Who Are You Hiring? A Legal Guide to Applicant Background Checks

Who Are You Hiring? A Legal Guide to Applicant Background Checks

by Carrie M. Garcia

Since Sept. 11, security has become a priority for businesses all over the country. From the tallest skyscrapers in the largest cities to manufacturing plants in small towns, an employee will not likely get through the door without showing identification. But many companies are looking to go further to secure their businesses and employees; they are conducting background checks before an applicant for a job ever receives the badge that lets her in the front door. This article explores the procedures that must be followed by employers when conducting background checks on applicants and describes the limits on an employer's use of the obtained information. (These comments are also applicable to reports obtained on existing employees.)

Notices to Applicants Regarding Background Checks

If an employer uses a consumer reporting agency to conduct background checks on job applicants, the report generated will generally be considered a "consumer report" under the Fair Credit Reporting Act. This is true even if the employer did not request information about "credit." For example, reports containing information on criminal, driving and court records fall under the protection of the Act.

Once a background check is covered by the Act, strict procedures must be followed. Before conducting a check on an applicant, the employer must: 1) fully disclose to the applicant, in writing, that the company may obtain a consumer report on the applicant, and 2) receive written consent from the applicant. Many employers make the mistake of including the disclosure and consent on the job application; the Act requires that they be on a separate, self-contained form. An employer must also provide certifications of compliance to the credit reporting agency.

When information is obtained on an applicant's "character, general reputation, personal characteristics and mode of living" by means of personal interviews (in some cases, including reference checks), it is considered an "investigative" report under the Act. In such circumstances, an employer must provide the applicant with three things: 1) a disclosure of the types of information that may be gathered through the interviews; 2) a summary of rights under the Act; and 3) a statement of the applicant's right to receive complete disclosure of the nature and scope of the investigation. Certain states, such as California, require additional procedures.

Acceptable Use of Consumer Reports

After an employer makes the necessary disclosures, conducts the background check and receives the report from the agency, what information can be used in making hiring decisions? Of course, an employer can use information from the report that is inconsistent with information on the job application (like dates of employment) to eliminate candidates. Similarly, an employer may learn negative information about work habits from previous employers and decide against a candidate (unlikely, as most employers only give dates of employment). A poor driving record may also eliminate someone from a position where driving is required. There are, however, things an employer cannot consider. For example, if the report reveals discrimination lawsuits filed against previous employers, the employer cannot refuse to hire on that basis, as it would constitute retaliation.

There are also limits on use of criminal convictions. The policy of the Equal Employment Opportunity Commission (EEOC) is that prior convictions may only be considered if the convictions are "job related" (i.e., an embezzlement conviction is relevant for a bank teller). Some states, such as California and New York, have specific requirements regarding when criminal convictions can be considered. Similarly, at least one jurisdiction has held that under the Bankruptcy Code, it is improper to consider bankruptcies in hiring decisions. Other jurisdictions have reached the opposite conclusion. Because the requirements for permissible use of information contained in consumer reports vary between jurisdictions, a decision maker should be familiar with all applicable laws before basing hiring decisions on information in the reports.

Adverse Action

Once a company makes the necessary disclosures and decides, for legally permissible reasons, not to hire an applicant based on information in the report, its responsibilities under the Act are not relieved. Before taking an "adverse action" (denial of employment) against an applicant, the Act requires an employer to provide the applicant with three things: 1) a copy of the consumer report; 2) a written description of her rights under the Act; and 3) notice that the applicant may contact the employer with any comments regarding the report. The employer then should wait a reasonable time (generally five days) after providing the notices before actually taking any adverse action.

That is not all the Act requires. After taking the action, an employer must provide the applicant, in writing, with five things: 1) notice of the adverse action; 2) contact information for the agency providing the report (including a toll-free telephone number); 3) a statement that the consumer reporting agency did not make the adverse decision and is not able to explain the decision; 4) a statement regarding the applicant's right to obtain free disclosure of her file from the reporting agency if requested within 60 days; and 5) a statement regarding the applicant's right to dispute directly with the consumer reporting agency the accuracy or completeness of any information provided by the agency.

To Check or Not to Check

While it is true that many companies do not have security concerns that rise to the level of those at nuclear power plants or airports, there are valid reasons for companies to conduct background checks before making hiring decisions. Employees often have access to confidential and trade secret information and employers may want to check who they are hiring before providing access to those secrets. Food, drug and cosmetics companies must always worry about product tampering. While safety seals can protect the product from the outside world, employee screening can help protect the product from inside tampering. Background checks can also protect employers against negligent hiring claims. Some companies simply want to do everything possible to hire safe, honest employees.

On the other hand, background checks can be expensive and, if performed or used improperly, can lead to claims of invasion of privacy, discrimination, violations of the Act, or violations of various state laws. There is no "right" answer as to whether or not an employer should conduct background checks, but once the decision is made, it is crucial that the employer knows its legal limits. 

Carrie M. Garcia is an attorney at Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz in Chicago, where she concentrates her practice on employment litigation and counseling. She can be reached at (312) 201-3998 or via e-mail at [email protected].