So you have big plans for 2012 for your business! Part of those plans involves the hiring of a new employee. The right candidate for this job has to be trustworthy for many reasons, but mainly because she may be entering into your customers’ homes, handling customer payments, or working with sensitive customer or business information. That last thing you need is an employee stealing from your customers or you, or doing something even worse.
You’ve interviewed several candidates and found one you really like. She seems like the right fit, but what do you really know about her from a one-page résumé or application and a couple of interviews? What can you do to learn more about her? Should you run a criminal background or a credit check?
Many businesses should and do use various types of background and credit checks. These can be as simple as in-house Internet searches (even checking Facebook) or as in-depth as third-party credit or consumer reporting agency reports. Equifax, TransUnion, and Experian are the most well-known credit reporting agencies and can generate reports about everything from creditworthiness to criminal records. There are also many other agencies that will provide you with a myriad of different possible reports.
Before you run a background or credit check, you should be aware that there are federal and state laws that (i) affect your ability to run these types of checks on job applicants or existing employees, and (ii) dictate what you can do with the information received. The Fair Credit Reporting Act (FCRA) is the most important law affecting your ability to obtain and use a background or credit check.
If you use an agency to obtain information about an employee or applicant, you must comply with the FCRA or face some serious penalties. Under the FCRA, you must (i) properly disclose your intent to obtain the report; (ii) obtain express authorization from the applicant or employee to obtain the report; (iii) provide the applicant or employee with special notice if the you plan to take an adverse action based on information contained in the consumer report (i.e. not hire the applicant or fire the employee), and (iv) provide the applicant or employee with notice after taking the adverse action based on the information in the report. The FCRA imposes other related requirements as well. Thus, you need detailed background screening policies and processes to ensure compliance with the FCRA.
So why should you care if a violation occurs? Upon a violation of the FCRA, your business may be subject to damages covering any actual damages sustained by the applicant or employee and the costs of the enforcement action (including the dreaded award of “attorneys’ fees”). If the violation is found to be willful, the award can include significant other statutory and punitive damages as well.
If your business has a substantial number of employees, it may be suddenly facing a class action from a creative plaintiffs’ attorney. In fact, last year saw a large rise in the number of class actions filed regarding alleged improperly conducted background checks of job applicants. These lawsuits have even resulted in some multi-million dollar settlements.
For example, a transport operator settled two FCRA class action suits for the collective sum of $5.9 million in March of last year. A freight business settled a FCRA-related class action suit for $2.6 million the next month. In these suits, the plaintiffs typically allege that the businesses did not properly obtain FCRA-compliant authorizations and/or did not provide pre-adverse action notices.
What may seem like a small issue for the employer is now a large lawsuit. Given the potential liabilities, those businesses looking to hire should know the FCRA requirements and take steps to ensure FCRA-compliant background screening policies.
Those looking to perform background checks should also be aware that there is a trend toward states regulating these checks and the use of the information obtained. With regard to criminal background checks, 23 states have recently created rules limiting the use and inquiries into criminal records and imposing their own notice requirements to the applicant or new hire.
A few cities even have ordinances regulating what investigations a business owner may make into criminal backgrounds. These states typically require that these checks may only be run on employees that will be put in a position of trust and confidence where the background check is a genuine job requirement.
The recent increase in FCRA class actions and state legislation suggests that this issue will not go away soon. Generally, you should begin to limit your background checks to those applicants or employees that will have job requirements that they handle significant money or trade secrets or will have significant access to customers’ personal assets.
If your business plans to use background checks on applicants or current employees, it is important that you consult with an experienced labor and employment consultant for compliance with all FCRA and applicable state requirements. Then properly run that background check on that good applicant, get great results and put her to work!