Child-Care Site Care.com Boosts Vetting After Scrutiny

Online child-care network plans in-depth background checks and lowers annual guidance

By

Gregory Zuckerman, Kirsten Grind and Kimberly Chin

Online child-care marketplace Care.com Inc. CRCM -2.34% said it plans to overhaul its business model to include in-depth background checks and other screening procedures for caregivers after its vetting practices came under scrutiny.

The largest online caregiver network in the U.S., which has almost 33 million members, said Thursday it would pay a provider of background checks and identity services to conduct screening of caregivers on its site, such as verifying their social security numbers and checking for criminal histories.

The company said it would display the date of its most recent check on caregivers’ profiles online. Care.com will begin implementing the screening enhancements in the next few months and additional improvements will be rolled out by the end of the year, it said.

The enhancements follow an investigation by The Wall Street Journal that found the company performed limited vetting of caregivers.

The Journal found instances in which caregivers who had police records were listed on Care.com and later were accused of committing serious crimes while caring for customers’ children or elderly relatives. It also found hundreds of instances in which day-care centers listed on Care.com as state-licensed didn’t appear to be.

Chief Executive and founder Sheila Marcelo said in a statement on Thursday that she and the company believe “in the importance of creating a new safety standard for digital care marketplaces and today’s announcements mark a substantial step toward that goal.” She had previously called problems with caregivers on the site rare but “very heartbreaking.”

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Care.com previously relied on a model of “shared responsibility overall,” in which it asked families and others to do most of the vetting of the caregivers that they hired, and encouraged them to pay for additional background checks on those individuals.

Care.com shares dropped about 8% after Thursday’s announcement. The shares are down more than 40% in the past three months.

The company’s moves come amid increased scrutiny of the responsibility of tech platforms, which have broad protections under an element of federal law known as Section 230. The law, which says technology companies aren’t liable for content posted by their users, was established in the mid-1990s to give protection to websites and has allowed many to flourish into global giants.

It has recently come under attack by lawmakers who say it shields the industry at a time when tech firms are an ever-larger force in the economy.

The shift at Care.com “goes to the very architecture of Section 230. There will be some companies that take the easy way out by not investing in the quality of their sites, but that is not what the market wants,” said Eric Goldman, a professor at the Santa Clara University School of Law.

Mr. Goldman noted that the billions of dollars being invested by Facebook Inc., Alphabet Inc.’s YouTube and Twitter Inc. to more aggressively police their sites are reflective of the same forces.

In a change announced in a securities filing after the Journal article was published, Care.com said it would no longer allow caregivers to begin applying for jobs on the site until the company had completed a “preliminary screening,” which includes checking multijurisdictional criminal databases and the National Sex Offender Public Website.

Thursday’s moves show the company further strengthening its procedures.

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The company said it is launching a pilot program this month that would use facial recognition to match a government-issued ID. Care.com will also seek to verify the state licenses on child care listings provided by business owners.

It appointed Clark Ervin, former inspector general of the Department of Homeland Security, to its board.

Separately, Care.com reported a first-quarter net loss of $1.03 million. The company lowered its annual guidance for earnings before interest, tax, depreciation and amortization by $8 million. Chief Financial Officer Michael Echenberg said on the company’s earnings call Thursday the weaker outlook reflected Care.com’s one-time expenses in responding to the Journal’s investigation and the safety investments the company is undertaking.

Mr. Echenberg said there will be one-time costs associated with the improved safety measures, as well as ongoing costs, as they are introduced.

“These investments while substantial in size, are aimed at making our service safer, increasing value to our consumers and clients and enhancing the category leadership of our brand, while ensuring we keep our services affordable for families,” Ms. Marcelo said.

Ms. Marcelo also said that “a handful of very small clients” have decided not to renew their Care@Work services, a program that provides employees with backup child care. The company says the result has been a “less than 0.10% effect on revenue.”

Best Buy Co. said in April that it had suspended its Care@Work relationship.

Corrections & Amplifications
Care.com reported a net loss of $1.03 million in the first quarter. A previous version of this article incorrectly said the net loss was $1.03 billion. (May 9, 2019)

—Allison Prang contributed to this article.

Write to Gregory Zuckerman at gregory.zuckerman@wsj.com, Kirsten Grind at kirsten.grind@wsj.com and Kimberly Chin at kimberly.chin@wsj.com

Appeared in the May 10, 2019, print edition as 'Child-Care Site Boosts Vetting After Scrutiny.'

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