Staying Out of Legal Hot Water While Conducting Background Checks

June 7, 2006
In the past, pre-employment background checking was considered a superfluous formality--one that mostly big employers or those with sensitive military contracts bothered with.

    Today, background checking is much more common in the wake of high-profile scandals involving fake education and work histories and concerns about workplace security. But when conducting background checks, it pays to be aware of a few key legal issues.

    Unless a business is directly linked to matters of national defense and security, most employers have to stick to the legal norms, which require that background investigations be relevant to the nature of the job and to the functions and skill sets associated with a particular position.

    Employers can avoid legal entanglements related to background checks by taking several common-sense measures. For starters, companies must be as forthright as possible in letting job candidates know that background checking will take place when they apply for a job.

    Companies also need to pay careful attention to the design of their pre-employment screening questionnaires. This is particularly crucial when it comes to categories that are protected under the Equal Employment Opportunity Commission: national origin, sex, pregnancy, sexual orientation, marital status, age, political activities, bankruptcy, and physical and mental disability.

    Asking questions like "Do you own a home?" "What is your age?" and "Are you pregnant?" could land a company in hot water. Paying attention to the following recent court cases and significant legislation can help companies navigate through the murky waters of background screening.

Kyles v. J.K. Guardian Security Services (2000)
The stakes for failing to design a screening and application process that treats all job candidates equally are higher than ever. Employers guilty of discrimination face litigation not only from civil rights organizations, like the Equal Employment Opportunity Commission and the National Association for the Advancement of Colored People, but also from a new group of individuals. Decoy applicants, minority job candidates who are hired by these watchdog organizations to apply for a job for the purpose of investigating whether the employer is breaking any anti-discrimination laws, can now sue.

    Prior to the landmark ruling, these decoy job applicants didn’t have grounds for suing because they were hired as part of watchdog exercises and had no interest in actually accepting the position. Kyles v. J.K. Guardian Security Services reversed that school of thought, making it possible for decoy job applicants to also sue an employer if it is suspected of discriminatory practices.

Interim Healthcare of Fort Wayne Inc. v. Moyer (2001)
This case highlights the importance of fully documenting all background checking efforts--anything involving contacting former employers, supervisors and references should be carefully recorded.

    Failure to document background checking could leave an employer exposed to allegations of neglect, as was the case for Interim Healthcare of Fort Wayne Inc. in Indiana, which was accused of negligent hiring and retention of a home nursing aid. The company was forced to defend itself vigorously in court because it could not show evidence of having conducted a proper background check on its employee, a measure that may have absolved it of the accusations.

Fair Credit and Accurate Credit Transactions Act (2003)
   Background checks often involve investigating a job applicant’s financial and credit records. Many employers retrieve this type of information from consumer reporting agencies, which can be more cost- and time-effective.

    However, the new Fair Credit and Accurate Credit Transactions Act establishes important reporting and disclosure requirements that, if skirted, could cause legal problems for employers and erode the benefits of using reporting agencies. It is important to note that the act covers a wide array of background reports, such as credit reports, criminal record reports and Department of Motor Vehicles reports, as long as they are provided by a third-party reporting agency.

    Every job applicant must be made aware that a background report will be conducted. That individual must then give a written consent allowing for the investigation to move ahead.

    Furthermore, the guidelines prohibit use of adverse information--anything from credit reports to arrest records--that is older than seven years. This stipulation, however, is nonbiding when it applies to the hiring of high-profile job candidates who earn $75,000 or more.

    If there is anything negative brought up in the investigation, the employer must let the job applicant know and actually provide the report. The employer must also provide the name of the consumer reporting agency that conducted the investigation and allow a fair amount of time for the job applicant to contest the findings.

Contran v. Rollins Huding Hall International Inc. (1998)
Pre-employment screenings are undoubtedly one of the most complex, and important, undertakings for any employer, regardless of size. As companies move ahead through this process they can take comport that their efforts are not in vain, as illustrated by the case of Contran v. Rollins Huding Hall International Inc.

    The case pertains to wrongful discharge, but it holds important implications for employer liability in handling pre-employment investigations. The landmark wrongful termination ruling establishes that an employer does not have to prove allegations of misconduct leading to an employment decision are true, so long as it conducts a proper investigation and acts in good faith on the information that it obtains.

    The bottom line: An employer can stave off liability for negligent hiring just by the mere act of conducting a reasonable background check. Even if an employer is not able to obtain information about a candidate from a previous place of work, putting in calls and going through the investigative process goes a long way in reducing liability.

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