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Insight The Utilization of Background Checks by Employers

By Marvin K. Smith,

It is vitally important for employers to hire and retain strong, reliable employees.  Costs related with workforce turnover can interrupt business operations and harm the workplace environment.  Thus, it is logical that employers would want as much information as possible to make informed decisions on the individuals they hire.  While it is not illegal for an employer to ask applicants questions about their background or to require a background check, an employer must comply with laws that protect applicants from discrimination.  Additionally, when an employer performs background checks through a company that is in the business of gathering background information, the employer must comply with the Fair Credit Reporting Act.

The Fair Credit Reporting Act (FCRA) applies to both credit checks and criminal background checks but does not apply to an employer’s own internal investigations.  The FCRA requires an employer that intends to obtain use a background check from an outside consumer reporting agency to follow the notification procedures outlined in the FCRA.  An employer must:

  • Obtain authorization in writing from the applicant to procure a background report;
  • Provide a clear and conspicuous written disclosure to the applicant that is provided separately from other documents which informs the applicant that a background report may be obtained for employment purposes and that a poor credit history or conviction on the report will not automatically result in disqualification for the position;
  • Certify to the reporting agency that it will not use the information from the report in violation of any applicable federal or state equal opportunity law or regulation;
  • Prior to taking any adverse action based upon information contained the report, notify the applicant that it is considering taking adverse action in whole or in part because of information contained in the report; provide a copy of the report to the applicant; provide the applicant a description in writing of the rights the applicant has (prescribed by the Federal Trade Commission); and allow the applicant the opportunity to rebut the information contained in the report; and
  • After adverse action is taken based upon the background report inform the applicant that: he or she was rejected because of information contained in the report; the name, address, and telephone number of the company that sold the report; the company selling the report did not make the hiring decision and cannot provide specific reasons for the adverse action; and that he or she has the right to dispute the accuracy or completeness of the report, and to get an additional free report from the reporting company within sixty (60) days. See 15 U.S.C. § 1681b.

The failure to comply with the FCRA’s requirements exposes an employer to the risk of monetary damages in civil lawsuits.  Employers should ensure that the consumer agency they use to obtain background check information complies with both applicable federal and state laws.

Once an employer properly adheres to the disclosure and authorization requirements of the FCRA it must then determine the extent to which the information can be used, and for what purpose.  It is in this context where challenges begin to mount for the individual or individuals  charged with hiring decisions.  Any information received from a background check must not be used to discriminate.  This means employers should apply the same standards to everyone regardless of their race, national origin, color, sex, religion, disability, genetic information, or age.  An example of this is if an employer does not reject applicants of one national origin with certain financial histories or criminal records, it cannot then reject applicants of other national origins because they have the same or similar financial histories or criminal records.  Employers should take special care when basing employment decisions on background problems that may be more common among people of a certain race, national origin, color, sex, religion, among people who have a disability, or among people age 40 or older.  Employers should be cognizant of policies or practices that exclude individuals with certain criminal records or financial backgrounds if the policy or practice significantly disadvantages individuals of a particular race, national origin, or another protected characteristic.  Thus, it is vitally important that employers review and/or enact policies that dictate precisely how credit checks and/or criminal convictions/arrest records will be used in hiring.

Employers can avoid the inference of discriminatory hiring by applying all of its policies regarding background checks consistently among all applicants.  Applicants for each particular category of jobs should be screened consistently and under the specifications outlined in the developed policies regardless of the applicant’s qualifications.  Consistent application of policies will avoid the appearance of discriminatory hiring in any specific case.  Employers should also monitor developments in the law regarding background checks and raise any concerns regarding their background check policies, practices, or procedures with legal counsel.

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