Employment Background Checks: Proceed with Caution

caution-943376_1280Recently there have been an increased number of class action lawsuits against employers due to background screenings.  Many employers use background checks, referred to as “consumer reports,” to obtain information about an individual such as reputation, character, credit worthiness, criminal background, civil lawsuits, driving record, education verification and other information. The information obtained through these consumer reports is used to make employment related decisions such as hiring new employees or promoting existing employees.

The Equal Employment Opportunity Commission (EEOC) reports that, in one survey, a total of 92% of responding employers stated that they subjected all or some of their job candidates to criminal background checks.  Reasons for employers to use background checks include federal, state and local laws, as well as preventing theft, fraud, and workplace violence, and reducing the likelihood of negligent hiring liability.

Excluding information regarding genetic and medical history, employers legally have the right to request additional background information regarding any applicant or employee of their company.  But be cautious, as there are federal and state regulations which employers must comply with when using consumer reports.

Anti-Discrimination: Title VII and the EEOC
Title VII of the Civil Rights Act of 1964, enforced by the EEOC, makes it illegal to discriminate against an individual based on their race, national origin, color, sex, religion, disability, genetic information (including family medical history), or age (40 or older).  This applies to employment related decisions, for example, only asking individuals of a certain race about their criminal record would be evidence of discrimination.

There are two types of discrimination: disparate treatment and disparate impact.  Disparate treatment is more direct.  For example, there are 2 candidates you are considering for employment. Both candidates have similar education, skill level, and experience. Both candidates have a drug possession charge on their criminal record but no other charges. One applicant is black and the other is white.  You send the black candidate a rejection letter based on their criminal record and recommend the white candidate for hire.  This is an obvious scenario of disparate treatment discrimination.

Other times, discrimination is not so obvious. Disparate impact occurs when an employer’s neutral policy or practice has the effect of disproportionately screening out protected groups.  The EEOC discourages the use of “blanket” policies stating that any candidate with a criminal record will not be eligible for hire.  The EEOC reports findings that individuals of certain races and national origins have a higher rate of arrest and conviction than others. This means that “blanket” policies can indirectly discriminate against individuals of those races and national origins.

Instead of using a “blanket” policy, you should consider the findings of the consumer report as they relate to the essential functions of the job.  If a consumer report shows a previous conviction for a candidate that is unrelated to the job they are applying for, it should not be used in determining whether the candidate is eligible for hire unless there is a proven business necessity. For example, if you are hiring for an administrative assistant position and a candidate’s consumer report shows a conviction of Operating Under the Influence, this record should not be used against the candidate as the charge is not related to the essential functions of the administrative assistant position.

Conversely, if you are hiring for a bookkeeper position and the candidate’s consumer record shows an Embezzlement conviction, you can consider the criminal record when making your employment decision because the bookkeeper position would likely have access to your bank accounts and funds.

The EEOC published Enforcement Guidance on Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964. The Guidance provides background information, information related to both disparate treatment and disparate impact, as well as examples and guidelines for employers.  The guidelines are seen below:

EEOC Employer Best Practices

Fair Credit Reporting Act
Employers using third party companies in the business of compiling background information are subject to the federal Fair Credit Reporting Act (FCRA) when using consumer reports to make employment decisions.  The FCRA regulates the collection and use of consumer credit information and imposes obligations on employers at three different stages: (1) prior to requesting a consumer report, (2) before adverse action (such as rejecting a job application, terminating or demoting an existing employee, denying a promotion of an existing employee, etc) is taken based on information in a consumer report, and (3) after adverse action is taken based on information in a consumer report.

The chart below describes the employer’s obligations under FCRA.

FCRA Obligations Infographic

Note: There are additional obligations under the FCRA for employers who use “investigative consumer reports” based on personal interviews concerning a person’s character, reputation, lifestyle, and personal characteristics.

State Laws
In addition to federal laws, some states have also enacted their own regulations regarding consumer reports. For example, at least ten states (California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington) have passed laws restricting the use of credit reports for employment decisions.  Some states have rules regarding arrest records with no conviction (such as Michigan).  Some states have 7 year limitations on criminal records.  Some states have specific guidelines for disclosure forms and notification periods.  To be sure that you are in compliance, you should be aware of the laws in the states your employees work.

Record Retention and Disposal
EEOC recordkeeping requirements state that all records, including employment applications (regardless of whether the individual was actually hired), must be kept for a minimum of one year after the records are made, or after a personnel action, whichever comes later.  This requirement is extended to a minimum of two years for educational institutes, state and local governments, and some federal contractors.

After you’ve satisfied any applicable recordkeeping requirements, you can dispose of any consumer reports you receive, however you are required to do so securely.  This can be done by burning, pulverizing, or shredding hard copies of reports obtained.  Electronic files should be destroyed or erased so that information cannot be read or reconstructed.

Why Do Background Checks?
With all of the regulations regarding background checks, you may consider eliminating them from your pre-hire procedures all together.  But that’s not necessarily a good idea!

Negligent hiring claims can be brought against an employer by a damaged employee who claims that the employer either knew about, or should have known about, a situation in an employee’s past that indicates they could be violent or untrustworthy. To help avoid these negligent hiring claims, it’s recommended that employers perform background checks to show they are doing their due diligence when making hiring decisions.

If you use background screenings or other consumer reports when making employment decisions, it’s a good idea to review your forms and procedures to make sure you are in compliance with the FCRA, any applicable state laws regarding consumer reports or fair credit reporting, and anti-discrimination laws.

When making employment decisions, make sure that your reasons for using a consumer report are relevant to the essential functions of the job or related to business necessity to reduce the likelihood of a potential discrimination complaint.

More information is available for employers about their obligations when using background checks:
EEOC – Background Checks. What Employers Need to Know
Federal Trade Commission – Using Consumer Reports: What Employers Need to Know.

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