The Importance of Compliant Background Checks
Background checks are a standard component of the hiring process for most organizations. They help employers verify candidate qualifications, identify potential risks, and make informed hiring decisions. However, background checks are heavily regulated, and non-compliance can result in significant legal liability, including class action lawsuits, regulatory fines, and reputational damage. HR professionals must understand the federal, state, and local laws that govern background screening and implement processes that are both thorough and compliant.
The Fair Credit Reporting Act (FCRA)
The FCRA is the primary federal law governing the use of background checks in employment. It applies whenever an employer uses a consumer reporting agency (CRA) to conduct a background check. Key FCRA requirements include:
Disclosure and Authorization
Before obtaining a background check, the employer must provide the candidate with a clear, standalone written disclosure that a background check may be obtained. The disclosure must be in a separate document, not embedded in the employment application. The candidate must provide written authorization before the check is initiated.
Pre-Adverse Action Process
If the employer is considering taking adverse action (such as not hiring, terminating, or denying a promotion) based in whole or in part on the background check, the employer must first provide the candidate with a copy of the background report, a copy of "A Summary of Your Rights Under the Fair Credit Reporting Act," and a reasonable period (typically five business days) to review the report and dispute any inaccuracies.
Adverse Action Notice
If the employer proceeds with the adverse action, it must provide the candidate with a final notice that includes the name and contact information of the CRA that provided the report, a statement that the CRA did not make the adverse decision and cannot explain it, and notice of the candidate's right to obtain a free copy of the report and to dispute its accuracy.
EEOC Guidance on Criminal Background Checks
The Equal Employment Opportunity Commission (EEOC) has issued guidance on the use of criminal background checks in employment. The EEOC warns that blanket policies excluding all applicants with criminal records can have a disparate impact on racial and ethnic minorities. The EEOC recommends an individualized assessment that considers the nature and gravity of the offense, the time that has passed since the offense or completion of the sentence, and the nature of the job sought. This three-factor test helps employers make decisions that are job-related and consistent with business necessity.
Ban-the-Box Laws
Ban-the-box laws, also known as fair chance hiring laws, restrict when during the hiring process an employer can inquire about criminal history. These laws have been adopted by numerous states and localities. While the specifics vary, most ban-the-box laws prohibit criminal history questions on the initial job application, allow criminal history inquiries only after a conditional offer of employment, require individualized assessment before adverse action, and provide candidates with an opportunity to explain their criminal history.
HR professionals must determine which ban-the-box laws apply to their organization based on the jurisdiction and, in some cases, the size of the employer. Federal contractors are subject to the Fair Chance Act, which delays criminal history inquiries until a conditional offer has been made.
Types of Background Checks
- Criminal history: Searches of county, state, and federal criminal records
- Employment verification: Confirmation of previous employment dates, titles, and responsibilities
- Education verification: Confirmation of degrees, certifications, and attendance dates
- Credit checks: Review of credit history (restricted in many states to positions with financial responsibilities)
- Motor vehicle records: Review of driving history for positions requiring driving
- Professional license verification: Confirmation that required licenses are current and in good standing
- Reference checks: Conversations with former supervisors or colleagues
Best Practices for Background Check Programs
To maintain a compliant and effective background check program, HR professionals should work with reputable, FCRA-compliant consumer reporting agencies. Develop a written policy that defines which checks are conducted for which positions, based on legitimate business needs. Train all hiring managers on proper procedures, including the pre-adverse and adverse action processes. Keep background check results confidential and separate from the general personnel file. Conduct regular audits to ensure compliance with all applicable federal, state, and local laws. Consult legal counsel when questions arise about specific situations or new legislation.
SHRM Exam Focus
The SHRM exam tests knowledge of the FCRA process (disclosure, authorization, pre-adverse action, adverse action), EEOC guidance on criminal background checks and the individualized assessment requirement, ban-the-box laws and their impact on the hiring process, and the appropriate use of different types of background checks. Practice applying these concepts to scenario-based questions, as the exam often presents situations where you must determine the correct procedural step or identify a compliance violation.