Special Report: More ‘Background’ Noise

Despite increasing regulations, more companies are performing background checks, and advances in technology have made them more accessible to small and midsize employers

With few changes during the past 12 months, it’s not surprising that the trends that dominated the background screening industry in 2013 continue to do so in 2014.

Advancements in technology have made it easier for small- to midsize companies to conduct background investigations on job applicants, while at the same time allowing large employers the ability to expand the scope of their background checking process. Global companies are introducing universal screening policies for all branches, regardless of the location. As a result, there has been an increase in background investigations, according to industry experts.

For instance, Corporate Screening, a Cleveland-based background checking company, indicated the volume of background checks it has conducted for manufacturing and business services clients has increased by 12 percent and 23 percent, respectively, during the past year. Greg Dubecky, Corporate Screening’s president, said these increases are consistent throughout the industry.

According to an April 2014 report published by IBISWorld, the expected annual growth is 3.5 percent for the industry from 2014 to 2019.

One trend that never ceases to affect background checks, but is arguably the most important trend for the $1.6 billion industry, is complying with the regulations and guidance laid out by federal agencies such as the Federal Trade Commission and the U.S. Equal Employment Opportunity Commission. Additionally, cities, states and other municipalities continue to adopt laws to “ban the box” from employment applications where job candidates indicate if they’ve been convicted of a crime.

Increase in Checks

Hot List September 2014The increase in background checks can partly be explained by the impact of globalization. As more companies expand operations beyond the United States, those organizations are looking for ways to ensure their hiring practices are consistent throughout the entire enterprise. Not only does this create a more streamlined hiring process overall, but also it allows for varying degrees of brand, employee and consumer protection.

If a company hires “the wrong person, that provides a big risk to them that goes far beyond having to find a replacement,” said Bill Franck, executive vice president of client portfolio management at First Advantage, a background checking company based in Atlanta. A bad hire “could have reputational and litigation risks as well as financial and employee impact. The background check is a pivotal part of mitigating that risk.”

Industry experts said technological improvements are one reason for the increase in background checks since firms can better integrate the screening process with clients’ applicant tracking systems.

“Companies want to focus on the applicant experience because the competition for talent is high,” Franck said. “They want the applicant experience to be reflective of the company and the effort they took to get a candidate to apply for a job. Most of our screens show there’s no reason not to hire somebody, so we don’t want them to look back on the screening process after they get the job and view this as a negative experience.”

Not only are employers conducting more background checks overall, but also some have started to expand the breadth of their investigations as well. Brand protection appears to be a major factor in this trend, too. Representatives of Murrysville, Pennsylvania-based background screening firm Justifacts Credential Verification Inc. explained the decisions by some clients to expand screenings might be related to instances when a record that would have disqualified a job candidate was discovered after the initial search request.

Instead of only searching county or state records, some employers are including national database, federal court or national sex offender registry searches, industry experts said.

“Employers are choosing to cast a wider net in an effort to be more diligent in protecting their organization and to avoid negligent hiring suits,” said Doug Beckett, Justifact’s chief technology officer.

Healthy Screening

The expanding health care industry is also driving the increase in background checks. The Affordable Care Act has played a major role in driving growth in the health care industry as more people are able to afford health care coverage, and those who were previously insured are expected to seek preventive care. Further, the ongoing retirement of baby boomers has led to an in-home caregiver jobs surge.

Corporate Screening indicated an 8 percent increase in health care-related background checks during the past year.

According to the U.S. Bureau of Labor Statistics’ 2012-22 projections, home health care services jobs are expected to increase by 716,000, or nearly 60 percent, by 2022. In-home health care aides are expected to add nearly one-third of those jobs — about 214,300 — during the course of the decade.

“If you think about in-home care companies that send workers into people’s homes, their risk is immense,” Franck said. “You don’t want the wrong person going into somebody’s home dealing with a vulnerable population such as the infirm, the abused or the elderly.”

The growth of the health care industry plus the expansion of U.S. companies into foreign markets give weight to the claim by Corporate Screening Services’ Dubecky that background checks should continue to increase through the next year.

“Volume seems to be way up for everybody,” Dubecky said. “As the economy continues to settle, and even though we have some new unrest in the Middle East, I think at least the employers that we do business with still have a good outlook for 2014 and 2015.”

Regulatory Landscape

Arguably the most significant trends facing background screening companies during the past couple of years have been concerning regulatory changes issued by government bodies.

Although the EEOC issued updated guidance for background checks in April 2012, experts said employers are still either unaware of the new guidance or struggling to fully incorporate it into their hiring processes.

In the guidance, which applies to all public and private employers, the EEOC recommends that employers not ask about convictions on job applications. If and when employers ask such questions though, they should be limited to convictions that are job-related and consistent with business necessity.

The guidance is meant to create a fair hiring process for those with an arrest and conviction record, especially protected classes of minorities under Title VII of the Civil Rights Act.

It is not necessarily illegal for an employer to decide not to hire an individual with a prior conviction, but the EEOC seeks to give employers the proper guidance to ensure their hiring procedures are not discriminatory.

Data Bank September 2014

“African-Americans and Latinos, unfortunately, are arrested and convicted at a higher rate than other classes. When you take that into consideration, that’s why you see legislation and regulations like this,” Dubecky said. The EEOC wants “everybody to have a fair shot at a job. They don’t want those folks to be pre-screened just by virtue of the fact that they have a criminal record.”

Outside of federal policy, the grassroots “ban the box” movement has sought to create universal fair-hiring practices. The movement seeks to have the criminal conviction box removed from employment applications.

Overall, the movement has been successful. Sixty-six local jurisdictions and 12 states across the U.S. have passed “ban the box” laws during the past decade, according to the National Employment Law Project.

Changes brought by this movement can potentially create litigation risks for employers in locations where the criminal conviction box has been outlawed if they fail to keep up with new laws.

The ban-the-box movement can “cause compliance problems when procedures are not updated,” Justifact’s Beckett said. “This can cause a significant problem for companies that are still performing a paper waiver disclosure process for background checks. It’s hard for companies with locations in different states or cities to keep up with the specific laws in each jurisdiction.”

The variation in ban-the-box laws has led some employers to completely do away with the criminal conviction box on all of their employment applications. For example, retailer Target Corp. announced in October 2013 that the criminal conviction box had been removed from its applications.

A new regulatory requirement was issued for the industry in early 2014 when Congress passed the Data Broker Accountability and Transparency Act. The act gives consumers the right to dispute factually incorrect information that a company might obtain when conducting a background check. The act is similar to the Fair Credit Reporting Act, which protects consumers from fraudulent information about their credit score. Some employers, especially financial services firms, consider credit scores in their background checks.

According to the act, a data broker is defined as “a commercial entity that collects, assembles or maintains personal information concerning an individual who is not a customer or an employee in order to sell, or provide third-party access to, such information.”

The act is intended to improve the accuracy of background screenings, while also creating a fairer competitive environment among screening companies, Dubecky said.

“A consumer reporting company needs to make sure their information is the most accurate and up-to-date information before it’s reported,” Dubecky said. “The unfortunate thing is that there are some screening companies that don’t do that. And one primary reason why they don’t is because we live in an age of instant gratification. If a background screening company claims to report information instantaneously, that’s going to appeal to an employer. But what’s lost in that is the accuracy of the data.”