Tip Sheet for Executive Background Checking
These tips apply for the hiring of any employee, but are particularly useful for candidates seeking executive positions.
- Complying with federal and state anti-discrimination laws. Avoid asking any questions regarding protected categories or applying background check requirements in a discriminatory manner.
Employers and HR managers should refrain from asking applicants about their disabilities or ailments, sex, national origin, pregnancy or plans to have children, religious beliefs and age. These are all federally protected categories.
Employers should not apply background check requirements disproportionately to candidates of certain protected classes. A general requirement covering all employees to certain positions will help employers avoid charges of discrimination.
○Employers should also be aware that Equal Employment Opportunity Commission (EEOC) guidelines caution that employers may violate Title VII of the Civil Rights Act of 1964 by not hiring an individual on the basis of an arrest record. The EEOC has noted that, nationally, African-Americans and Hispanics are arrested in disproportionate numbers to whites, and thus barring individuals on the basis of an arrest record alone disproportionately affects members of that protected class. Thus, employers rejecting a candidate are cautioned against basing the decision to not hire an applicant solely on an arrest record. The EEOC suggests employers look to the nature and gravity of the offense the individual was arrested for; the amount of time since a conviction or arrest; and whether the offense relates to the requirements of the position in question.
Be cognizant of categories protected by state, city and local statutes. For example, sexual orientation and marital status are categories frequently protected by state, city or local statutes.
In the current environment, discrimination on the basis of political beliefs may also be protected by state, local or city ordinances. As tempting as a political discussion may be with an applicant, try to avoid the topic.
- Avoiding tort liability. Companies can avoid liability for negligently hiring a high-level executive simply by acting in a reasonable manner while carrying out the screening process.
The negligent hire cause of action arises where an employer is negligent in hiring or retaining an incompetent or reckless individual the employer knows or should know was unfit or incompetent. Where this unfit individual acts in a manner to injure another individual, the employer that hired the individual opens itself up to liability. These cases have been on the rise in recent years and have typically involved lower-level employees.
Equally plausible, however, are suits against companies for failing to thoroughly investigate individuals who will exercise considerable control and discretion over company funds and the direction a business will take. This concern is even greater in the wake of 2002’s Enron and WorldCom scandals. Shareholders of companies suffering from mismanagement at the hands of executives may be more willing to sue for negligently hiring a bad CEO or executive.
Employers can avoid liability merely by conducting thorough investigations of the background of a potential executive and acting reasonably when interviewing candidates for a position.
- Complying with corporate governance laws. In the wake of the Enron and WorldCom scandals, Congress passed the Sarbanes-Oxley Act of 2002, which established standards for corporate accountability and financial reporting.
Section 404 of the act imposes upon corporations a duty to institute certain internal controls and to take steps necessary to ensure that high-level employees are behaving ethically and honestly.
The Committee of Sponsoring Organizations of the Treadway Commission developed a widely accepted framework to help corporations comply with Section 404. COSO recommends background checks on any individual in a position of trust and anyone with direct access to valuable corporate information and assets. COSO further recommends that these background checks cover educational and employment backgrounds and any criminal history. Thorough documentation of this screening process is also highly recommended.
The more rigorous standards applied to those publicly held corporations covered under the Sarbanes-Oxley Act may soon become the standards expected of private companies as well. Those companies not covered under the act are advised to undertake similar rigorous background checks of potential executives.
- Complying with laws protecting the rights of applicants. The Fair Credit Reporting Act comes into play when investigating a candidate’s financial and credit records.
FCRA applies only if an employer obtains information from a third-party reporting agency. The act’s protections extend to credit reports, criminal record reports and driving records.
Employers must provide notice to an applicant that protected information will be obtained. They must obtain written consent from the applicant for the background check, which must be separate from any signatures on an application or handbook. They must disclose any negative information obtained and provide the candidate with the report, the name of the consumer reporting agency, and a fair opportunity to contest the report.
The FCRA protections do not apply to candidates who will be earning $75,000 or more.
Any employer obtaining credit and consumer information on an applicant without complying with the requirements of FCRA faces liability for damages, fines, and possible imprisonment.