Hiring New Employees: Background Checks and Offers of Employment

Two recent Employment Relations Authority decisions provide a helpful reminder for employers about the importance of taking care when making and confirming offers of employment, particularly when employers want those offers to be subject to satisfactory background checks.

Kennedy v Field Nelson Holdings Ltd

In the case of Kennedy v Field Nelson Holdings Limited [2022] NZERA 421 the applicant, Mr Kennedy, argued that he had been unjustifiably dismissed when an offer of employment was withdrawn by the respondent company before his first day of work because of an unsatisfactory reference check. The offer was withdrawn after Mr Kennedy had signed and returned an employment agreement (the IEA), which included:

We agree to employ you and you agree to accept employment on the terms set out in this agreement and the employee policies which apply from time to time. This offer remains valid for one week from the date of this agreement. ….

This offer is subject to reference checks and pre-employment checks to [FNH’s] sole satisfaction.

Under the Employment Relations Act, a person who has been offered and has accepted work as an employee is “a person intending to work” and therefore an employee for the purposes of rights and responsibilities provided by the Employment Relations Act. The Authority had to determine whether by signing the IEA Mr Kennedy had become an employee who was then entitled to pursue an unjustified dismissal claim when the company withdrew the offer of employment.

The Authority made a distinction between a conditional offer and a conditional employment agreement, finding that because the IEA and subsequent communications between the parties made it clear that the offer of employment was subject to satisfactory reference and pre-employment checks, there had been no unconditional offer made that was capable of acceptance. Mr Kennedy could not therefore be considered a person intending to work. The signing of the IEA was an acceptance of the intended terms and conditions of employment if the conditional offer was subsequently confirmed and accepted. The Authority found Mr Kennedy was not an employee and dismissed his claim.

O’Bell v Paul Smith Earthmoving 2002 Ltd

In the recent interim reinstatement decision of O’Bell v Paul Smith Earthmovng 2002 Limited [2022] NZERA 423, the Authority found that an employee had a strongly arguable case for unjustified dismissal when he was dismissed for refusing to consent to background checks after his employment had commenced. 

As part of his employment application, Mr O’Bell had signed a form authorising the employer company to “run a background check and referee check on [him], prior to any offer of employment being issued”. Due to mistake or oversight, the company failed to undertake those checks before Mr O'Bell signed his IEA and commenced work. 

Although the IEA included an obligation to inform the employer about any criminal charges or convictions arising during employment, it did not provide any additional provision for pre-employment criminal convictions or provision that employment was conditional on satisfactory reference and criminal history checks. When the company attempted to complete the background checks, shortly after Mr O’Bell had started work, Mr O’Bell refused to comply. The company suspended Mr O’Bell and commenced a disciplinary process, alleging he had refused to follow a reasonable instruction.

The Authority found that Mr O’Bell had a strongly arguable case that the company’s decision to dismiss him for refusing to consent to the criminal history checks was not a decision that a fair and reasonable employer could make. The Authority considered that because the IEA and associated policies were silent such an obligation it was not a “reasonable instruction” that the company could make, even when consent to pre-employment checks had been provided during the recruitment process. Mr O’Bell’s interim reinstatement claim was successful.

Key Guidance for Employers

• Employees are not required to disclose criminal convictions unless asked or they agree. Employers should ensure their application processes include asking for disclosure of any criminal convictions and consent to undertaking satisfactory reference and/or criminal history checks if either or both are relevant in determining their suitability for the job. It is also advisable to include an ongoing disclosure of any criminal convictions or charges clause in an employee’s IEA.
• Any offer that is conditional on satisfactory background checks should be clearly communicated to a prospective employee in writing. Although the Kennedy case confirms that the inclusion of a conditional offer within the intended IEA can be sufficient, we recommend that any conditional offer is also brought to the employee’s attention separately in a cover letter. The cover letter should make it clear that the IEA attached to the letter includes the proposed terms and conditions of employment should an unconditional offer subsequently be made upon completion of all necessary background checks. 
• The cover letter should request the potential employee to sign and return the employment agreement. The IEA should contain a term with acknowledgement that he or she understands that the offer of employment is conditional on satisfactory background and reference checks, that all information he or she has provided in applying for the job is true and correct, and that he or she consents to background and reference checks being undertaken.
• Employers should ensure they have robust administration systems in place to ensure that satisfactory reference and background checks are undertaken before the employee’s first day of work.
• IEA’s should clearly set out the consequences for employees (e.g. disciplinary action up to dismissal) for any false/misleading information he or she may have provided to the employer, or any failure to comply with any reasonable instructions to give effect to the agreed terms and conditions of employment.

Please contact DTI’s specialist employment team should you require further advice about your pre-employment processes or if you would like a member of our team to review your organisation’s current employment processes and associated documentation. Phone 07 282 0174 or email Katy@dtilawyers.co.nz