Background Checks: A Potential Risk for Employers

by | 19 Jan, 2017

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You’ve found the perfect candidate. Skills, experience, personality, and goals all align with your organization’s needs. There is just one more hurdle to cross – the background check. For companies that utilize background checks as part of their hiring process, it is important to understand how privacy laws affect employment practices, and how to perform background checks in a way that is compliant with state and federal regulations.

First, it is important to understand the different types of background checks that employers typically perform. The following list includes some of the tests that employers conduct as part of a pre-employment background check:

Criminal Record Checks: Amidst growing concern that criminal background checks disproportionately affect black and Hispanic individuals in the job search process, the Equal Employment Opportunity Commission has sought to limit the extent to which employers can ask applicants about their criminal records. Furthermore, at least 24 states have passed laws that require employers to “ban the box” on employment applications that ask applicants if they have a criminal record. Some states have restrictions on the types of inquiries that employers are allowed to make.

Credit Checks: About half of all employers conduct credit checks. There is a growing concern, however, that using credit checks in pre-employment screening is unfair as it may reflect economic hardship and not simply a poor judgment on the part of the applicant. This concern has led several states to restrict employers from using credit checks to make hiring decisions.

In addition, the Fair Credit Reporting Act (FCRA), requires that employers must have written consent before seeking an applicant or employee’s credit report. If they choose not to hire based on the credit report, they must provide a copy of the report and inform the applicant of his or her right to challenge the report.

School Records: Some employers, especially those hiring for entry-level positions, may request to view academic information, such as a transcript, from applicants. That being said, the Family Educational Rights and Privacy Act restricts schools from releasing academic records from being released without the consent of the student.

Medical Records: The Americans with Disabilities Act (ADA) prohibits employers from requesting an employee’s medical records and discriminating based on physical or mental impairment. However, employers are permitted to ask about an applicant’s ability to perform specific job duties. The strength of the laws protecting the confidentiality of medical records varies from state to state.

While background checks may be an important part of the employment process, employers must take caution in ensuring compliance throughout the background check process. There are constantly changing laws and regulations surrounding background checks that employers must be cognizant of, like the Fair And Accurate Credit Transactions Act (FACTA) Disposal Rule. This rule says that employers who obtain data about potential employees must properly dispose of that data or ensure that it is protected from unauthorized access or use. In addition, background checks put employers at risk of litigation for a variety of claims, including:

Negligent hiring: a legal claim made against an employer when the employer fails to take action to prevent damage caused by an employee, knowing the authority of the employee’s position. Performing regular, compliant background checks and maintaining records should minimize the risk of this type of claim.

Fair Credit Reporting Act Complaints: as mentioned before, the FCRA places limits on the use of consumer reports, such as credit reports, by employers. It also dictates the requirements when taking “adverse action”, or refusing a hire or promotion based on information contained in a report. It states that if an employer chooses to take adverse action, they must first provide the employee with a copy of the report and a written summary of the employee’s rights under the FCRA. Once adverse action has been taken, employers must send a letter including a statement that says that the employees can challenge any aspect of the report with the reporting agency.

In conclusion, background checks are an important part of the hiring process and can help mitigate many risks that could arise in the workplace. Still, background checks pose a risk in and of themselves, as there are many rules and regulations surrounding the execution of background checks. Employers who choose to perform background checks must ensure that they are informed of the current regulations and that they comply with them to minimize the risk of litigation related to the background checks.

Tom DiSilva
Tom DiSilva has been providing professional human resource services for over 30 years. As the CEO of Navigate PEO, he actively partners with organizations of all sizes in the Greater New England area and across the country to help their businesses grow. He has expertise in HR and Labor Management, offering guidance and support for key areas of business such as negotiations, operations management, employee coaching, and employee benefits design. . He is an active member of The Society for Human Resource Management (SHRM), The National Association of Professional Employer Organizations (NAPEO), Professional Association of Co-Employers (PACE), and The American Payroll Association (APA). He is deeply committed to giving back to the community both personally and through Navigate Cares, which provides support for several nonprofit organizations such as the USO, The Boys & Girls Club, and the 3Point Foundation.

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