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New Guidance on the Use of Background Checks in Employment Decisions

Written by: Beth A. Deragon

Published in the NH Bar Association

In a rare move last month, the US Equal Employment Opportunity Commission (EEOC) and the US Federal Trade Commission (FTC) co-published guidance related to conducting employee background checks.

Background checks represent an increasingly complex area of the law that has created much confusion among employers. The EEOC/FTC guidance documents outline background check issues that relate to the agencies’ respective laws, reminding employers that Title VII, enforced by the EEOC, prohibits companies with 15 or more employees from discriminating based on race, color, national origin, sex, religion, age, disability or genetic information when requesting or using background information for employment purposes.

In New Hampshire, employers with six or more employees are covered by the state’s anti-discrimination law that includes sexual orientation as an additional protected class.

Background checks are used when making personnel decisions such as hiring, after an offer of employment, while employed, prior to promotion, or prior to reassignment. The term covers myriad possible topics, including the verification of work history, education and references, criminal record, financial history, driving records, drug testing, and/or the use of social media.

It is not illegal for an employer to ask questions about an applicant or an employee’s background or to require a background check. It is how employers obtain and use background information that presents risk.

When an employer hires a company that conducts background checks, it must comply with the Fair Credit Reporting Act (FCRA), enforced by the FTC. Prior to the company beginning the background check, certain procedures must be followed:
 
• The applicant or employee must be told in writing that the information from the credit or criminal background report could be used in making a decision about his or her employment.
 
• The applicant or employee must be told of his or her right to a description of the nature and scope of the investigation when the employer has asked the company to provide an “investigative report” – a report based on personal interviews concerning a person’s character, general reputation, personal characteristics and lifestyle.
 
• The employer must certify to the company that it has notified the applicant and obtained his or her permission to get a background report, complied with all FCRA requirements, and that it will not discriminate against the applicant or employee.

After obtaining the background check information, employers must be careful not to discriminate against an applicant or employee based on that information. The EEOC/FTC guidance counsels employers to apply the same standards across the board. For example, if the employer does not reject applicants of one ethnicity with certain financial histories or criminal records, then it cannot reject applicants of other ethnicities because they have the same or similar financial histories or criminal records.

The guidance also cautions employers to take special care when basing employment decisions on background problems that may be more common among people in a protected class. The guidance suggests that policies or practices that exclude people with certain criminal records may significantly disadvantage individuals in a protected class, thereby creating a “disparate impact” that is not “job related and consistent with business necessity.”

The EEOC’s position presents conflict-of-law issues where many states have enacted laws prohibiting employers from hiring people for certain positions who have committed certain crimes. The EEOC has stated that federal law preempts those state laws, and that the existence and compliance with the state law is not a defense. In such circumstances, employers may be able to overcome a claim of disparate impact by showing that the policy is job related and consistent with business necessity. Unfortunately, employers complying with state law may still find themselves in litigation defending a disparate impact claim because federal law does not explicitly provide for state law compliance exceptions.

If an employer received background information from a company and decided to take an adverse action based on that information, the FRCA requires that the applicant or employee be given a notice beforehand that includes a copy of the consumer report relied upon and a copy of “A Summary of Your Rights Under the Fair Credit Reporting Act.” The applicant or employee has an opportunity to review the report and explain any information that may negatively impact his or her application for employment or promotion.

After the employer takes an adverse employment action, the employer must tell the applicant or employee orally, in writing or electronically:
 
• that he or she was rejected because of the information in the report;
 
• the name, address, and phone number of the company that sold the report;
 
• that the company selling the report did not make the hiring decision; and
 
• that he or she has a right to dispute the accuracy or completeness of the report, and to get an addition free report from the reporting company within 60 days. If the applicant or employee supplies supplemental information, the employer must take the supplemental information into account and reassess its decision.

Background checks are becoming a business necessity for all companies, but employers must understand the legal parameters of the specific information sought to ensure legal compliance.
________________________________________
Beth Deragon is an attorney in the Employment Law Practice and Litigation Group at the law firm of McLane, Graf, Raulerson & Middleton. Beth can be reached at beth.deragon@mclane.com or at (603) 628-1490. She also contributes regularly to www.employmentlawbusinessguide.com.


Best Practices Tips

To reduce the risk of running afoul of state or federal law in conducting employee background checks, here are a few tips to keep in mind.
• Obtain written permission from the applicant or employee prior to conducting background checks
• Understand responsibilities under FCRA and/or RSA 359-B when conducting credit checks
• Confirm that the requirement to submit to a background check is applied equally throughout the organization
• Analyze the requirement of criminal background checks in terms of the company’s legitimate business reasons

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