Don’t Get Sued for Doing a Background Check!
Most businesses don’t want to hire thieves, embezzlers, and violent people. And, most do not want employees handling company checks or money when the employee fails to manage his or her own financial affairs responsibly. Yet, trying to keep these people from working at your business can get you sued.
The federal Fair Credit Reporting Act regulates obtaining and using background information about a person’s credit or criminal history (“consumer reports”) from a consumer reporting agency for purposes of making employment decisions. Equifax, Experian, TransUnion, and LexisNexis Risk Solutions are examples of providers of these valuable reports.
If your business wants to obtain any type of consumer report for purposes of hiring, promotion or reassignment, or retention, then it must follow the rules. First, the business must make a clear and conspicuous disclosure to the employee or prospective employee. Second, the employee or prospective employee must sign a written authorization. Third, before the business does something like not hiring or not promoting the employee, based in whole or in part on the consumer report, the business must provide a copy of the consumer report and a summary of rights form to the person. Fourth, only after these events have occurred can the business notify the person that he or she will not be hired or will not be promoted. And, coupled with the notice of the decision not to hire (or promote, or any other adverse decision), the business must provide the person the contact information of the consumer reporting agency that provided the consumer report to the business along with additional disclosures. While these steps, in theory, should be easy, in practice, they are not, because the disclosures and related forms must be in compliance with very detailed and complicated legal rules.
Further complicating the process, the Equal Employment Opportunity Commission (a federal agency) now seeks enforcement actions against employers (like Dollar General and a U.S. unit of BMW) that refuse to hire or retain people because of criminal records when it has the effect of discrimination against minority groups. Thus, even if an arrest or criminal conviction turns up in a consumer report, be careful before using that fact as a reason not to hire, retain, or promote the person. The decision may be unlawful.
Smaller employers that do not have full time human resources departments and legal departments to deal with compliance are particularly at risk. Improper disclosures and authorization forms (such as those cribbed from another business or from a discount legal forms site on the internet) can result in big liability. A small investment in developing a legal compliance plan with proper legal forms can save tens of thousands of dollars in avoiding liability.