Legality Of Background Checks: A Simple and Brief Guide

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The content on this post is provided for general information purposes only and does not constitute legal or other professional advice and should not be relied upon as such.

Personnel is one of the greatest assets of your business and personnel decisions are just some of key decisions that you will need to make. These include who to hire, retain or promote, and who to reassign. You must take extra care when engaging in any of these activities because the success of your business depends on it. One area that helps in making good hiring and retaining decisions is a background check of applicants and employees.

You need to check into a potential employee’s work history, financial history, education, criminal record, medical history, or use of social media for several reasons. Consider these shocking statistics. Most people lie on their resume, roughly 80% of all resumes are deceptive. Around 20% of resumes list fake or fraudulent degrees in the education section and 30% have altered employment dates. Approximately 40 % have inflated salary claims and about 3 out of 10 resumes have inaccurate job descriptions. And here is another shocker, 66% of hiring managers willingly accept this lapse in ethics and proceed to hire such people. Making decisions for a small business is comparatively faster and easier compared to large companies because it often starts and ends with the you the owner of the business. Fortunately, as a small business owner you get to make the hiring decisions yourself and can do a better job of avoiding these fraudulent applicants!

As a business owner and employer, you would be guilty of negligent hiring if you failed to perform a thorough background check on an employee whose infliction of harm on a customer or third party could have been predicted by you or anyone in a similar position. There are many things you stand to gain from a background check and relatively a few downsides. Checks help reduce the hiring failure rate, mitigate workplace violence, improve applicant quality, and lessen the loss of employees due to dishonesty. Checks also make you home in on suitable applicants and make the right hiring decision and help avoid potential company losses and negative publicity. As a downside, the results of a background check can cause an unfair bias in the hiring process.

A comprehensive employment background check using paid, legally compliant third-party providers is recommended because doing it for ‘free’ by yourself is not only time-consuming but fraught with potential for inaccuracies. You are on safest legal ground if you openly state to an applicant that a background check is part of the hiring process and ask the applicant, in writing, to consent to your background check. So, is it legal to conduct background checks on a job applicant? The answer is yes, it is legal, but you must make certain it is done “legally”.

A background investigation can be in the form of reference checks, credit history, criminal record, driving record, work history, military service, education, and personal references. The legality of using background checks depends on the extent to which it can ramify and compound into a discrimination case (e.g., discrimination based on gender or race/ethnicity). A background check should not be used to discriminate against current or prospective employees. You would have to prove that the criminal background disqualifies the applicant for the job.

In legal terms, when background checks lead to discrimination it is termed an adverse impact as it results in a higher percentage of members of a certain group (e.g., white males) being hired than members of another group.

If the background checks yield no adverse impact, then they will be considered legal if they are applied consistently on all employees and are not used as a pretext for discrimination. If for some reason a check results in an adverse impact, as the employer you must demonstrate that the background check is job related to avoid a discrimination case.

The thoroughness of background checks depends on a combination of public policy and how ‘sensitive’ the job is. Let’s say you want to check a candidate’s credit background. This information must be acquired only if there is a specific vocational need like if you run a financing company or want to understand more about the candidate’s history of an embezzlement conviction. Or maybe you are running a child care service, then you definitely need to check for sexual assault.

For final candidates a background check authorization form must be completed and returned to your company. Sometimes it can be completed at the time the offer of employment is extended. Applicants who are rejected as a result of their criminal history must be notified and given the opportunity to explain otherwise it becomes a violation. A bad report, like a traffic violation, which is unrelated to the job should not be factored into the final decision. Compliance with the U.S. Equal Employment Opportunity Commission (EEOC) is a must to ensure that the screening is not discriminatory. Best practices are to conduct the background check following a conditional offer of hire, have multiple levels of review (for veracity of the checks and oversight) and allow candidates to declare or make a statement on their criminal conviction in the application form.

Termination of employment after a negative background check

Let’s say by chance you happen to discover that one of your current employees has a dark criminal past that could jeopardize your business if it came to public light. Naturally you will have some fear of liability if said employee engages in some less than savory behavior. Like pre-employment background screening, there are rules and regulations that apply to conducting ongoing post-employment screening. Most importantly, per the federal Fair Credit Reporting Act (FCRA), you are required to obtain your employees’ consent before conducting a background check.

You cannot just terminate an employment contract willy-nilly but must carefully consider the nature and gravity of the offense; the time that has passed since the offense or conduct and the completion of the sentence; and the nature of the job held. You might also need to get the employee’s side of the story. You can get sued if you are seen as jeopardizing an employee’s right to employment. The best course of action is to perform a risk assessment for the employee, document it and seek legal counsel to decide on firing him or not. This is because misusing this new information on him or her can have costly consequences for you company.

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