trust funded with his own assets is not required to renounce any benefits received under the trust before he can challenge its validity.”  Fintak, 120 So. 3d at 179.

Florida law will not allow a person to benefit from a trust or will while simultaneously challenging the validity of that trust or will.  The Fintak case demonstrates a small and rarely applicable exception to this rule.  However, if a person wishes to challenge the validity of a trust or will, then that person should keep in mind that he or she must generally renounce any benefit received from that trust or will before raising such a challenge.

Probate attorney Peter T. Mavrick represents clients in probate, trust, and guardianship litigation.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.

BACKGROUND CHECKS & COMPLIANCE: WORKER’S COMPENSATION CLAIMS

Some employers might wish to know whether a job applicant or current employee previously filed worker’s compensation claims.  At first glance, such information might seem relevant and even useful to employers.  For example, an employer in an accident-prone industry might want to know if the job applicant has a history of repeatedly filing worker’s compensation claims shortly after beginning his or her employment.  However, it is important that employers understand the liability that could result from using an applicant/employee’s previous worker’s compensation claims as a basis for making employment decisions.

Using an applicant/employee’s worker’s compensation claim to make adverse employment decisions could result in criminal liability for the employer.  Under Florida law, it is a first degree misdemeanor to knowingly fire an employee or refuse to hire an applicant because the applicant/employee filed a worker’s compensation claim.

Employers could also face civil liability if they fire, threaten to fire, intimidate, or coerce an employee because the employee filed a worker’s compensation claim.  Additionally, employers could face civil liability if they fire an employee after learning that the employee filed a worker’s compensation claim against a previous employer.

However, Florida law does not seem to impose civil liability on an employer who refuses to hire a job applicant after learning that the applicant filed worker’s compensation claims against previous employers.  Bruner v. GC-GW, Inc., 880 So. 2d 1244, 1252 (Fla. 1st DCA 2004) (Kahn, J., dissenting) (“Florida apparently does not recognize a civil cause of action against a subsequent employer who refuses to hire a job applicant for having filed a workers’ compensation claim against a previous employer”).  Employers should note, however, that while employers might not be subject to civil liability for refusing to hire an applicant based on previous worker’s compensation claims, Florida law does impose criminal liability for such refusals to hire.

An employer who takes any adverse employment action based on an applicant/employee’s previous worker’s compensation claims might also be liable under the federal Americans with Disabilities Act (“ADA”).  Under the federal ADA, an employer cannot make inquiries regarding an applicant/employee’s disability or the nature or severity of such disability.  The employer, however, is allowed to make pre-employment inquiries about the applicant’s ability to perform job-related functions.  The ADA further allows employers under certain circumstances to make medical examinations after making a conditional offer of employment to the applicant.

While some employers might consider information regarding past worker’s compensation claims relevant to their employment decisions, it is important to note that inquiries into past worker’s compensation claims could result in both civil and criminal liability.  Before implementing a background check policy that includes inquiries into job applicants’ past worker’s compensation claims, employers should consult an attorney in their respective state to ensure compliance with the applicable laws.

Peter T. Mavrick has successfully represented many employers in labor and employment matters.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.

BACKGROUND CHECKS & COMPLIANCE: CRIMINAL RECORDS

Under Florida law, employers could face civil liability for the harm an employee causes to a third party.  For that reasons, employers might wish to conduct a thorough investigation of a job applicant’s or current employee’s criminal record.  According to federal guidelines, however, federal law could impose liability on employers who base their employment decisions on criminal records.

Under Title VII of the federal Civil Rights Act of 1964 (“Title VII”), employers are prohibited from discriminating on the basis of race, color, religion, gender, or national origin.  Title VII prohibits not only “disparate treatment” (i.e., refusing to hire an African American applicant based on his criminal record and instead hiring a white applicant with a comparable criminal record), but also “disparate impact.”  Disparate impact occurs when the employer implements a facially-neutral policy that, in practice, has the effect of disproportionately screening out a protected group (i.e., a particular race, color, religion, gender, or national origin).  For example, a policy that screens out all applicants that have ever been convicted of a felony does not, on its face, discriminate on the basis of race or color.  However, in practice, the policy might have the result of disproportionately screening out African American or Hispanic applicants.  Such a policy could form the basis for “disparate impact” claim of discrimination.

In April 25, 2012, the Equal Employment Opportunity Commissions (“EEOC”) issued federal guidelines based on Title VII.  According to the federal guidelines, African Americans and Hispanics are incarcerated at rates disproportionate to their number in the general population.  For that reason, the federal guidelines state that facially neutral policies that screen out applicants based on criminal convictions might violate Title VII if the policies are not job-related and consistent with business necessity.

According to the guidelines, policies that screen out job applicants based on criminal records should be implemented in two steps: first, the screening policy should take into account the nature of the crime, the time elapsed since the conviction, and the nature of the job; and second, the employer should provide an opportunity for individualized assessments of those applicants that were screened out (i.e., employers should ask the applicant to show why he or she should not be excluded and assess that information in light of the job).

Because the federal guidelines are based on arrest and incarceration rates of the general population, some courts have rejected the federal guidelines and found that screening policies based on criminal records do not alone support a disparate impact claim.  Recently, a federal court in Maryland held that “[t]o use general population statistics to create an inference of disparate impact, the general populace must be representative of the relevant applicant pool. … The general population pool ‘cannot be used as a surrogate for the class of qualified job applicants, because it contains many persons who have not (and would not) be’ applying for a job with Defendant.”  EEOC v. Freeman, 961 F. Supp. 2d 783, 798 (D. Md. 2013).

While federal guidelines seem to limit an employer’s ability to make employment decisions based on criminal convictions, Florida tort law could impose liability on employers who fail to conduct adequate background checks on job applicants and current employees.  Under Florida law, employers generally owe their customers a duty to exercise reasonable care in hiring and retaining employees.  A customer who is harmed by an employee’s actions can recover damages from the employer if the customer can show the following: (1) the employer was required to make an appropriate investigation of the employee and failed to do so; (2) an appropriate investigation would have revealed the unsuitability of the employee for the job; and (3) it was unreasonable for the employer to hire or retain the employee in light of the information the employer knew or should have known.

Whether an employer is required to perform an extensive background investigation under Florida law depends on the type of work the applicant/employee will perform.  If, for example, the applicant’s job duties will require only incidental contact with others, then obtaining past employment information and personal data during the initial interview may be sufficient.  If, however, the employee is to have constant contact with the public, the employer might be required to conduct a more thorough background check, including a criminal background check, to avoid liability.

To avoid liability under Florida law, employers should conduct an appropriate pre-employment investigation of job applicants.  The nature and duties of the job will determine the comprehensiveness of the investigation.  If the employer believes that a criminal background check is required, the best practice would be to ensure that any neutral screening policy takes into account (1) the nature and gravity of the convictions; (2) the time that has elapsed since the conviction; and (3) the nature of the job.  Furthermore, the employer should provide an individualized assessment for each screened out applicant to ensure the policy, as applied to each applicant, is job-related and consistent with business necessity.

Peter T. Mavrick has successfully represented many employers in labor and employment matters.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.