The Body Shop Is Cutting Background Checks; Do the Risks Outweigh the Benefits?

With evidence that unbiased recruiting leads to lower turnover rates and higher productivity, one popular retail chain is hiring with no interviews, no resumes, and no background checks.

Can’t find a job? Have a criminal record? Can’t pass a drug test? Don’t worry, this popular retail chain will hire you. You just have to be the first in line.

Okay, maybe it’s not that simple, but the new hiring process for The Body Shop‘s distribution centers is close to it.

The cosmetic, skincare and perfume company is one of the first retail businesses that will begin hiring in a way that completely eliminates human bias. Those who successfully complete an apprenticeship will receive employment opportunities. To be eligible, candidates must first answer ‘yes’ to three simple questions: Can you legally work in the United States? Can you lift over 50 pounds? Can you stand for up to eight hours?

The subsidiary of Natura & Co is adopting this hiring model in its warehouses in an effort to save money on recruiting methods. But more importantly, its aim is to attract talented workers who may not have employment opportunities otherwise.

This style of recruiting was mirrored from that of Greyston Bakery, a social enterprise that first implemented the model into its North Carolina distribution center last year.

Greyston CEO Mike Brady commented that the company, which distributes baked goods to businesses such as Whole Foods, was created as a mission to destroy employment barriers.

“We don’t hire people to bake brownies, we bake brownies to hire people,” reads the bakery’s slogan.

The Hiring Model

Similar to the intentions of a real estate “open house,” positions at Greyston are filled on a first-come, first-serve basis by apprentices who are selected from a waiting list of names.

Those who participate in the apprenticeship learn company procedures as well as basic employment and life skills. If the apprenticeship is completed to satisfactory standards, workers are offered entry level positions and given opportunities to advance throughout the organization.

According to Fast Company, The Body Shop plans to expand its current employment of about 800-1,000 people and use the money it saves from the interview process for training, employee benefits and programs that temporarily support new employees with transportation issues.

“The Open Hiring initiative was transformative for our business and for the culture of our company,” stated Andrea Blieden, The Body Shop’s U.S. general manager.

“We look to expand this into our retail stores for customer consultant positions this summer and continue to give opportunities to all who want to work for us. We’re also extremely grateful to Greyston for being a partner in this.”

The partnership is in reference to Greyston’s nonprofit initiative, Center for Open Hiring, which was created to help other businesses adopt its same hiring model.

But Is It Working?

The method seems to be working … for some businesses at least.

With a turnover rate of 43% in December 2018, The Body Shop boasted a turnover rate of 14% just 11 months later in November 2019. With higher retention rates and increased productivity, the company plans to expand this practice beyond its distribution centers and into stores.

“They said things like, ‘I’ve been struggling to find a job. This is one of the only places that would hire me, and I’m not going to mess this up,’” said Blieden of employees openly hired seasonal employees.

“When you give people access to something that they’re struggling to find, they’re very committed to working hard and keeping it.”

Without reporting an exact number, Greyston Bakery also advertises high retention rates, which can result in smoother processes and higher productivity.

However, in a time where artificial intelligence and automation are threatening to make thousands of manual jobs obsolete, is this a realistic approach for modern businesses?

While the number of jobs in the digital sector are increasing, the labor shortage in the United States is becoming a concern. With warehouses and internal operations taking the brunt of the labor shortages, companies in need of skilled workers may not be able to afford the cost of employee misconduct or toxic hiring that could result from a non-thorough job screening.

The Risk Versus the Reward

One Forbes columnist argued that open hiring is just replacing one bias with another: “What about someone who cannot get immediate access to a computer, or who is busy taking their kids to school, or for whatever reason cannot reply immediately and guarantee to be first in the line with their CV?”

From the perspective of risk management, without proper screening or recommendations, organizations not only don’t know the quality of their employee’s work but they are also unaware of any liabilities their employees may bring into the company upon being hired.

“[Background] laws, and various types of marijuana laws [which prohibit employers from rejecting a candidate based on a positive marijuana drug screen], severely restrict the information to which a prospective employer has access in order to make hiring decisions,” Christine Cunneen, CEO of background-check company Hire Image, told the Society for Human Resource Management.

“While the reasoning behind these laws is sound, unfortunately, there is not much in terms of protecting the employers, who will, unfortunately, continue to struggle with the need to balance their decision-making process in the face of compliance with all of these laws and the effective running of their businesses, including protection of their customers and property.”

While the open hiring model may not work for every business, one thing is for sure: Diversity and inclusion is a valuable aspect of the modern workforce.

Perhaps, if anything, this creative hiring approach will only make that philosophy more relevant. &

Emily Spennato is a former staff writer with Risk & Insurance.

How a Carrier Partner Can Help Navigate a Challenging Management and Professional Liability Market

A combination of a choppy economy with increased claims frequency and severity could lead to rate increases in the Management & Professional Liability market.

By: Risk & Insurance | April 3, 2024

Rates in the management & professional liability (M&PL) markets were on the rise from 2020 to early 2023 and are now falling rapidly.

M&PL divisions manage a number of different insurance products including management liability (D&O), professional liability (E&O), employment practices liability (EPL), fiduciary liability policies, cyber, etc. In 2023 and into 2024, a big influence on the marketplace has been the extremely aggressive and softening public company D&O market.

Though these rates have been softening for management liability, that may change over the next few years as companies continue to adjust their business models motivated by economic uncertainty. Layoffs were up nearly 200% last year, Forbes reported, even as other recession indicators, like the inflation rate, improved. A recession could lead to an increased claim activity and force carriers to raise rates.

“Whenever there is a meaningful downturn in the economy, we tend to see claim frequency pop up,” said George Schalick, Jr., senior vice president of the Management and Professional Liability Division at Philadelphia Insurance Companies (PHLY).

With continued fiscal uncertainty, businesses potentially already burdened with pandemic-related claims should seek a carrier with a long history in M&PL products. They will provide much-needed risk management guidance and be better positioned to support their insureds during market fluctuations.

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Philadelphia Insurance Companies. The editorial staff of Risk & Insurance had no role in its preparation.