Legal Issues

Why Background Checks Are a Necessary Evil

Attorney Patricia Weisberg of the law firm Walter & Haverfield, LLP.

By Patricia F. Weisberg

The majority of employers today conduct some form of background check prior to hiring a new employee. This practice, while many times necessary in ensuring a quality hire, also can present challenges on the legal front for employers who do not approach it with caution.

Often times, what should appear to be neutral hiring criteria might inadvertently be perceived as adversely affecting a protected group of individuals, thereby resulting in a discrimination lawsuit. Employers also face several laws restricting their ability to conduct a more thorough background check on individuals who have been conditionally hired.

Here is a snapshot of a few regulations and guidelines governing an employer’s ability to perform background checks on potential new hires – all of which are under scrutiny and in a constant state of flux:

  • Federal Fair Credit Reporting Act (FCRA)
  • Criminal Background Checks
  • Employee Polygraph Protection Act

Federal Fair Credit Reporting Act

The federal Fair Credit Reporting Act regulates how employers may use credit checks and “consumer reports” when making employment related decisions. A “consumer report” contains information about an individual’s personal and credit characteristics, character, general reputation and lifestyle.

Before an employer can legally obtain a consumer report for employment services, the employer must notify the individual in writing, in a document consisting solely of the notice, that the report may be used in making a hiring decision. The individual must provide written authorization before an employer can request the credit report.

In the event an employer relies on a consumer report to take “an adverse action,” such as denying a job application, reassigning, or terminating an employee, the employer must strictly adhere to certain steps required by law.

Many states have considered, and some have approved, legislation curbing an employer’s use of an applicant’s credit history in making hiring decisions. Hawaii, Washington, Oregon, and Illinois already have prohibited or severely restricted the use of credit reports in hiring. Nebraska is the latest state to consider such legislation.

The Equal Employment Opportunity Commission (EEOC) also has become involved in the debate. In 2009, it received more complaints about job discrimination due to use of credit histories than in previous years, according to commission reports. As part of its mandate to investigate such charges, the EEOC filed a federal lawsuit in December 2010 against Kaplan Higher Education.

In the lawsuit, the EEOC claims that the company’s practice of rejecting job applicants based on their credit history had a disparate impact on a class of African American job seekers. The EEOC said:

This practice has an unlawful discriminatory impact because of race and is neither job related nor justified by business necessity.”

Kaplan claims the checks are job related and a necessity because they ensure that staff handling financial matters, including financial aid, are properly screened. The EEOC, however, takes the position that a credit check is not a good indicator of qualification for employment.

In January, a former Dillard’s, Inc. dock worker filed a putative class action in the U.S. District Court for the Eastern District of Virginia, accusing the department store of breaching federal consumer law when it hired and fired employees based on the improper use of background checks.

In the complaint, the employee claimed Dillard’s used consumer reports to make hiring and firing decisions without providing employees with copies of the reports, lists of rights to dispute the reports, and other materials the FCRA requires employers to turn over in such cases. The employee also alleged that the company routinely fired and refused to hire people “on the spot” without statutory disclosure or forewarning of adverse action.

Criminal Background Checks

The practice of not hiring individuals because of a criminal conviction also is being challenged around the country. Legislators are drafting “ban the box” legislation to prevent employers from using the check box on job applications inquiring about criminal history.

And, while the EEOC has a long standing policy that an employer’s exclusion of an applicant from employment because they have a criminal record is unlawful under Title VII, unless it is justified by business necessity, under the current administration, the EEOC is taking a more aggressive approach and is focusing on criminal conviction policies.

The EEOC bases its position on statistics showing that African Americans and Hispanics with criminal records are disproportionately greater than their representation in the population. In the EEOC’s view, this means that the conviction records have an adverse impact on African Americans and Hispanics.

The EEOC takes the position that an employer using this information must always consider the type of offense, the gravity of offense and the time that has passed since the conviction and/or completion of the sentence. It may therefore be prudent for employers to be able to demonstrate that the policy is job related and consistent with business necessity.

In the past two years, the EEOC has filed several lawsuits against companies that have used criminal background checks that, in the agency’s view, had a disparate impact on African Americans and Hispanics. As such, the employment policies restricting convicts from employment should address or demonstrate that the employer has considered various factors in determining whether to hire an applicant in terms of the offense, the nature of the job, etc.

Employee Polygraph Protection Act

The Employee Polygraph Protection Act prohibits most private employers from conducting polygraph examinations of employees or applicants, except under limited circumstances and, in that event, when very specific procedures are followed.

Private employers should be sure to become familiar with the EPPA before requiring an applicant or employee to submit to a polygraph test.

Alternatives to traditional background checks

There are numerous ways to obtain information about applicants without running afoul of laws impacting background checks. Employers often don’t, but should, verify any education information. Misrepresenting degrees and attendance at post-secondary education institutions is not uncommon, particularly in an environment rife with unemployment. In fact, statistics from seasoned background checkers show that between 20 and 30 percent of resumes include exaggerated educational information.

Employers also frequently fail to contact prior employers either because of the time involved or because they assume employers will not provide relevant information. It’s a good practice to follow, however, as many applicants frequently misrepresent wages, titles, dates of employment on applications or resumes.

These inquiries will provide information about periods of unemployment, reasons for separation of employment, the applicant’s eligibility for rehire and the last rate of pay. This information might reveal whether an employee’s application is accurate. Also bear in mind that representations about certification and licensing information also have become increasingly common.

Finally, while “surfing” the Internet to gain more information about an applicant can sometimes help in background discovery, it can also hurt, as employers could be charged with knowledge of information should a dispute arise.

For example, if a recruiter is reviewing an application, he or she has no idea whether the employee is in a protected group (i.e., age, race, nationality, religion, etc.). If the recruiter surfs the Internet and locates the individual, he/she may learn about certain protected factors that allegedly could be used to make hiring determinations. If the recruiter does not have such knowledge, he/she cannot be charged with the use of such information.

Remaining within the Law

Employers face increasing pressure to ensure their employees are qualified to perform a job and perform it safely. Consequently, many have responded by conducting detailed background searches, including credit checks and criminal records checks, among others.

The EEOC and other private and public agencies, however, claim many of these background checks disparately affect individuals in protected classes. Employers, therefore, need to ensure that they comply with all of the laws impacting the particular background checks, so as not to find themselves embroiled in litigation.

Employers also always should be able to establish why the information they are seeking is relevant to the hiring process. Before conducting any particular background check, employers should be sure they really need the information in order to make the decision.

It may be best to begin by verifying the information on the application or resume which should be relevant to the position and consistent with business necessity before delving into deeper investigation. Legal advisers can assist in helping employers determine what is legal to investigate, what is not and the best way to structure the pre-employment screening process.

Patricia F. Weisberg is a partner at Walter & Haverfield, a Cleveland law firm. She assists employers with their obligations under state and federal employment discrimination laws, FLSA, ADA, FMLA, affirmative action, equal opportunity, unemployment, workers' compensation, non-compete agreements and other laws regulating the employment relationship in an effort to minimize potential employment-related litigation. She can be reached at 216-978-2928, or at pweisberg@walterhav.com .
  • Davjg

    The problems is I have been treated like a bad guy. I am honest guy. I dont steal. I always do my best. I have always done way above the call of duty. And Ive done nothing wrong. Yet, for the past several years I havent been able to get a job. Why? It is EXTREMELY UNFAIR that I am treated like a bad guy when I havent done anything wrong and cant get a job. It is EXTREMELY UNFAIR that I or anyone else is put through a labeling system that someone else has control over and can do anything they want and I and anyone else looking for employment is totally helpless. Change this system now. It is totally unfair what anyone can say or do about you and I have no control. It has to be fair or nothing.