Employers conduct background checks on applicants to lessen the chance of theft and fraud, reduce costs associated with employee turnover, and ensure a safe work environment. Employers also perform background checks to prevent claims of negligent hiring, since employers have a duty to exercise reasonable care to avoid foreseeable harm in the workplace. When obtaining background checks, employers must be careful not to ignore legal requirements.

Obtaining Background Checks

Criminal history records can be obtained from court records, corrections agency records, registries or watch lists, and state criminal record repositories. Although employers can perform background checks themselves, they often hire third-party background screening organizations. These outside providers may qualify as “consumer reporting agencies” if they provide information through “consumer reports.” If so, special legal parameters apply.

The federal Fair Credit Reporting Act (FCRA) and similar state laws regulate some employment background checks. The FCRA defines a “consumer report” as “any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer’s creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living . . . .” Under the FCRA, consumer reports cannot include arrests that did not result in convictions.

Notice Requirements:

The FCRA imposes notice requirements on employers that vary depending on the different stages in the employment process:

1. Before obtaining a consumer report: Many employers wait until after giving a conditional offer of employment to request a consumer report. Employers must provide applicants with a written notice that they are seeking the report and obtain applicants’ written consent. The notice and consent must be physically separate from the employment application.
2. Before taking adverse action based on a report: Employers must provide a pre-adverse action letter, which includes a copy of the consumer report and a description of the applicant’s rights under the FCRA. The employer must wait five business days before officially taking adverse action.
3. After taking adverse action based on a report: Employers must provide a post-adverse action letter, which includes the contact information of the consumer reporting agency and a statement of the rejected applicant’s rights to dispute the accuracy of the report and offers another copy of the report upon request. The letter must state that the consumer reporting agency did not make the hiring decision and therefore cannot give the reasons behind the adverse action.

Investigative Consumer Reports

An investigative consumer report is a type of consumer report where the investigator obtains information about the applicant through interviews with individuals who personally know the applicant. The notice requirements are similar to that of consumer reports, where employers must provide notice, receive consent in advance, and provide applicants with a statement of their rights. Upon request, employers must disclose the nature and scope of the report within five days of the request. If an employer initially notifies an applicant that they will be conducting a standard consumer report but later decides on an investigative consumer report, the employer must inform the applicant of this change within three days of making this new request.

There is an exception to the FCRA when an employer uses a third party for an investigation into potential employee misconduct. In this situation, no disclosure or authorization is required. However, if an employer takes adverse action based on a report, the employer must still give a summary to the employee. The employer does not have to report the sources of information in the summary.

References

Employment references are another method of ensuring application information is accurate and avoiding negligent hiring claims. References from an applicant’s previous employer can also give insight into the applicant’s work habits and potential problem areas. However, they have become harder to obtain because many organizations have adopted policies of only confirming dates of employment and final job title. This approach helps shield companies from litigation by former employees based on the references given.

Confidentiality

Employers must keep the content of consumer reports confidential and share them only on a “need to know” basis. Organizations should only use the content of the reports for the intended purposes and securely dispose of them once the process is complete.

Consequences of Violating the FCRA

The FCRA imposes damages of $100 to $1,000 in fines for each individual whose rights were violated. But notably, class actions under the FCRA have settled for millions of dollars.  Some of the most common employer mistakes are not providing a copy of the consumer report, not waiting the full five business days before taking an adverse employment action, and not obtaining proper authorization in the first place.

To learn more about employment background checks, check out our free webinar.