Employers frequently use background reports compiled by third parties as part of the screening process for prospective employees. While the practice is common, there are legal issues of which employers must remain aware.

Requirements apply to background checks compiled by third-party screening agencies as opposed to in-house reference checks or records, including criminal histories obtained from government agencies. A communication that bears on a person’s creditworthiness, credit standing, general reputation, personal characteristics or mode of living is a “consumer report.”  A “consumer reporting agency” includes most outside sources used by employers to obtain background information. Consequently, an employer who contacts an agency to conduct background checks must comply with the Fair Credit Reporting Act (FCRA).

Among the critical requirements of the FCRA, an employer must provide applicants a clear and conspicuous disclosure of their  FCRA rights and obtain the applicant’s written authorization to procure the report. Background check agencies usually handle this step, but the employer should seek assurances it’s completed.

Before employers take adverse action by rejecting an applicant for employment based on information in a background report, the employer must provide the applicant a free copy of the report with a summary of rights that meets FCRA requirements. Interestingly, the FCRA provides little procedural instruction on how employers should make this notification. For example, the FCRA is silent on how much time, if any, must pass between the pre-adverse action notification and decision to terminate.

Once an employer decides to reject an applicant, the employer must provide significant information to the applicant, including:

A statement of the consumer’s right to dispute with the consumer reporting agency the accuracy or completeness of any information in the report.

The name, address and telephone number (including a toll-free telephone number if the agency compiles and maintains files on consumers on a nationwide basis) of the consumer reporting agency that furnished the report.

A statement the consumer reporting agency didn’t make the decision to take the adverse action or provide the consumer with the specific reasons for the adverse action.

A statement the consumer can obtain a free copy of the consumer report from the consumer reporting agency within a 60-day period following the consumer’s receipt of the adverse action notice.

Employers also should take steps to ensure their decisions don’t disproportionately affect applicants with certain protected statuses. In its guidance document Consideration of Arrest and Conviction Records in Employment Decisions, the U.S. Equal Employment Opportunity Commission stated: “Criminal record exclusions have a disparate impact based on race and national origin.”  The EEOC pointed out that the mere fact of an arrest doesn’t establish the criminal conduct occurred, but a conviction is usually a reliable measure of whether the applicant committed a criminal act. Employers should make some effort to investigate the facts around the arrest before relying on the arrest in making an employment decision.

But in the case of either an arrest or conviction history, the EEOC advised employers to reject an applicant only when the decision is job-related and consistent with business necessity. The EEOC recommends employers consider the following factors when determining whether a business justification exists for rejecting the applicant because of criminal history: the nature and gravity of the offense, the time that’s passed since the conduct or the completion of the sentence and the nature of the job sought. 

For example, a 10-year-old conviction for simple marijuana possession probably has little bearing on whether or not an individual can work in a janitorial position. But a theft committed a year ago well could bar an applicant from a position requiring the handling of cash.  

Courts were slow to accept EEOC guidance. But recently, courts have allowed numerous cases to proceed on the merits. One recent case involving a discount retail chain wound through the courts for several years. The retailer settled with the EEOC for $6 million and agreed to retain a criminal history consultant to evaluate the use of criminal histories in making employment decisions.

In conclusion, employers should check internal processes to ensure they follow the procedural and substantive requirements of the FCRA and have valid business justifications when they reject applicants because of their criminal histories. 

The Employers Council offers numerous resources for members on the FCRA, the use of criminal histories in hiring and recruiting and hiring in general.