by Christopher Graham and Joseph Kelly

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You own a business. Business is booming! So you need to hire more employees. But you want to know whether anyone you may hire has skeletons in the closet. Is it okay to run background checks? Yes, but be there are limitations.

If you don’t have or follow a policy for background checks that follows state and federal law, you could end up in hot water.

The Equal Employment Opportunity Commission and Federal Trade Commission issued a joint publication earlier this year entitled “Background Checks: What Employers Need to Know”.

Why the EEOC? Because it’s charged with enforcing federal laws that protect applicants and employees from discrimination based on race, color, national origin, sex, or religion, disability, genetic information (including family medical history) and age (40 and older).

Why the FTC? If you use a company in the business of compiling information for background checks, such as a credit or criminal background report), you must follow the Fair Credit Reporting Act or “FCRA”, which is enforced by the FTC.

The joint statement covers what you need to do before you get background information, using that information, and disposing of it. If you run background checks, read it carefully.

Some of the statement’s key EEOC takeaways:

• “In all cases, make sure that you treat everyone equally.” So, if you run checks, run them on everyone.
• Don’t try to get an applicant’s or employees’ genetic information, including family medical history.
• Don’t ask medical questions before making a conditional job offer.
• Although it seems obvious, “Any background information you receive from any source must not be used to discriminate in violation of federal law.” So . . .
• “[A]pply the same standards for everyone . . . .”
• “Take special care when basing employment decisions on background problems that may be more common among people” in a protected class.
• “Be prepared to make exceptions for problems revealed during a background check that were caused by a disability.”
• For criminal background checks, “employers should not use a policy or practice that excludes people with certain criminal records if the policy or practice significantly disadvantages individuals of a particular race, national origin, or another protected characteristic, and does not accurately predict who will be a responsible, reliable, or safe employee.”
• Keep employment records until either 1-year after creation or 1-year after a personnel action, whichever is later—unless you’re a state or local government, educational institution, or federal contractor and, thus, subject to longer record keeping requirements. If you’ve been charged with discrimination or been sued, you’ll have additional preservation obligations.

Some key FTC takeaways about reports from third parties:

• Tell the applicant or employee you might use the information for decisions about his or her employment” – in a stand-alone written notice, not in an employment application.
• Get the applicant’s or employee’s written permission for the background check (okay to include in the written notice).
• For reports based on personal interviews about a person’s character, reputation, characteristics and lifestyle, you must tell the applicant or employee of his or her right to a description of the investigation’s nature and scope.
• Certify to the third-party investigator that you provided the required notice, have permission, complied with the FCRA, and won’t discriminate against the applicant or employee, or otherwise misuse the information contrary to federal or state equal opportunity laws or regulations.
• You must provide the applicant or employee notices if you intend to make an adverse employment action (such as firing or not hiring someone) based on the third-party background information, including (1) the consumer report you relied on and (2) a copy of “A Summary of Your Rights under the Fair Credit Reporting Act” which should have been provided by the company selling you the report.
• After you take an adverse employment action based on the third-party background information, you must notify the applicant or employee that he or she was rejected because of information in the report, certain contact information about the company that sold the report, and other related information.
• You may dispose of third-party reports if you’ve met all other recordkeeping requirements, but disposal must be secure.

What else do you need to know? You also better check the law in each state where your business intends to hire employees. State law likely has additional requirements.

For example, where we’re located, the Illinois Human Rights Act, subject to certain exceptions, restricts employers, potential employers, and others from inquiring into or using the fact of an arrest or criminal record information for hiring and other employment-related decisions. See 775 ILCS 5/2-103. The Human Rights Act, however, doesn’t prohibit the employer and others “from obtaining or using other information which indicates that a person actually engaged in the conduct for which he or she was arrested” Id.

Since 2011, the Illinois Credit Privacy Act, subject to certain exceptions, has restricted “employers” from inquiring about an applicant’s or employee’s credit history, ordering or obtaining an applicant’s or employee’s credit report from a consumer reporting agency, or discriminating against any person concerning employment, compensation, or a term, condition or privilege of employment because of the person’s credit history or credit report. See 820 ILCS 70/10(a).

The Credit Privacy Act excludes certain types of employers from being “employers” under the Act, such as banks, insurance companies, debt collectors, and certain state and local government entities. And it “does not prevent an inquiry or employment action if a satisfactory credit history is an established bona fide occupational requirement of a particular position or a particular group of an employer’s employees.” Id. at 70/10(b).

But if you think that you get to decide whether credit history is a “bona fide occupational requirement,” think again. The Act tells you whether it is or isn’t. Examples of when it’s bona fide include when state or federal law requires bonding for the position or the job duties include custody of or unsupervised access to cash or marketable assets of at least $2500 or signatory power of business assets of at least $100 per transaction, setting the direction or control of the business, or access to personal or confidential information, financial information trade secrets.

For an overview of background check legal variations nationwide, see an excellent post by Jackson Lewis law firm here.

Bottom line: if you’re going to do background checks, make sure you know what you’re doing. Consult qualified counsel about state, federal and any local requirements.

Tags: employee background checks, applicant background checks, Fair Credit Reporting Act, FCRA, Federal Trade Commission, EEOC, criminal background checks, credit reports, Illinois Credit Privacy Act, Illinois Human Rights Act