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Legal Clinic

Conducting Background Checks

Federal and state laws play a big role in determining the rules under which companies may investigate job applicants, and those rules vary whether it is a third party or the organization itself doing the background screening.

Monday, March 26, 2007
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How much do you know about the people who work for you? If you hired them after 9/11, you likely know far more about their backgrounds than is true of your longer-term employees. But the quest to know more -- for security reasons, to make "informed" decisions in an Information Age -- must be conducted within the bounds of lawful inquiry. U.S. laws protect individuals against identity theft and limit the contexts in which third parties can conduct inquiries into an individual's background. The fair employment laws also come into play, restricting the types of permissible inquiries and the grounds on which an employer may base its employment decisions. This month's column addresses some of the legal considerations when conducting background checks on employees.

Question: Working in the nonprofit world, we often have applicants that were friends of friends who know so and so ... which means that staff have often relied on obtaining informal references from the people they know rather than from the references provided by the applicants. My question is: Is it illegal and/or considered unethical to obtain references from people without the consent or notification of the applicant in question?

Answer: It is not illegal or unethical to obtain informal references in this manner. In fact, this is not uncommon, particularly, as your question suggests, for not-for-profit organizations. 

There are, however, restrictions when you retain a third party to check a job applicant's references. In these circumstances, the third party is considered a "consumer reporting agency" under the Fair Credit Reporting Act and the reference check would be considered an "investigative consumer report." To conduct such a reference check, the FCRA requires certain disclosures to the applicant and that you obtain the applicant's advance consent to the reference check.

An employer's firsthand reference checks are outside the scope of FCRA, and not subject to these disclosure and consent requirements. Moreover, no other federal law prohibits employers from making this type of inquiry and a quick review of state laws confirms that they limit reference checks, if at all, in a manner consistent with FCRA. Nevertheless, it would be prudent to check with local counsel to confirm that there are no state or local statutes that might require an applicant's consent in this situation.

Question: The background-screening legal requirements are changing so rapidly from state to state for both employees and employers. What are the most important issues to keep in mind in regard to screening?

Answer: There are many important issues to keep in mind with respect to screening, including the potential applicability of the FCRA, which, as mentioned above, does not apply to informal reference checks made directly by an employer. That law does apply, however, in many circumstances where employers seek information about applicants.

Employee drug and alcohol testing is a constantly developing area of the law, and it can vary considerably from state to state. New York has yet to enact legislation regulating workplace drug and alcohol testing. Vermont, by contrast, comprehensively regulates drug and alcohol testing where it is a condition of employment. Washington, like several other states, offers discounts on workers' compensation premiums to employers that participate in the state's drug-free workplace program.

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Finally, employers must not overlook the interplay between employment-discrimination laws and pre-hire screening. While fair employment laws do not prohibit background screening per se, an employer may run afoul of these laws, for example, by asking improper interview questions. Additionally, in order to have a thorough background check conducted, it may be necessary for an employer to secure from an applicant some categories of personal information (such as dates of graduation from educational institutions) that the Equal Employment Opportunity Commission has advised are inappropriate inquiries on a job application or in an interview. 

Employers run a liability risk under the fair employment laws when they gather this information, particularly prior to extending a conditional offer of employment. Any subsequent employment decisions may be closely scrutinized to ascertain whether they were impermissibly based on protected characteristics, such as an applicant's age, national origin, citizenship status or the like, that may have been referenced in a report of a background investigation.

This means it is also important for employers to recognize the state-by-state differences in fair employment laws, such as genetic information or familial status as protected characteristics.

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