The Perils of Pre-Employment Background Investigations

An employer is permitted by law to conduct a background investigation on any perspective employee (we’ll call them the “candidate”) and it has become almost standard practice now for employers to do so. However, please proceed with caution – the world of pre-employment background investigations is fraught with litigation, fines and regulation for non-compliance, for employers and the providers of these reports alike.

I’d like to share some thoughts on the process. I am not an attorney and the following information is not legal advice, just my thoughts and observations gained from 17 years of experience:

  1. All Pre-Employment Background Investigations are governed by the Fair Credit Reporting Act (FCRA). A third-party, or outside screening agency that conducts pre-employment background investigations for an employer (such as Artus Group), is known as a Consumer Reporting Agency (CRA). The report provided by the outside screening agency is an Investigative Consumer Report (ICR, or for the purposes of this article, “investigative report”).
  1. No employer can ever commission an investigative report without the signed authorization of the candidate. Ever. Don’t even think about it.
  1. The authorization form provided to the candidate is very specific. Ours is currently nine pages long, so if your current form is a three-pager, you need to take counsel, and quickly. The authorization form, among other things:
  • Must advise the candidate of his or her rights under the FCRA, which are extensive.
  • Must provide state specific rights for candidates from California, New York, Maine, Massachusetts, New Jersey and Washington.
  • May or may not inquire whether the candidate has been convicted of a crime, depending on jurisdiction.
  • Must offer candidates from California, Minnesota and Oklahoma the opportunity to request a copy of the investigative report, as entitled to them by law in those states.
  1. The FCRA strictly regulates what the CRA can and cannot report, and to complicate matters further, those restrictions are state specific. Generally (except in California, for example, but we’ll get to that) adverse public records (with the exception of criminal convictions) may only be reported by the CRA for up to seven years prior to the report date, ten years for bankruptcies. This is significant when you consider the dilemma faced by CRAs when severely adverse information pre-dating seven years is identified but cannot be reported. Think domestic violence restraining orders, civil fraud litigation, tax liens, licensing discipline etc. But the FCRA mandates that that information cannot be reported, and if so, violators are fined and regulated. The broad exception (other than California) is that if the candidate is expected to earn more than $75,000 per annum, there is no restriction on date reporting, which means that all historical records can be reported. This, quite rightly, was designed to allow a much deeper background check on senior executives.
  1. If the employer decides not to hire the candidate based on information in the investigative report provided by the CRA, called an “Adverse Hiring Decision”, the employer MUST provide the candidate a copy of the report and must adhere to the FCRA’s strict Adverse Hiring Procedure. Violating employers are fined and regulated and, very often, sued by the candidate. See my friend and Connecticut Employment Law Blogger Dan Schwartz’s column on this very matter at http://www.ctemploymentlawblog.com/2014/11/articles/background-check-settlements-still-costing-employers-big-dollars/
  1. In California, not only is the reporting of all adverse records restricted to seven years, regardless of income, the CRA must mail a copy of the investigative report to the candidate within three days of its completion.
  1. Many facets of the FCRA remain vague however, and one wonders if that is deliberate in certain instances. In Connecticut, for example, a credit history report may only be included as a component in a pre-employment background investigation if the candidate has fiduciary responsibilities or supervisory responsibilities. However, Connecticut has failed to date to provide an accurate definition of either.
  1. In some states, the employer may only consider a criminal record if the nature of the conviction is applicable to the nature job the candidate would be doing. Hmmm, think about that for a moment.

Clients often ask if it’s worth doing a background check on an applicant. I provide the following thoughts:

  1. Yes
  2. Yes
  3. Yes

Some thoughts on why:

  1. Example: If a company with three hundred employees hires a rotten egg, that person will not affect the operation as much as if a small company with three employees hires the same person. I believe it is critical for small businesses to conduct background investigations, even more so than for larger companies.
  1. Example: A company employs a salesman with two DUI’s on his record. He takes a client out for a Christmas lunch and has too many drinks. On his way home he hits and kills a pedestrian. Will his employer be sued if it knew about his DUI history? Probably.
  1. See my Case Study https://connecticutpiblog.com/2015/01/12/case-study-background-check/. This was a very real case and our client is STILL paying the price.

My Opinion: If you conduct pre-employment background checks, regularly take counsel to ensure you are in compliance. Make sure your authorization forms are up to date, since the laws in each state change regularly. Ensure you follow the correct procedures if you decide to make an Adverse Hiring Decision as a result of the investigative report, and understand that your CRA is restricted as to what it can and cannot report. There are certainly perils in pre-employment background investigations, but they can be avoided through solid understanding of the FCRA.

View the FCRA at http://www.consumer.ftc.gov/sites/default/files/articles/pdf/pdf-0111-fair-credit-reporting-act.pdf