Checking into Background Checks

HR Advisor feature article | August 2007

Unlike large corporations, small business owners rarely can absorb the liabilities and risks resulting from poor hiring decisions. 

In the hopes of avoiding these problems, employers are making increasing use of backgrounds checks to learn more about their prospective as well as current employees.

A background check may include information about an individual’s past employment, education, professional licenses, driving records, credit history, and criminal records.  Most employers at least want to touch base with former employers—a process known as a reference check.

Checking a candidate's background can serve as an important part of the selection process when hiring new employees and retaining existing employees. It also helps businesses maintain a high-quality workforce. This article answers some basic but important questions about using background checks.

The Federal Law and Related Laws

Regardless of how many employees the company has, each employer first needs to know about the federal Fair Credit Reporting Act (FCRA).  This act applies to consumer reports covering information about a person’s “character, general reputation, personal characteristics, and mode of living.”  So, whether or not a credit check is conducted, an employment background check represents a type of consumer report covered by the FCRA. (Note: Based on the FCRA, to qualify as a “consumer report,” an employment background check must be prepared by a third-party consumer reporting agency.)

While the FCRA does not require employers to conduct background checks, it establishes the standards to apply if and when a background check is conducted.  At the same time, certain laws may make a background check mandatory rather than discretionary for certain jobs.  Some examples are jobs involving contact with children, the elderly, and / or disabled persons.

Immigration laws also require employers to verify an individual’s employment eligibility. This “I-9 check” requires a form called an Employment Authorization Document (EAD).

Other relevant laws dealing with the screening of job applications or current employees include:

• Americans with Disabilities Act (ADA) makes it unlawful for an employer to discriminate against a qualified applicant or employee with a disability.
• Title VII of the Civil Rights Act of 1964 prohibits an employer to discriminate on the basis of race, color, religion, sex, or national origin.
• Age Discrimination in Employment Act of 1967 (ADEA) prohibits employment discrimination against people aged 40 or above.
• Family Educational Rights and Privacy Act (FERPA) involves education records.

Internal Checks vs. External Help

While you can conduct checks internally, the expertise from an outside company can help minimize your risks and administrative frustrations.

Your due diligence on a screening company should include, but is not limited to, making sure it:

• Complies with the FCRA and applicable state and federal laws,
• Gives information about your employer responsibilities,
• Offers appropriate forms to get permission from and give required notice to job applicants or employees,
• Provides additional guidance if an “adverse action” decision occurs, and
• Follows required procedures for investigating and resolving inaccurate information.

For Job Applicants Only?

The FCRA applies to all checks made for employment purposes including “the purpose of evaluating a consumer for employment, promotion, reassignment or retention as an employee,” independent contractor, as well as an independent contractor’s employee(s).

Your Employer Obligations

The FCRA requires you to get written permission from the individual for the background check, give notice of the individual’s right to ask about the nature and scope of the report if the report will include interviews with others, and give notice and a copy of the report before an adverse employment decision may be made.

If you hire an outside screening company, the FCRA requires you to, among other things:

• Get written permission from the individual to conduct the background check.
• Get special permission if medical information is requested.
• Give notice of the individual’s right to inquire about the nature and scope of the report if the report will include interviews with other parties.
• Give notice as well as a copy of the report before an adverse employment decision may be made.
• Give notice of rights and procedures to dispute inaccurate or incomplete information.
• Note: Information relayed verbally to you or an agency you hire about an employee does not need to be in writing to trigger your employer obligations.

Helpful Tips and Ideas

Most importantly, if you decide to select an outside vendor to provide background checks, make absolutely sure you conduct your own due diligence on that company.  A report that mistakenly shows a criminal conviction can rob a business of a valuable employee and devastate that individual’s career opportunities.  A reputable company will have a clear process in place to prevent such situations from occurring and to address them quickly and appropriately if they do.

Familiarize yourself with the various employment laws and any related updates.  Join local business groups, and share best practices.  Also, use caution in selecting from internet-based screening companies claiming to be able to find “every” piece of information about a prospective applicant or current employee.

Conducting a background check is a prudent, proactive step in promoting a safe and productive work environment. It is a small, short-term investment that, if done right, can help a business ensure a high-quality workforce and avoid costly problems in the long-run.