More and more frequently, employers are turning to outside agencies to conduct background checks regarding applicants' criminal, credit, driving, educational, and work histories. Such background checks can provide valuable insights into an applicant's history and confirm that the applicant has been truthful. Additionally, a background check may help protect an employer from a later claim of negligent hiring if the employee engages in wrongdoing. Finally, Federal and state laws require employers to conduct background checks for some specific positions. While the benefits of conducting background checks on applicants and employees may seem limitless, employers should be aware of their obligations under Federal and state laws, both for obtaining background information and using that information to make employment decisions.
The Fair Credit Reporting Act and Limitations on How Employers Obtain Background Information
Employers should first be aware of their obligations when obtaining background information on applicants.1 The primary Federal law governing the procurement of background checks is the Fair Credit Reporting Act ("FCRA"). The requirements of the FCRA apply when an employer conducts a background check for employment purposes, such as hiring, firing, retention, or promotion. The statute only applies when the report is conducted by a consumer reporting agency, which is defined as any third party agency that regularly engages in the practice of assembling credit or other background information. (Accordingly, employers who conduct their own background checks internally are not subject to the requirements of the FCRA.) The FCRA applies to all types of background checks conducted by a consumer reporting agency, including but not limited to checks of an applicant's criminal, credit, and driving history.
Before an employer may use a consumer reporting agency to conduct a background check on an applicant or employee, the employer must first provide a "clear and conspicuous" disclosure to the applicant or employee that the employer intends to obtain a report for employment purposes. This disclosure must be set out in a separate document – it cannot be part of the general application form. The employer must also obtain the applicant or employee's authorization to conduct the background check, and this authorization can be contained on the same document as the disclosure. After the employer has obtained authorization from the applicant or employee to conduct a background check, it must certify to the consumer reporting agency that it intends to use the report for employment purposes, such as hiring, firing, or retaining an employee.
Once the employer has received the background report from the reporting agency, it must take additional steps before taking an adverse employment action based on the report. The term "adverse employment action" is defined broadly under the statute, and can include choosing not to hire an applicant for employment, or failing to promote, demoting, or terminating an existing employee. Before taking any such action, an employer must comply with the following "pre-adverse action" requirements: (1) notify the individual that it plans to take the adverse action; (2) provide a copy of the background report to the individual; and (3) provide the individual with a notice of his or her rights under the FCRA.
After an employer has satisfied its "pre-adverse action" obligations, it may then take an adverse action against an applicant or employee. When it implements the adverse employment action, the employer must disclose to the individual that the background report was the basis for the adverse employment decision. The employer must also provide the individual with the following information: (1) the consumer reporting agency's contact information; (2) a statement that the consumer reporting agency did not make the decision to take the adverse action and cannot give specific reasons for the adverse action; (3) a notice of the individual's rights to dispute the accuracy or completeness of the information provided by the consumer reporting agency; and (4) a notice of the individual's right to request an additional free report from the agency upon a request made within 60 days after the notice.
Many states impose additional requirements on employers for the procurement of background reports. For example, Minnesota law requires that employers provide a box on the authorization form that the individual can check to request a copy of the report, and the employer must provide the report to the individual within 24 hours of receiving it. Some states limit the types of criminal records that may be requested (many states prohibit employers from asking about arrest records), or whether an employer may request information about offenses that have been expunged or pardoned. Employers should ensure that they are aware of the applicable laws in the states in which they are conducting background checks.
Federal and State Laws May Also Limit the Use of Background Information
Employers should also exercise caution in how they use an applicant's criminal or credit history to make employment decisions. Some states prohibit or limit employers from making employment decisions based on an applicant's criminal or credit history. For example, in Wisconsin, an employer must demonstrate that the criminal conviction on which it intends to disqualify the applicant is "substantially related" to the circumstances of the job for which the applicant is being considered. Wisconsin law also prohibits employers from disqualifying applicants based on arrest records that did not lead to convictions. Several other states have similar requirements relating to the use of criminal and credit histories in the employment decision-making process, and employers should ensure that they are aware of and understand the requirements of their particular state before making a decision based on an applicant's background.
Finally, the use of criminal and/or credit histories in the hiring process may violate Federal and state laws against race discrimination. Guidance issued by the Equal Employment Opportunity Commission ("EEOC") indicates that the use of criminal and credit histories in the hiring process can have an inadvertent, but nonetheless negative, impact on racial minorities. The EEOC has reinforced this position recently by making the investigation and litigation of criminal and credit history policies a top priority as part of its "E-Race Initiative," a campaign started by the EEOC in 2008 to address continuing race and color discrimination in the workplace. As evidence of its dedication to eliminating what it perceives to be discriminatory background check policies, in the past two years the EEOC has filed a number of class action lawsuits against employers who the agency claims have "blanket" policies regarding applicants' criminal and/or credit histories. The EEOC argues that these "blanket" policies fail to consider whether the criminal or credit histories are actually related to the positions for which the applicants are applying, and that the policies therefore have the effect of discriminating against racial minorities. While these employers may ultimately prevail in the lawsuits brought by the EEOC, the defense of the lawsuits will constitute an enormous expense for the affected employers. Employers should exercise caution in implementing "blanket" policies, and should ensure that they are aware of any restrictions on the use of background information in the states where they operate.
These are just some of the issues that may arise from the use of background information in the employment decision-making process. Larkin Hoffman's Labor and Employment law attorneys are available if you have additional questions regarding Federal or state requirements regarding the procurement or use of background information. Larkin Hoffman's attorneys also have experience in defending employers against actions brought by applicants or employees regarding background checks.
Footnotes
1. The requirements discussed in this article apply whenever an employer conducts a background check on either an applicant or an existing employee.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
