Background Checks: Navigating Legal Compliance

Background checks are an essential part of the hiring process for many companies, especially in sensitive fields like finance and government. However, they are also subject to various laws and regulations that protect individuals' rights and ensure fair and responsible screening practices. These laws govern what information can be collected and how it can be used, with the goal of preventing discrimination and protecting privacy. Non-compliance can result in legal repercussions for employers.

In the United States, background checks are subject to several federal and state laws. Some key laws that apply include the Fair Credit Reporting Act (FCRA), Equal Employment Opportunity Laws (EEO), Title VII of the Civil Rights Act, the Americans with Disabilities Act (ADA), and the Fair Chance to Compete for Jobs Act of 2019 (Fair Chance Act).

The FCRA, enacted in 1970, allows individuals to dispute inaccuracies in their credit reports and requires employers to obtain consent from applicants before conducting background checks. The EEO laws prohibit workplace discrimination based on characteristics such as race, colour, national origin, sex, or religion. Title VII of the Civil Rights Act also addresses discrimination and ensures that background checks are conducted fairly.

The ADA protects individuals from discrimination based on physical or mental impairments, while the Fair Chance Act is a federal ban-the-box law that prohibits employers from asking about criminal history before making conditional job offers. State and local laws may also impose additional restrictions on background checks, such as “ban-the-box” laws in California and New York.

Understanding and complying with these laws is crucial for employers to ensure legal and ethical background screening practices.

Fair Credit Reporting Act (FCRA)

The Fair Credit Reporting Act (FCRA) is a key regulatory obligation for employee background checks. Enacted in 1970, the FCRA allows consumers to dispute inaccuracies in their credit reports. It requires employers to inform and get consent from applicants and employees before conducting background checks. Employers must also allow the subjects of background checks to review the results and correct any inaccuracies if an adverse action is to be taken, such as denial of employment.

The FCRA includes credit reports as part of consumer reports, and there are additional requirements within the act that Consumer Reporting Agencies (CRAs) must adhere to. Credit reports search nationwide through the major credit bureaus and include information about an individual's bankruptcies, tax liens, judgments, accounts in collection, negative accounts paid or charged off, and active accounts.

It is important to note that the FCRA does not impact whether an employee background check can be conducted but rather regulates the manner in which such checks must be conducted. Some states and localities provide additional restrictions on an employer's ability to use credit information for employment purposes.

Under the FCRA, employers must obtain written authorization from the applicant before conducting a background check. This authorization must be on a separate document from all other application materials. In California, employers must also inform applicants that they may request a copy of the background check report at the time authorization is obtained.

If an employer uses information from the consumer report for an "adverse action", such as denying employment or rescinding a job offer, they must follow specific procedures under the FCRA. Before taking adverse action, the employer must provide a pre-adverse action disclosure, which includes a copy of the report and an explanation of the consumer's rights under the FCRA. After taking adverse action, the employer must provide an adverse action notice, which includes the name, address, and phone number of the employment screening company, a statement that the company did not make the adverse decision, and a notice that the individual has the right to dispute the accuracy or completeness of the information in the report.

The FCRA also sets national standards for employment screening, outlining what cannot be reported in a background check report. This includes bankruptcies after 10 years, civil suits and records of arrest after seven years, paid tax liens after seven years, and accounts placed for collection after seven years. However, these reporting restrictions do not apply to jobs with an annual salary of $75,000 or more.

It is worth noting that the FCRA only applies to background checks performed by an outside company, referred to as a "consumer reporting agency" under the act. If an employer conducts the background check in-house, the provisions of the FCRA do not apply.

Equal Employment Opportunity Laws (EEO)

The Equal Employment Opportunity Commission (EEOC) enforces federal laws against employment discrimination. These laws are in place to protect applicants and employees from discrimination based on race, colour, national origin, sex, or religion; disability; genetic information (including family medical history); and age (40 or older).

The EEOC has published a document that provides information on how background checks are used in employment and when such use may implicate laws enforced by the EEOC or FTC. This document is intended to provide clarity to the public regarding existing requirements under the law or agency policies. It is not meant to bind the public in any way.

The EEOC requires that employers treat everyone equally when it comes to background checks. It is illegal to check the background of applicants and employees when that decision is based on a person's race, national origin, colour, sex, religion, disability, genetic information (including family medical history), or age (40 or older). For example, asking only people of a certain race about their financial histories or criminal records is evidence of discrimination.

Employers are not allowed to ask for extra background information because an applicant is of a certain race or ethnicity. For instance, it would be illegal to reject applicants of one ethnicity with criminal records for a job, but not reject other applicants with the same criminal records.

If an employer treats you differently because of your race, national origin, colour, sex, religion, disability, genetic information (including family medical history), or older age, or asks you inappropriate questions about your medical status, medical history, or family medical history, you can contact the EEOC for assistance.

The EEOC investigates, conciliates, and mediates charges of employment discrimination and also files lawsuits in the public interest.

Title VII of the Civil Rights Act

Disparate Treatment Discrimination

A covered employer is liable for violating Title VII when the plaintiff demonstrates that it treated them differently because of their race, national origin, or another protected basis. For example, there is Title VII disparate treatment liability where the evidence shows that a covered employer rejected an African American applicant based on their criminal record but hired a similarly situated White applicant with a comparable criminal record.

To avoid disparate treatment discrimination claims, avoid preconceived notions regarding a particular group’s propensity to commit crimes and treat all applicants and employees the same regardless of their membership in any protected group.

Disparate Impact Discrimination

A covered employer is liable for violating Title VII when the plaintiff demonstrates that the employer's neutral policy or practice has the effect of disproportionately screening out a protected group of individuals. If this is established, it is up to the employer to show how the policy is job-related for the position in question and consistent with business necessity.

In the context of a criminal background check policy, the employer must demonstrate how the screening process is related to the essential job requirements of the position. If your business is excluding any applicant with a criminal record, you may be disparately impacting one racial group over another.

What This Means for Criminal Background Check Policies

The overall rejection of an applicant or employee based upon criminal history is no longer sufficient. For each position, you should identify the critical job requirements and circumstances under which the job will be performed. Then, specifically tailor your criminal background check policy to exclude individuals that are unsuited for the job based upon the requirements and circumstances you have identified. This ensures that your policy is related to the essential job requirements and reduces your risk of liability under Title VII.

For example, if your employees are required to interact with customers on a daily basis, your background check should look primarily for violent felonies. Non-violent drug or property crimes may not be as relevant to the position, especially if the employee is otherwise qualified.

What This Means for Individual Employee Assessments

Again, the overall rejection of an applicant or employee based upon criminal history is not sufficient. For applicants or employees who have been convicted of a crime, you should weigh the gravity of the offense, the nature of the offense, and the time that has passed since the offense and compare these factors to the specific requirements of that applicant or employee’s position. Identify the specific requirements and traits necessary for the position and exclude only applicants or employees that have committed crimes related to these requirements and traits. In addition, consider placing a lesser emphasis on misdemeanours, non-violent crimes, and applicants or employees who have demonstrated remorse or personal growth since the time of the conduct.

For example, the specific requirements of a bank teller position include the handling of money. The traits necessary for this position may include honesty and trustworthiness. Therefore, your assessment should look for crimes involving dishonesty, such as theft, embezzlement, or fraud. A drug charge or DUI conviction may not be as relevant to the specific requirements and traits of this position.

Examine your current criminal background check policy to make sure it is only screening for those crimes that are related to the essential job requirements and traits necessary for specific positions. Tailor individual assessments so that they are examining for the same.

Finally, whether as part of a criminal background check policy or individual assessment, avoid asking for arrest records and stick to convictions. Convictions may include plea bargains in addition to convictions by a judge or jury. It is not the arrest that is important; it is the conduct underlying the conviction. Finally, train your employees supervising the background checks and assessments. Any policy is only as good as those that enforce it.

Americans with Disabilities Act (ADA)

The Americans with Disabilities Act (ADA) is a civil rights law that protects individuals with disabilities from discrimination in many areas of public life, including employment. The ADA gives civil rights protections to individuals with disabilities similar to those provided to individuals on the basis of race, colour, sex, national origin, age, and religion.

The ADA was enacted in 1990 and has since been amended by the Americans with Disabilities Act Amendments Act (ADAAA) in 2008. The ADAAA made significant changes to the definition of "disability". The ADA is divided into five titles (or sections) that relate to different areas of public life.

This title is designed to ensure that people with disabilities have the same employment opportunities and benefits as people without disabilities. Employers must provide reasonable accommodations to qualified applicants or employees. A reasonable accommodation is any modification or adjustment to a job or the work environment that will enable an applicant or employee with a disability to participate in the application process or to perform essential job functions.

This title prohibits private places of public accommodation from discriminating against individuals with disabilities. Examples of public accommodations include privately-owned, leased or operated facilities like hotels, restaurants, retail stores, doctor's offices, golf courses, private schools, daycare centres, health clubs, sports stadiums, and movie theatres. Title III sets the minimum standards for accessibility for alterations and new construction of facilities. It also requires public accommodations to remove barriers in existing buildings where it is easy to do so without much difficulty or expense.

The final title contains a variety of provisions relating to the ADA as a whole, including its relationship to other laws, state immunity, its impact on insurance providers and benefits, prohibition against retaliation and coercion, illegal use of drugs, and attorney's fees. This title also provides a list of certain conditions that are not to be considered disabilities.

Fair Chance to Compete for Jobs Act of 2019 (Fair Chance Act)

The Fair Chance to Compete for Jobs Act of 2019, or the Fair Chance Act, is a US law that aims to give applicants with criminal records a fair chance at federal employment. It was signed into law by the president on December 20, 2019, as part of the National Defense Authorization Act.

The Fair Chance Act prohibits federal agencies and federal contractors acting on their behalf from requesting that an applicant disclose their criminal history record information before the agency makes a conditional offer of employment. The Act ensures that the primary criteria for hiring are an individual's qualifications and skills. It was designed to help qualified workers with arrest or conviction records compete fairly for employment in federal agencies.

The Act does not apply to applicants being appointed to positions that require a determination of eligibility for access to classified information, assignment to or retention in sensitive national security duties, or federal law enforcement officer or dual-status military technician positions.

The US Office of Personnel Management (OPM) finalized its regulations for the Fair Chance Act on October 2, 2023. The regulations assist agencies in carrying out the provisions of the Act and provide a complaint process for applicants who believe their rights have been violated.

The Fair Chance Act is a significant piece of legislation that advances important goals of reducing recidivism, promoting diversity and inclusion in the federal workforce, and providing opportunities for talented individuals to contribute to the federal government.

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