Retail employee theft databases riddled with inaccuracies. Lawsuits, FTC probes pouring In

On paper, it sounds like a great idea. Create a database of retail employees who are accused of theft and have its contents freely shared with other retailers. Two problems: One, what if the information is flawed, if employees who "confessed" actually argued that they were innocent, and what if this information is being used to deny people jobs? And two, what if it's depriving retailers of honest, falsely accused, talented retail associates?

This was explored — quite well — by The New York Times on Wednesday (April 3), painting a frightening picture of lawsuits aimed at retailers who did little more than rely on what they thought were professionally maintained databases. Some of the employees, who submit written statements after being questioned by store security officers, have no idea that they admitted committing a theft or that the information will remain in databases, according to interviews with consumer lawyers, regulators and employees.

The databases, which have tens of thousands of subscribers, are used by chains including Target, CVS and Family Dollar. Said the Times: "But the databases, which are legal, are facing scrutiny from labor lawyers and federal regulators, who worry they are so sweeping that innocent employees can be harmed. The lawyers say workers are often coerced into confessing, sometimes when they have done nothing wrong, without understanding that they will be branded as thieves. The Federal Trade Commission has fielded complaints about the databases and is examining whether they comply with the Fair Credit Reporting Act, a federal law aimed at curbing inaccurate consumer information and giving consumers more control, said Anthony Rodriguez, a staff lawyer at the agency."

Even some within the employee database business are scared of the lack of independent verification of data in some of the retail databases. "That is not a product that we sell, because I think it's a product fraught with risk and inefficiency," said William Greenblatt, the chief executive of the background-check company Sterling Infosystems.

LexisNexis agreed last week to pay $13.5 million to settle a class-action suit on behalf of 31,000 people who accused the firm of violating consumer protection laws by selling background checks to debt collectors. As the economic recovery limps forward, consumer lawyers said in the story, the consequences of the retail theft databases can be particularly devastating. With so many job applicants, employers have little incentive to hire someone with a tarnished background.

The Times story continued: "Since the recession, lawsuits have proliferated against the companies that operate retail theft databases, like LexisNexis, which owned Esteem until this year, HireRight and GIS, according to a review of court records. In the last year, the nature of the lawsuits has changed, too, as lawyers try to build class-action cases. Home Depot, which just stopped using Esteem, said the decision followed a general review of 'systems and services.'"

There are quite a few reasons for the lack of accuracy in these databases. First, loss prevention officers are not there to establish the truth as much as they are there to protect the store brand and the store itself. If no police charges are filed and an associate is simply fired, there can often be an attitude that there's no reason to take a chance once an accusation has been made. Conducting a true investigation is time-consuming, and although some LP officers — especially those with a law enforcement background — have the training to conduct one, few can justify the time.

Associates don't help, either. To be confronted with charges of theft — especially false ones — is extremely unnerving. Fearing police charges and jail, associates might find the option to just sign a piece of paper and resign attractive. Often, the associates will confess just to get out of the situation. In many instances in the Times report, some of the associates stressed that they were innocent and the store still put in its report that the employee confessed. With no mechanism for the accused to review and correct the records before they are entered into a national database, errors are not likely, they are guaranteed.

The concept of relying on such a retail database is attractive, but unless you are willing to trust the least reliable LP officer at any retailer anywhere, there's a good argument to rely on old-fashioned interviews, reference checks and checks of public databases. In all honesty, if no arrest was made, there is often a reason. Granted, stores might avoid the bother and court time of prosecuting an individual, as long as the person quits and goes away. That's a fine policy, but when the decision was made to not turn the case over to law enforcement, that's when the decision should be made to not enter the data into a database.

Do it now when it's an option, before a jury of your peers — including a lot of people who have applied for retail jobs — makes the decision for you.

For more:

- New York Times story

Related stories:
Apple Arrest Puts Heat On Mobile Checkout Policies
Walmart Uses DNA To Identify Shoplifter
Stolen POS Tablets? Apple Can Track Them