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Background Check Legal Obligations

The Legal Obligations of Conducting a Background Check

You’re filling out the application for a new job and there it is in bold letters: You must agree to a background check as a prerequisite for employment. During the interview you are asked, “If we check for criminal records, are we going to find anything?” At the bottom of the application it says: Anyone who knowingly provides incorrect information, or incorrect information through omission of fact, can be subject to termination at any time.At the end of the interview, the prospective employer gives you a written form asking for your permission to run an extensive background check that will verify your Social Security number, driving record, criminal record, credit records and civil court records.

Does your employer have the right to do this? Should you sign? What are your rights?

The Legal Obligations of Conducting a Background Check

The reason for background checks
More employers are performing criminal background checks on new hires. In some states and for some professions, it is a legal requirement. One of the primary reasons is an increase in negligent-hiring lawsuits. An employer, says Lynn Peterson, president of PFC Information Services Inc. in Oakland, Calif., “can be sued for actions taken on the part of an employee.”

An employer has a legal responsibility to hire someone who is safe, qualified and fit for the position. “If they fail to use reasonable care and they hire someone that they either knew or should have known presented a foreseeable risk of harm to a third party, then that employer is liable,” says Lester Rosen, attorney and president of Employment Screening Services Inc. in Novato, Calif.

The size of financial settlements, awarded by juries, in these negligent hiring lawsuits is on the rise. “In 1999, employers lost 60 percent of all negligent hiring/supervision jury trials,” according to “Practical Guide to Employment Law.” And the average settlement is more than $1.6 million dollars according to at least one study, says Jason B. Morris, president of Background Information Services Inc., of Cleveland.

Another reason employers are running background checks is, well, people lie. “We know, nationally, when you look across all industries that about 10 percent of all applicants have some sort of criminal record,” says Rosen. “That doesn’t mean it’s a disqualifying criminal record. It’s a form of discrimination to automatically reject an applicant with a criminal record without considering whether there’s a good business reason, but at least an employer needs to know if there’s a criminal record involved. We know that up to 40 percent of resumes contain material omissions or fraudulent statements about credentials, education or employment. Some studies suggest that up to 40 percent of resumes contain some piece of fiction that is beyond the bounds of good taste.”

But what about you? You don’t have a criminal record. You have good credit. Why should you have to agree to a background check?
Maybe the background checks protect you as well. “In the larger scheme of things, I think it’s very important to ensure that you’re hiring people who are safe, from the perspective of the people who are co-workers,” says Peterson. “I think it’s very important to know that the person working next to you is a safe person. Particularly if you’re talking about sending people out into the home; you’ve got to do it.”

Types of background checks
So what’s out there? Exactly what pieces of your personal history can your employer delve into?

  • Resume and employment verification.
  • Social Security number verification. It is illegal for an employer or third-party consumer reporting agency (CRA) to access the Social Security Administration for this purpose. This is performed using public records and credit bureau data.
  • Criminal record checks. This is not a database check, if done correctly. The National Crime Information Center’s (NCIC) database is not currently available to private employers, though legislation is being considered. A criminal record check is performed at county courthouses and sometimes state records are checked. Says Peterson, “The records are not available online and we have to send what we call a ‘court-runner’ out to the courthouse just as a quick check of the files to see if there’s any criminal information pertaining to that person.”
  • Department of Motor Vehicles. Your driving record may be checked whether the job requires driving or not. It’s an easy way to verify date of birth and addresses. “A driving record,” says Rosen, “is a true statewide criminal record of that particular state, and it might reveal some level of responsibility. It might not matter if someone made an illegal left turn, but if somebody didn’t go to court to deal with it may be suggestive.”
  • Civil court records. This can reveal lawsuits in which the potential employee was either a plaintiff or defendant in a case concerning a former employer. “In many states,” says Peterson, “restraining orders are regarded as civil records, and if somebody has had a restraining order filed against him, it may be a cause for concern.”
  • Worker’s compensation. Accessibility varies from state to state.
  • Credit report. “A credit history check is allowed under the Fair Credit Reporting Act for employment purposes,” says Tena Friery, research director with the Privacy Rights Clearinghouse. “This means that employers can make these kinds of nonskills determinations and reach a conclusion that if somebody is reliable at paying their own bills, they’ll be a reliable employee, which certainly overlooks that some people have a bad credit history for medical reasons or for things that are really beyond their control.”
  • Sexual offenders databases.

Your rights
Background checks are covered by the Fair Credit Reporting Act, which in turn is covered by the Federal Trade Commission. “There is a specific law that covers background checks by third parties, and that law is the FCRA,” says Friery. It’s the same law that governs the credit reporting industry, but it also covers a number of other kinds of consumer reports, one of which is the employment report.”

Among its many provisions, the FCRA gives the following rights to consumers:
1. The request for background checks must be on a separate document. “The provision,” says Friery, “must be on a document that’s separate from a job application or any other document. So it must stand out, in other words.”
2. Pre-adverse action letter. If the applicant is turned down for any reason, they must be given an explanation for the employer’s decision. “This is before any action is taken not to hire them,” says Friery, “or to fire them, because this also applies to current employers. And along with that comes a statement of rights and a copy of the report.”
3. Consent. The FCRA applies only to third-party credit reporting agencies. “In-house checks,” says Friery, “are not covered by the FCRA. California does, however, have a requirement that an employer who obtains public record information by way of a ‘self’ check give the subject an opportunity to receive copies of the public records.” This varies from state to state.
4. The FCRA does not address the consequences of refusing consent. “That’s because the FCRA imposes specific obligations on employer-users of consumer reports,” says Friery, “but there’s no room to read more into it than what’s required by the words of the law. The FCRA is really more a law about certain types of consumer reports, the companies that prepare such reports and the companies that use them. Employer decision making and discretion are matters generally left to state employment laws — or Equal Employment Opportunity questions.”

Discrimination and obligation
Clearly the laws and regulations governing background checks are a delicate, and sometimes awkward, dance between the Federal Credit Reporting Act, Equal Employment Opportunity laws and nondiscriminatory hiring practices.

“There are some disturbing things about it,” says Friery. “For one thing, this really overlaps with employment law and employer’s discretion, which is really pretty much unlimited unless the employer runs afoul of discrimination laws. They really are in the position to be able to make job determinations. If they want to adopt a no-tolerance rule for criminal conviction no matter how far back it goes, there’s nothing that really says they have to adopt more lenient practices.”

And there’s something unsettling about the notion that once you agree to allow these checks as a requirement for employment, your employer can follow up on them whenever it wants to. If you’re a good employee, why should your employer have the right to check your credit history or driving record from time to time? How is that necessarily relevant to your work performance?

In addition, if a consumer reporting agency makes a mistake and you are not hired as a result, or you are fired as a result, there is not much you can do about it. “Once there is a mistake made,” says Friery, “the employer does not have to reinstate a job offer or even take that person back if it resulted in a firing. So the subject really has very little recourse except to try to deal with the consumer reporting agency, the background screener that reported faulty information.” You, as a consumer, however, do have a right to have the information corrected.

The laws need some fine-tuning to protect consumers’ rights and privacy protections, but there many examples of why background checks are important. And in any case, knowing what’s actually in your own credit report can be the first step in understanding what is at stake during a background check.

As Bankrate has reported, Americans can get a free copy of their credit report once a year from each of the three consumer reporting companies — Equifax, Experian and TransUnion. The companies phased in the program region by region, with the northeastern states finally getting their turn on Sept. 1.

By Mark Terry

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