New Developments in Pre-Employment Background Checks

October 2012

Author: Colin A. Walker

Colorado Human Resource Association Newsletter

Investigating the background of job applicants is an important part of the hiring process for many employers.  This is appropriate for numerous reasons, including avoiding liability for negligent hiring.  For example, if a day care center hires a person with a history of child abuse, the center could be held liable for child abuse or similar acts committed by that employee.  A business might also want to know if an applicant for a position involving finances has a history of irresponsible financial behavior or financial crimes.  While there are many good reasons for performing background checks in the hiring process, there are also risks and regulatory requirements, of which employers should be aware. The Equal Employment Opportunity Commission’s new “Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions” and several other recent developments help clarify the law governing use of background checks in the employment context.

The Fair Credit Reporting Act

The Fair Credit Reporting Act (“FCRA”) governs background checks, such as criminal record checks and credit checks.  The FCRA is enforced by the Fair Trade Commission (“FTC”).

The FCRA encompasses background checks performed by third party service providers known as “consumer reporting agencies” (“CRAs”), but not background checks performed by the employer itself.  For example, if the employer contracts with a CRA to perform background checks on job candidates, the employer and the service must comply with the FCRA.  However, if the employer assigns one of its own employees to perform a background check, the background check will not be covered by the FCRA.

Background checks are complicated and a CRA will often produce more complete and accurate information.  If an employer hires many employees on a regular basis, it may make sense to dedicate one or more employees to perform background checks.  However, these employees should be well trained and have access to appropriate resources.  While the FCRA will not apply to background checks performed by the employer, there are other risks, such as discrimination, which is also discussed in this article.

The FCRA requires notice to the prospective employee that a background check will be performed.  Before the employer can perform a background check, the employee must provide written consent on a form separate from the other documents associated with the hiring process (such as employment applications).  The employer may condition employment on consent to a background check, i.e., the employer may refuse to consider the applicant unless he/she consents to the background check.  Prior to taking an adverse action based on the background check, the employer must provide the applicant with a copy of the report of the background check and the FTC’s “Summary of Your Rights Under the Fair Credit Reporting Act” (which can be found on the FTC’s website, www.ftc.gov).  After the adverse action is taken, the employer must provide the applicant with notice of the adverse action, the name, address and telephone number of the CRA, and inform the applicant that he/she has the right to obtain a free copy of the background check report from the CRA and to dispute its accuracy.

Employers that do not comply with the FCRA could be held liable for damages, penalties, and attorneys’ fees.

Discrimination

Improper use of background checks can also lead to liability for discrimination under Title VII of the Civil Rights Act of 1964 or state or local laws prohibiting discrimination.  The EEOC has concluded that because there is a higher rate of contact with the criminal justice system for people of certain races and national origin, basing hiring decisions on criminal background can be discriminatory.  In addition, background checks that reveal information relating to other protected classifications can be used as evidence of discriminatory motive.  For example, a background check that reveals a person’s sexual orientation through review of social media or websites might be used to support a claim of discrimination based on sexual orientation.  While sexual orientation is not protected under Title VII, it is protected under many state and local laws, such as the Colorado Anti-Discrimination Act.  Similarly, through such searches, an employer might obtain information on a person’s religion or disability, which could be used as evidence of religious or disability-based discrimination. 

The EEOC’s Enforcement Guidance

On April 25, 2012, the EEOC issued its “Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions.”  The Guidance provides information on when use of criminal history background checks can be discriminatory or otherwise inappropriate. 

The Guidance states that use of arrest records can be problematic because an arrest does not establish criminal conduct; it is merely an accusation of criminal conduct.  Therefore, according to the Guidance, arrest records should not be used as the basis for employment decisions.  However, the Guidance states that the conduct underlying the arrest may be used. 

Conviction records, on the other hand, generally do establish criminal conduct and, in many cases, employers may rely on them.  However, using conviction records in a discriminatory manner is unlawful.  If an employer treats conviction records differently based on race, religion, national origin or other protected classifications, it may be liable for discrimination.  Even a neutral policy, such as a policy that prohibits hiring anyone convicted of theft, may be unlawful if it disproportionately affects certain classes of employees.  According to the Guidance, a policy of this sort must also be “job related and consistent with business necessity.”

The Guidance provides the following “best practices” for employers:

General

  • Eliminate policies or practices that exclude people from employment based on any criminal record.

 

  • Train managers, hiring officials, and decision makers about Title VII and its prohibition on employment discrimination.

Developing a Policy

  • Develop a narrowly tailored written policy and procedure for screening applicants and employees for criminal conduct.
  • Identify essential job requirements and the actual circumstances under which the jobs are performed.
  • Determine the specific offenses that may demonstrate unfitness for performing such jobs.
    • Identify the criminal offenses based on all available evidence.
  • Determine the duration of exclusions for criminal conduct based on all available evidence.
    • Include an individualized assessment.
  • Record the justification for the policy and procedures.
  • Note and keep a record of consultations and research considered in crafting the policy and procedures.
  • Train managers, hiring officials, and decision makers on how to implement the policy and procedures consistent with Title VII.

Questions about Criminal Records

  • When asking questions about criminal records, limit inquiries to records for which exclusion would be job related for the position in question and consistent with business necessity.

Confidentiality

  • Keep information about applicants’ and employees’ criminal records confidential.  Only use it for the purpose for which it was intended.

Internet Searches and Social Networking Sites

Many employers have investigated applicants using Internet tools and resources, such as Google, Yahoo, Facebook, and My Space.  This can be problematic for a number of reasons. 

These searches may provide information on protected class, such as sexual orientation, disability, national origin, or religion.  For example, an employer may not have known that an applicant practices a certain religion because the employer—properly—did not ask any questions on the employment application, or otherwise during the hiring process, about religion.  However, if the employer looks at the applicant’s Facebook page, My Space page, or website, it might discover that the applicant subscribes to a particular religion.  If the applicant is not hired, for whatever reason, the applicant may point to the review of the social media as evidence that, in fact, he/she was not hired because of his/her religion.  Refusing to hire someone based on religion is a violation of Title VII and many state and local anti-discrimination laws.

Another pitfall of reviewing such information is that it is not necessarily accurate.  Reviewing social media might give the employer the incorrect impression about an applicant’s background, be it criminal or credit related or related to other characteristics.  Relying on inaccurate information is unfair to both the applicant and the employer and could be used as evidence of an improper motive regarding hiring.

The FTC has specifically targeted use of Internet searches and social media.  In the Spokeo case, discussed in this article, the FTC asserted claims based on Internet and social media searches, resulting in an $800,000 civil penalty.

Accurint Searches

Another common tool used to investigate an applicant’s background is a service known as “Accurint,” provided by LexisNexis.  Accurint provides a quick and inexpensive search of information such as criminal record, credit record, bankruptcies, liens and judgments, licenses and permits, addresses, date of birth, ownership of automobiles, boats and airplanes, and other information.  In Adams v. LexisNexis Risk and Information Analytics Group, Inc. (May 12, 2010), the U.S. District Court for the District of New Jersey considered whether an Accurint search could qualify as a consumer report under the FCRA.  Denying LexisNexis’ motion for summary judgment, the court held that an Accurint search would be governed by the FCRA if the information in the Accurint report was “used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing a consumer's eligibility…” While this case did not address an employment situation and is not binding in all jurisdictions, employers and CRAs should assume that Accurint searches will be covered by the FCRA when used in connection with employment-related background checks. 

 Increased FTC Enforcement

Recently, the FTC has stepped up enforcement regarding background checks.  The FTC has sued three of the most prominent CRAs, Equifax, Experian, and Transunion, and obtained approximately $3 million in fines and consumer refunds.  It also sued ChoicePoint, Inc., a consumer data broker, recovering approximately $15 million in penalties and consumer refunds for failing to screen prospective subscribers before providing sensitive consumer information.  In June of 2012, the FTC entered into a settlement agreement for an $800,000 civil penalty against Spokeo, Inc., a data broker, which provides background information as an employment screening tool because it provided inaccurate information, failed to take steps to ensure that the information was being used for a proper purpose, failed to provide required notice, and provided misleading endorsements of its services.  The Spokeo case is also interesting because it involved Internet searches and searches of social media sites.  In August of 2012, the FTC entered into a $2.6 million settlement agreement with HireRight Solutions for failing to provide notice to individuals that their information was being provided to employers, failing to ensure accuracy, and failing to investigate disputes regarding the accuracy of the information.

EEOC enforcement

Similarly, the EEOC has increased its efforts regarding discrimination in connection with employment-related background checks.  The EEOC’s draft Enforcement Plan for 2012-2016 makes discrimination related to background checks a priority as part of its effort to eliminate “systematic barriers to recruitment and hiring.” 

While there are good reasons to perform background checks, employers must be very careful.  Failure to comply with the FCRA can lead to enforcement actions by the FTC, as well as lawsuits by applicants or employees.  Using background checks in a discriminatory manner can result in actions by the EEOC and discrimination lawsuits.  Both agencies are increasing their enforcement efforts regarding background checks.  Employers should use background checks to avoid liability for negligent hiring and to ensure that they are not hiring applicants who have a history of inappropriate or criminal behavior for positions where such behavior could be harmful.  However, employers must take care to comply strictly with the FCRA and must be careful not to use background checks in a way that is, or appears to be, discriminatory.

This Article is published for general information, not to provide specific legal advice. The application of any matter discussed in this article to anyone's particular situation requires knowledge and analysis of the specific facts involved.

Copyright © 2012 Fairfield and Woods, P.C.,ALL RIGHTS RESERVED.

Comments or inquiries may be directed to: Colin A. Walker