Managing Risk in Conducting Background Checks

Over the last ten years or so the background screening process has become very litigious, and the process is wrought with risk. There are now law firms that specialize in working with applicants to bring lawsuits against companies. For example on ClassAction.Org the following message appears:

This Alert Affects:

Anyone who was turned down for a job or an apartment because of their background check.

What’s Going On?

Attorneys working with are talking to these people to help them determine whether they can file lawsuits.

Who Can I Sue?

The company you applied to, the background check company or the tenant screening company.

Here are two cases that illustrate the possible magnitude of risk that can be involved in background checking lawsuits:

  • Earlier this year in April, a Texas jury ordered Charter Communications to pay $7 billion in punitive damages to the family of an 83-year-old woman murdered in her home by a Spectrum cable technician that the company hired without verifying his employment history, which would have revealed that he had lied about his work history.
  • On February 16, 2021, a federal magistrate judge in California approved a settlement of nearly $175,000 in a class action lawsuit claiming a violation of the “stand-alone” disclosure requirement of the Fair Credit Reporting Act (FCRA)

Admittedly, the size of these settlement are unusual, however, over the last decade, employers and background check companies have shelled out more than $325 million to settle related litigation. 

The purpose of this article is to highlight some of the risk involved in conducting background checks to help you to protect your company.

Assignment of Responsibility for Background Checks

One of the riskier mistakes that firms requesting a background check make is assigning the background screening process to a low level employee, typically someone in the recruiting or employment department in a junior position. This is often done because of a foolish belief that background checking is a simple administrative process of checking some records. While I agree at a macro level it is simply a process of checking and verifying records or information, the challenge is that the ‘devil is in the details’ and the whole process is governed by a myriad of laws and legal requirements subject to interpretation. It’s a landscape filled with mines.

Expecting a junior level person to have mastery knowledge of all the requirements is foolhardy and sets the stage for problems to occur.

Training Staff Responsible for Background Checks

In addition, to having the right level of person responsible for the background check process it is important that staff involved in the background checking process have the proper training if you are doing your checks in-house. If you have outsourced the background checking your staff member responsible for the oversight of the background check process that person must have sufficient training and understanding of legal requirements. 

In the legal case of Hebert v. Barnes & Noble, the lack of sufficient training and understanding of legal requirements in the background checking process was a key factor in the courts decision. Rod M. Fliegel, Partner, Littler Mendelson shared, “The in-house attorney for the defendant had delegated responsibility for overseeing the update to the disclosure [acknowledgement & disclosure form) to a non-lawyer employee when she went on maternity leave. In addition, the California Court of Appeal ruled that the employee (who was not an attorney) was not versed in the requirements of the FCRA. 

Also, make it a requirement that the background checking provider offer periodic training to your team, and certify that they periodically train their staff to ensure they are current in all legal requirements. 

Review of Employment Application 

It is critical that your staff involved with background checks are well versed in state and local ‘ban-the-box’ laws where your company operates and adhere to the Equal Employment Opportunity Commission’ (EEOC) ‘Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions under Title VII of the Civil Rights Act which recommends that employers not ask about convictions on job applications. 

The EEOC discourages employers from asking about arrests on applications, because it reasons that the fact that an individual was arrested is not proof the person engaged in criminal conduct. The EEOC also has taken the position that an arrest record, standing alone, may not be used to screen out an applicant. An employer may make an employment decision based on the conduct underlying the arrest if the underlying “conduct makes the individual unfit for the position in question.” While this exception exist, it should never be used without consulting a knowledgeable attorney because it is wrought with danger.

The EEOC Guidance informs employers that if they choose to inquire about an applicant’s conviction record to limit their inquiries to convictions that have relevance (are job related) to the position being applied for. If a conviction is job related and the basis for taking an adverse action against the applicant, the EEOC encourages employers to conduct an ‘individual assessment’ of the applicant. This will ensure that the circumstances surrounding the conviction and other relevant factors are considered before a final determination is made.

An employer should never include a background check acknowledgement as part of the employment application. The Fair Credit Reporting Act (FCRA) clearly states that the disclosure of an employer’s intent to obtain a background check and section must be in a “stand-alone” document separate from the application. 

Using National Databases

Using ‘so called’ National Databases as the sole source of records is risky because the data consists of limited records from state departments of corrections, county courts, prison systems, sex offender registries, etc. None of these data bases have complete information which means many important criminal records are missing.

Also, criminal records can change over time, which means the database reports can be reporting outdated information such as expunged records or sealed cases. Deferred judgments that turn into convictions can be missed and many jurisdictions remove crucial identifiers such as date of birth, which means some records can be associated by the database with the wrong person.

These databases continue to be attractive because they are less expensive, but using them is ‘penny wise and pound foolish’ because they increase your risk. Use of the national or multi-jurisdictional data bases as a supplement to onsite courthouse searches can be useful, but they should never be used as stand-alone or sole source.

Not Checking the Appropriate Locations for Information

A best practice for criminal record searches is to perform a criminal record check for all locations where an applicant has spent significant time living, attending educational institutions and/or working. The best practice is to check back at least seven years; however, this should not be used as a hard fast rule because many time checking further may be warranted subject to state or federal law.

Your background checking provider should be able to provide you with guidance regarding the best locations to conduct searches base on the applicant’s profile. Social Security Number, credit and motor vehicle checks have historically been good sources of where an applicant has resided. 

The risk here is that if the correct locations are not checked important information may be overlooked which could lead to an improper hiring decision that otherwise could have been avoided. 

Having a Blanket Policy of Not Hiring People Previously Involved with the Justice System

Management needs to put aside the paradigm or mindset that ‘felons need not apply’ or ‘once a criminal always a criminal.’ The risk associated with this way of thinking is that it will bias the hiring procedures, processes and policies that are implemented and leave the firm very vulnerable to the wrath of the EEOC and applicant’s attorney who are eager to file discrimination lawsuits.

Employers need to embrace the emerging paradigm that persons who have served their time have paid their debt to society and deserve a second change. Second chance hiring laws are proliferating across the country.

Validating Applicant identity

Making a hiring decision based on information on an applicant that belongs to someone else with the same or similar name is a quick way to end up in court. Be sure that you and/or your background screening provider have ironclad processes in place to correctly identify applicants and match them to the correct data. Thorough quality control processes should be in place to ensure no mix up in identities occur. There are numerous biometric tools available that can assist this process.

Over Screening

Remember that background checks should be used to gather information that is relevant to an open position and that meet a legitimate business need. If it does not meet this test the information should not be collected. Simply put the type and scope of the background checks should be defined by the nature of the job. 

If the job does not involve handling money, financial matters or managing company assets what is the relevancy of conducting a credit check? Or if the job does not involve driving why get a motor vehicle report.

Viewing Reference Checking as a Secondary Process

Many companies view reference checking as a necessary evil and do the very minimal necessary so that they can check off that it was performed. 

The risk associated with this approach is that by not conducting a thorough reference check a hiring manager will rely on subjective information from interviews and other selection tools.

In my opinion, reference checking may be one of, if not the most important part of the hiring process because it is the one part of the process, when performed correctly, that gives the hiring manager a glimpse into the candidate’s previous behavior and performance on the job not through an applicants’ eyes, but through the eyes of those that have observed the person working. 

Your internal HR staff or background check provider should be highly skilled in how to conduct thorough reference checks. In addition, you may want to consider online reference checking processes that have been proven to be very helpful in getting a broader base of relevant information about candidates. 

Failing to Rescreen

Pre-employment background checks gather information about an applicant before the person is hired, however, this provides you no information about the person during the life cycle of their employment. It is prudent for you to mitigate and manage risk that may emerge after the initial hire date by conducting continuous monitoring (post hire screen) at periodic intervals during the employee’s employment tenure or if appropriate for a position on an on-going basis.

Complaint Handling and Adverse Action 

Whether it is an error in information reported on the background check or an applicant claiming information is incorrect or a mistake in following your process you must have a well thought out process in place for correcting errors. A big part of how your staff will address errors has to do with your mindset. Do you consider complaints about mistaken information a nuisance that is slowing down your response time or think your processes are infallible or discount applicant complaints? Improperly handling adverse actions is one of the leading areas in which background checking lawsuits are filed. Having a well thought out, applicant friendly and thorough processes to address potential errors can be one of the key ways to avoid potential lawsuits.

I encourage you to challenge your internal staff or external provider to test and re-test how effective your adverse action handling process is working through the eyes of applicants that have been subjected to the process. It will pay big dividends for you down the road. 

We hope that we have successfully given you a glimpse into some of the challenges that can be involved in the background checking process which will prepare you to mitigate these issues before they become a real risk to your organization