Employers: Check the law before checking an applicant's background

December 2015
Ryan B. Frazier
Utah Employment Law Letter

A new hire is always a risk. There is concern that a new employee may not be a good fit or as qualified for the job as expected. Worse, the new hire could be a significant safety or liability risk. A poor hiring decision can vex an employer for a long time. Being left to clean up the mess from a single bad hire can be distracting, time-consuming, and costly. And that’s to say nothing of the time and expense associated with finding and training a replacement. Properly vetting an employee in advance can save an employer trouble, time, and significant expense.

There is no way to guarantee that a candidate will work out. It’s difficult to determine whether an applicant is “the right one” from an application, a cover letter, a résumé, and a short interview. References rarely add much insight because former employers typically will only confirm the dates of employment, position, and duties of the applicant. As a result, employers are using preemployment background checks, including searches
through criminal records, as an alternative source for the information needed to scrutinize candidates.

Background checks have proven to be an easy and cost effective way to get to know candidates, head off problems before they arise, and minimize the risk associated with a new hire. Background checks may actually be required for some positions (e.g., attorneys, school personnel, and nurses). In addition, some employers run background checks on existing employees to assess whether to retain, promote, or reassign them. Consequently, screening applicants and employees has become commonplace.

But the fact that “everyone is doing it” doesn’t justify blindly conducting background checks on all job candidates or current employees. There are legal consequences for improperly conducting a background check. Accordingly, before you conduct a background check on a current or potential employee, you should familiarize yourself with the applicable laws.

Federal FCRA

Employers that conduct background checks on employees or prospective employees must be mindful of the requirements imposed under the Fair Credit Reporting Act (FCRA). There are companies that specialize in
performing employee background checks. Typically, it’s wise to use one of these companies when you need a background check. They have experience in performing background checks, can easily access appropriate search and information resources, and are familiar with information employers should avoid. Further, in-house background checks carry the risk of discrimination claims.

However, using a person or an agency outside your company brings into play the requirements of the FCRA, which doesn’t apply when you perform a background check in-house. In other words, if an in-house employee
conducts the background check, the FCRA does not apply.

Specifically, the FCRA applies when employers obtain “consumer reports” or “investigative consumer reports” from a “consumer reporting agency.” The Federal Trade Commission (FTC), which is responsible for enforcing
the FCRA, interprets the term “consumer reporting agency” broadly. According to the FTC, law firms and employment screening agencies that gather, assemble, or evaluate information (even if it’s public information)
and then provide it to an employer in exchange for a benefit are considered consumer reporting agencies. 

“Consumer reports” and “investigative consumer reports” include reports obtained from a consumer reporting agency regarding a person’s “character, general reputation, personal characteristics, or mode of living.”
That would include reports related to the person’s driving records,
credit history, criminal records, and employment history. Note that military service records are generally considered confidential under the Privacy Act of 1974 and may be released only under limited circumstances.

To properly obtain and use either a consumer report or an investigative consumer report from a consumer reporting agency, an employer must provide notice to the employee or applicant that a background check will be
performed. Before the check can be performed, the employee must provide the employer adequate written permission to obtain the report. “Adequate permission” requires the employer to provide the employee with a clear,
conspicuous, and written disclosure form that is wholly separate from other potentially distracting content. The employee must then give the employer written authorization to obtain a report before the employer does so.

If the employer decides to take adverse action against an applicant or employee based, at least in part, on information in a consumer report, it must comply with additional requirements. Specifically, the employer must
give the applicant or employee a copy of the report and a description of his rights as enumerated by the FTC. The FTC has created a “preadverse action disclosure form” for this purpose. The employer should provide the applicant or employee a reasonable amount of time to correct
deficiencies and then inform the employee when the employment decision is final.

Federal law requires employers to certify that they have complied with the FCRA before consumer reporting agencies may conduct, complete, or provide them with consumer reports. Consequently, you should provide
a consumer reporting agency with the proper documentation before retaining it to conduct a requested report. You should also obtain assurance from the consumer reporting agency that it will comply with the law
when conducting the investigation. 

There are significant risks for failing to comply with the FCRA. Employers can be hit with damages, penalties, and attorneys’ fees if they fail to meet their obligations under the Act.

Utah’s Employment Selection Procedures Act

Utah’s Employment Selection Procedures Act prohibits an employer from requesting a job applicant’s Social Security number, date of birth, or driver’s license number unless the request is applicable to all applicants and will be used by the employer to obtain a credit history subject to the FCRA or to review internal records to determine whether the applicant previously applied for employment or was previously employed. Employers can use this information for only one purpose: to determine whether to hire a job applicant.

Employers must maintain a specific policy regarding the retention, disposition, access, and confidentiality of information collected about job applicants and allow  an applicant to review the policy before agreeing to provide information as part of the hiring process. Employers cannot maintain information gathered about job applicants for more than two years.

Criminal background checks

In many states, including Utah, it is legal to conduct a criminal background check during the application process in almost all cases. Under the FCRA, you must notify the candidate or employee that you might use criminal
conviction information in making employment decisions. That should be done in a separate document that provides conspicuous notice. If you don’t hire an applicant or take adverse employment action against an employee
because of information in a criminal background report, you must show her the report that led to the adverse decision or action and provide information allowing her to correct the information she deems incorrect.

If you inquire into criminal convictions, you must also be careful to avoid discrimination under Title VII of the Civil Rights Act of 1964. The Equal Employment Opportunity Commission (EEOC) typically will not
permit you to refuse to hire an applicant because of a past conviction unless you can show that the decision is job-related and consistent with business necessity.

You should consider three factors before determining whether to hire someone in light of a criminal conviction:

  1. The nature and gravity of the offense;
  2. The time that has passed since the offense and/or completion of the sentence; and
  3. The nature of the job being sought.

For example, a conviction for fraud, theft, or embezzlement is probably sufficiently tied to tax auditing that refusing to hire a candidate based on one of those convictions would not run afoul of Title VII.

You must provide notice to an applicant screened out of the hiring process because of a criminal conviction to allow him to demonstrate why the criminal conviction should not be considered. Finally, remember that a person who has a criminal conviction expunged under Utah law (or the law of many other states) may legally respond to any inquiry as though the criminal arrest or conviction did not occur. 

Medical records

Generally, medical records are confidential and cannot be obtained as part of a background check. At the very least, the FCRA requires an employer to get specific permission to obtain medical records. In many states (such as California), medical records are strictly confidential and cannot be part of a background check. Consequently, you should not ask applicants about medical conditions or disabilities during the application and  hiring process. In most cases, you must not make employment decisions based on medical information. 

Moreover, the Americans with Disabilities Act (ADA) limits inquiries to information related to the candidate’s ability to perform essential job duties. Under the ADA, an employer may ask disability-related questions or require a physical or medical examination of an applicant only after it has made a conditional job offer and when the inquiry is relevant to the position. An employer can decide not to hire the person only if he is unable to perform the essential functions of the job because of a medical condition with or without reasonable accommodation.

Under the Genetic Information Nondiscrimination Act (GINA), an employer with 15 or more employees must not request, require, or purchase the genetic information, including family history information, of any applicant
or employee except in very rare cases. Notably, under the applicable regulations, requesting information includes performing Internet searches or eavesdropping on third-party conversations that are likely to result in obtaining genetic or family history information. Further, GINA prohibits the use of genetic information, including family history information, when making any decisions that affect the terms, conditions, or privileges of employment or result in any adverse employment action against a candidate or employee.

Under certain circumstances, a background check may include workers’ compensation history. You must ensure that you comply with all applicable laws if you seek such information. An individual’s workers’ comp history typically is a matter of public record, but you cannot use the information to discriminate against a job applicant. The ADA prohibits you from inquiring into an applicant’s workers’ comp history on a job application or during an interview. You may ask such questions and conduct a workers’ comp history background check only after you have made a conditional job offer.

Discriminatory use of background reports

If you use background check information, you must comply with the federal and state laws that are designed to protect job applicants and employees from discrimination. It is illegal to check into someone’s background
if the decision to do so is based on his race, color, ethnicity, age (40 or older), gender, religion, national origin, or genetic information (including family history). For example, conducting criminal or financial history background checks only on applicants or employees of a certain race is discriminatory.

You can contact the author at rfrazier@kmclaw.com or 801-323-5933.

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