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Know the Background of Background Checks

August 26, 2002
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Is the person you’re hiring really someone you can trust?

    Many employersare turning to background checks to find out. But checks have their own set ofrules, and if they aren’t followed, an employer can find itself in a goodamount of trouble.

    Sue Bendavid-Arbiv, the national chairwoman of the labor andemployment practice group of Arter & Hadden in Woodland Hills, California,offers guidelines. Though state laws vary, California’s legislation isconsidered a bellwether, so Bendavid-Arbiv gives it extra prominence here. 

What should a background-check policy cover?
Employers should give employees advance notice that the employer reserves theright to conduct a background check—and investigate matters like an individual’sprior employment history, personal references, educational background, and otherrelevant information. If HR wants to go further and ask for credit reports andcriminal-background checks, that should also be included in the policy.

How should the policy be distributed?
I’d include the policy in at least two places: on the job application andin the employee handbook. Obviously, the job application is for individuals whoare not yet employed by the company. It notifies them that their consent toundergo a background check is a condition of employment. The handbook applies toexisting employees. If someone is up for a promotion, and one of the conditionsof a promotion is to undergo a background investigation, having it in thehandbook reserves the employer’s right to do so.

What else should the policy include?
Also in the policy should be information that the employer will comply withfederal and state laws. There are several bodies of law covering backgroundchecks. The federal law is the Fair Credit Reporting Act. There are two sourcesof California state laws: one is called the Investigative Consumer ReportingAgencies Act, and the second is the Consumer Credit Reporting Agencies Act. Thelaws all significantly affect how a background check is performed procedurallyand what information an employer can obtain, and how far back. They also includethe steps the employer must follow if in fact the company plans to use thatinformation in making a [negative] employment-related decision.

What should employers know about these acts?
This year the California legislature amended the Investigative ConsumerReporting Agencies Act. Even before 9/11, there’s been real concern aboutidentity theft. California lawmakers stated that if consumers—and employeesare, in fact, consumers—are given early notice that someone is looking intotheir background, they’ll be able to more quickly verify whether theiridentity has been stolen. California’s laws changed so employers have toautomatically give a person a copy of the report.

What are the trouble areas for HR in doing background checks?
First, if employers are using a background-investigation company to performthe checks, they should first make sure the agency knows about the laws andchanges in the laws, and provides them with forms to be used in order to obtainthe individual’s consent. It’s got to be a separate form that the employeeis signing; it can’t just be within the handbook or the job application.Further, the agency should not provide information it is not entitled todisclose. There’s lots of [information] agencies can’t disclose, likebankruptcies that are over 10 years old, tax liens that are more than sevenyears old, etc. So that’s the first problem area.

What’s the other trouble spot?
The second major stumbling block is: What do you do when you obtaininformation that the employer is not entitled to use in makingemployment-related decisions? Some information, if used, may result in claimedviolations of equal employment opportunity laws. As an example: The backgroundcheck reveals the applicant or employee had a conviction for drunk driving. Youmay take this into consideration only if the conviction is somehow related tothe job. For instance, the person is applying to be a driver. Then there’s alegitimate business reason for not considering that person—a concern theperson may drink and drive again while working for you. But if the convictionhas nothing to do with the job, and you use it anyway in your decision not tohire, then it may result in an argument that the use of that informationresulted in a disparate impact on the basis of race or national origin.

What other information should an employer not use?
Generally speaking, under California law, employers are prohibited fromseeking, receiving, or using as a factor in determiningemployment any information relating to a person’s arrest that did not resultin his conviction. So while you may have received some information related to anarrest while doing an investigation, you can’t use that information. Sometimesan employer may find out an applicant has been arrested for embezzlement. Youmay not want to hire that person, but the California labor code says you can’tuse that information in making your decision.

If HR discovers that a person has served time for a violent crime, and hiresthe person anyway, does that make the company liable if the employee becomesviolent in the workplace?
An employer is not required by law to do an investigation intoan applicant’s criminal background. But if you’ve done one and found thisout and hired that person anyway, then the question is: Are you guilty ofnegligent hiring? Were you reasonable, under the circumstances, in hiring thisperson?

Would an employer be blamed for not conducting a background check if theemployee had a history of violence?
If the employee had a sensitive position or one requiring significant publiccontact, like working with children, in those situations the question is: Howreasonable was it for you, the employer, given all the circumstances, to notconduct a background check?

If HR decides to do background checks, must all applicants be checked, or canHR decide on an individual basis?
An employer doesn’t have to perform the same type of backgroundinvestigation on every applicant or employee, on one condition: that anydifferentiation the employer makes is based on legitimate business interests. Ifyou have a fleet of drivers to drive trucks on the road, you may want to conductbackground checks on all of them to verify their driving records and see if theyhad any criminal convictions for DUIs. That would be a legitimate businessinterest—and a policy of conducting background checks only on drivers would bereasonably calculated to further that business interest.

If a background check leads a company to decide not to hire an applicant,should HR tell the person?
The federal Fair Credit Reporting Act talks about providing notice to theemployee of any adverse employment action. When adverse action is taken, theemployer must provide the applicant with the following: notice of the adverseaction, the name and phone number of the agency that furnished the report, and astatement that the consumer reporting agency did not make the adverse action andis unable to provide the specific reason for the adverse action.

Is there anything else HR should know?
A new California code covers employers that conduct their own investigations.Now any person who collects information in lieu of using one of these agenciesstill must provide the consumer with a copy of the report at the time of themeeting or interview, or within seven days of receiving the information—whicheveris earlier. Now the question becomes: What about reference checks? What happensif HR calls a prior employer to confirm that the person worked there. They saythe employee was a bad employee. Does the new potential employer have to turnaround and give that information to the candidate? That’s how the act reads.But it’s not how it was intended. The California legislature is now revisingthat wording to accurately reflect that it does not apply to this situation.Here’s what it does apply to: Let’s say you obtain a Social Security numberand you’re able to discover through public information the person’s amountof debt and whether they defaulted and whether they’ve had lawsuits. That’swhat the law was designed to cover.

The information contained in thisarticle is intended to provide useful information on the topic covered, butshould not be construed as legal advice or a legal opinion. Also remember thatstate laws may differ from the federal law.

Workforce, September 2002, pp. 96-97 -- Subscribe Now!

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