The Use of Third-Party Background Checks – New Forms And Old Traps

The use of third-party background check companies to conduct background checks as part of the hiring process continues to be popular with many private employers. The procurement and use of background checks, however, is fraught with new changes and old traps for the unwary. Below are five things every employer who uses third party background check companies should consider in keeping their background check processes legal and compliant:

  1. Keep Your Forms Up To Date: Beginning September 21, 2018, employers are required to use a revised version of the “Summary of Your Rights Under the Fair Credit Reporting Act” form as part of the pre-adverse action notification process. The revised form incorporates new language informing consumers of their rights to a security freeze. The failure to use the revised form is precisely the type of unintentional conduct that has generated numerous lawsuits under the Fair Credit Reporting Act (“FCRA”) in the past. A link to the new form is here.
  2. Don’t Forget About Pre-Adverse Action Notices: The law still requires notice (actually two notices) to applicants and employees before taking an adverse job action if the results of the third-party background check (including a criminal conviction check or a motor vehicle report) are used, in whole or in part, to make the adverse decision. Employers should have standard adverse action notice letters as part of their compliance tools.
  3. Scrutinize Your FCRA Disclosure Form: The disclosure required by the FCRA before obtaining consent to procure a background check report from a third-party must be in a separate document that includes nothing except the disclosure itself. This means the disclosure should not be part of an employment application or other hiring document. There have been a number of lawsuits filed over the failure to satisfy this requirement, including a large class action against Wal-Mart that was certified in January 2019 over this very issue.
  4. Consider How Background Checks Will be Used: Employers do themselves a great service if they consider in advance how the results of a background check will be used and what policies and procedures should be put in place to ensure that they are used in a lawful manner. For example, the EEOC recently reached a conciliation agreement with a nationwide retailer to resolve claims of race discrimination brought by an African-American applicant who had an offer of employment rescinded because of a background check. As part of that agreement, the employer agreed to change its policies: (1) to remove any blanket exclusion for criminal convictions, (2) provide an individualized assessment for all applicants, and (3) postpone questions about criminal convictions until later in the hiring process. The EEOC also required the employer’s human resources and other staff to participate in mandatory implicit bias training. A copy of the press release announcing the conciliation agreement is here.
  5. Be Aware of State Laws: State laws may impose different and stricter requirements on the procurement and use of background checks, and criminal background checks in particular. For example, several Texas cities have passed ban the box laws. In Oklahoma, employees must be given written notice before obtaining a background report and the notice itself must contain a box that the employee may check to receive a copy of the report. The latter is not required by the FCRA unless an adverse action is taken on the basis of the report. And in New Mexico, convictions can appear on a background report only if they occurred during the last seven (7) years. There is no comparable limit for convictions under the FCRA.

The Bottom Line For Employers

Background checks continue to generate both confusion and litigation. Employers using third party companies to conduct background checks should continue to be vigilant about non-compliance and stay informed on new forms and new state laws. We also encourage employers to give advance consideration to how the results of a background check will be used and to be mindful of both the procedures to be followed and the legal risks to be considered if an adverse action is taken in whole or in part on the results of a background check.