How to Carry Out Legal Background Checks Before and After Hiring

BY: ON WEDNESDAY, JUNE 04, 2014

When hiring new employees, businesses may want to do some digging to learn more about an applicant's work history, education, criminal record, financial history or use of social media. While it's perfectly fine to want to know more about the people you could be hiring, you must ensure you are not breaking the law - especially if you decide to run background checks on your potential employees. The Equal Employment Opportunity Commission (EEOC) works to ensure that any information uncovered during a background check is not used in a discriminatory manner, while the Fair Credit Reporting Act (FCRA) has strict requirements on what an employer must do before and after conducting a background check. Failure to comply with the FCRA or anti-discrimination laws could land you in hot water, so here's what you need to know.

What to Do Before Conducting Background Checks

If you decide to run background checks on your applicants, keep in mind that anti-discrimination laws, including Title VII of the Civil Rights Act, prohibit discrimination based on race, color, national origin, sex, religion, disability, age, genetic information and, in some states, sexual orientation. It is illegal for you to conduct background checks when your decision for doing so is based on any of these protected characteristics. For instance, you cannot only conduct background checks on people of a certain race, as this would violate anti-discrimination laws. Furthermore, the EEOC advises employers not to try to obtain an applicant's medical history or genetic information. Even if you should come by this information, it's important not to use it when deciding whether to hire an applicant. If you decide to hire a new employee, do not ask about their medical history unless you believe they suffer a condition that would render them unable to perform their job or pose a risk to others.

When using background check companies to compile the reports, employers must follow the FCRA’s guidelines on informing applicants about their rights. Employers are required to tell applicants that they will be the subject of a background check through written notice, and applicants who agree to have background checks performed must sign this notice. These companies may also offer investigative reports, which detail an applicant’s lifestyle and general demeanor. When conducting an investigative report, employers must also inform applicants about the investigation, receive their signature permitting the report and inform them about their right to a description of the report.

You Have the Background Check Report, Now What?

Before taking any action using information from background checks, employers must provide applicants with copies of the reports and “A Summary of Your Rights Under the Fair Credit Reporting Act.” Upon receiving this information, applicants can review their reports and explain any negative findings.

How employers handle their applicants’ background information is critical. Because of anti-discrimination laws, it is very important that employers apply the same standards to all applicants and be aware that problems revealed through background checks may be more common among a certain group of people.

Bank of America, for example, recently came under scrutiny after having a “no arrest” hiring policy that allegedly discriminates against African Americans. According to the lawsuit, which is ongoing, African Americans are arrested at a higher rate than whites and, therefore, basing applicants’ qualifications on whether they have been arrested results in a disparate impact on African Americans.

The Right Way to Take Adverse Action Using Information from a Background Check

If employers decide they don’t want to hire an applicant because of information contained in his or her background check, they must tell the applicant that he or she was specifically rejected based on that information. Employers must also provide applicants with the name, address, and phone number of the company that supplied the background checks and inform applicants that the outside company did not take part in the hiring decision.

The EEOC urges employers to make exceptions for problems caused by disabilities that may be revealed in background checks, advising employers to first allow applicants to prove their ability to perform the job before taking any action.

Applicants reserve the right to dispute the accuracy or completeness of background checks and may request a free report from the company within 60 days. Employers who fail to inform applicants about their rights following a background check may be subject to expensive litigation, as the trucking company U.S. Xpress Inc. was last year. In that lawsuit, the plaintiffs alleged that they were never told they could receive a copy of their background checks or dispute information contained in the reports. U.S. Xpress later agreed to pay $2.75 million to settle these claims.

Hiring or Not, Employers Must Retain Background Checks for at Least One Year

Application forms, background checks and any other documents relevant to the hiring process must be preserved for one year after the information was compiled or hiring action was taken; however, the EEOC and Department of Labor extend this period to two years for the following employers:

  • Educational institutions
  • State and local governments
  • Federal contractors that have at least 150 employees and a government contract of at least $150,000

This deadline is also extended if an applicant files charges of discrimination, which requires employers to retain all hiring records on the applicant until the case concludes.

Finally, once applicants’ records have been held for the allotted time period, employers should dispose of the sensitive information in a secure manner including burning or shredding paper records, and properly disposing of online records.

Image via Shutterstock

About the Author

Shanon Carson
Shanon J. Carson is the chair of Berger & Montague’s Employment Law Department and a member of the firm’s Employee Benefits/ERISA department.  Mr. Carson handles employment cases involving discrimination; overtime and wage and hour disputes; employer retaliation; and wrongful termination.
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