background check

§ 6.01 Introduction

Background checks are an important component of an effective compliance program under the United States Sentencing Guidelines Manual, § 8B2.1(b)(3) (2011). If the personnel involved in promulgating the compliance program are known as people of integrity then the compliance program will be perceived as the result of a sincere effort to create a culture of ethics within the corporation.

Since the integrity of the senior management, compliance officer, and the compliance office personnel is critical to the effectiveness of the compliance program, enhanced background checks need to be conducted on all personnel who are involved in the conduct and dissemination of the compliance program.

__________     Timing:

These background checks should be conducted at the time of employment, promotion, salary increase or change of position to a compliance related function. __________

Typically, conducting background checks on certain prospective employees can be an important part of the employee selection process for any company.

__________     Timing:

Background checks may also be advisable for employees considered for promotion or transfer into managerial or sensitive positions, or those positions which involve unsupervised employee contact with customers. __________

__________     Strategic Point:

This practice should be reinforced throughout the company in hiring all employees since every employee is involved in promoting and participating in the compliance program. __________

§ 6.02 Steps Involved in the Background Check Process

__________     Trap:   Strategic Point:

While seemingly straightforward, the steps required to conduct a legal background check are full of traps for the unwary. As a matter of federal law (and the law of many states), the process involves the following steps:

· 1.Obtain written consent for a background check from the applicant or employee;

· 2.Obtain and analyze the results of the background check;

· 3.Provide a copy of the background check to the applicant (if the results are relevant to the selection process) along with a written statement of rights and request a response;

· 4.Provide the applicant with an opportunity to respond with written comments to the background check results;

· 5.Consider the applicant’s written comments and the background check results in making a final determination as to whether the applicant will be hired, promoted, or transferred, and;

· 6.Provide the applicant with written notice (if the background check results are relevant to the selection process) of the fact that the background check results played a part in the selection process and that the applicant was not selected as a result. __________

__________     Warning:

These steps are more than just a set of best practices, they are designed to help an employer fully comply with the requirements of the Fair Credit Reporting Act. Failing to follow one or more of these steps when using background checks for employment decisions can leave a company open to class action or single plaintiff lawsuits. __________

§ 6.03 Statutory Framework

__________     Core Statute:

Originally passed by Congress in 1970, the Fair Credit Reporting Act (“FCRA”) regulates “consumer reporting agencies” and any company or individual who seeks to rely on a “consumer report” in connection with making an employment decision, extending credit or insurance, or other decisions in connection with a “consumer.” While the FCRA is not limited to employment decisions, this chapter focuses on the effects of the FCRA on the employment relationship. In the employment context, the “consumer” is either an applicant for employment or a current employee (hereinafter, collectively “applicant”). __________

· [1] What is a “Consumer Report”?

What is a “consumer report”?

__________     Core Statute:

It is broadly defined in the FCRA as any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer’s “credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living” which is used as a factor to determine the consumer’s eligibility for credit or insurance, employment purposes, or business transactions.  15 U.S.C. § 1681a(d)(1) . In the employment context, it covers any report from a consumer reporting agency describing a current or potential employee’s arrests, convictions, or credit history. __________

· [2] What is a “Consumer Reporting Agency”?

What is a “consumer reporting agency”?

__________     Core Statute:

Any person or company which—for monetary fees, dues, or on a cooperative nonprofit basis—regularly engages in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties.  15 U.S.C. § 1681a(f) . In the employment context, any company that provides an employer with information about an applicant’s arrest, conviction, or credit history for a fee is a “consumer reporting agency.” __________

__________     Warning:

There are numerous state laws that regulate the use of background checks for use in the employment context. This is particularly the case with criminal background checks. __________

__________     Warning:

The FTC has recently said that companies that conduct social media background checks are “consumer reporting agencies” under the FCRA. Thus, companies that decide to use a third party to conduct social media background checks must follow the steps outlined in this section. Alternatively, if the company does the social media check in-house, they are not required to follow these steps. __________

__________     Trap:

Social media background checks can reveal information about a candidate or employee’s membership in a protected class. Companies must be vigilant not to rely on such information. __________

§ 6.04 Step One: Obtain Written Consent from the Applicant or Employee

__________     Core Statutes:

Before any background check is requested on any applicant, the employer must provide “a clear and conspicuous disclosure” in writing to the applicant that a consumer report may be obtained for employment purposes. 15 U.S.C. § 1681b(b)(2)(A)(i). __________

__________     Warning:

This written disclosure must be “in a document that consists solely of the disclosure.” In other words, it must be provided in a stand-alone document that cannot be provided with other information to the employee or applicant. __________

__________     Judicial Perspective:

However, the Federal Trade Commission has issued an opinion that the written disclosure may be on the same form as used to obtain the applicant’s written consent. __________

__________     Core Statute:

The applicant must authorize the procurement of the report for the employer in writing. 15 U.S.C. § 1681b(b)(2)(A)(ii). Obtaining a report on an individual without that individual’s consent is a violation of the FCRA, for which the employer may be liable for actual damages between $100 and $1,000, punitive damages, and attorney’s fees. 15 U.S.C. § 1681n(a). However, if the applicant fails or refuses to authorize the employer to obtain a report, the position may be denied to the individual on that basis. __________

 __________     Core Statute:

Additionally, the employer must also provide certification to the credit reporting agency stating that (a) it provided the necessary disclosure to the applicant or employee, (b) it will comply with the requirements regarding adverse action, and (c) it will not use the report in violation of any applicable federal or state equal opportunity law or regulation. 15 U.S.C. § 1681b(b)(1)(A). Typically, the credit reporting agency will require that this certification be signed by a responsible official from the employer before any report is provided. However, it is important for the employer to recognize that these are not meaningless boilerplate representations. Failure to comply with the certifications can expose the employer to a damages claim by the disappointed applicant. __________

§ 6.05 Step Two: Obtain and Analyze the Results of the Background Check

Once the results of the background check are in, the employer must determine whether it raises any concerns about the applicant’s integrity and suitability for the employment position at issue. Indeed, if a report has been obtained for a current employee in connection with a possible promotion or transfer, the report may raise questions about the employee’s integrity and suitability for his or her current position.

If the background check results do not raise any issues concerning the applicant’s integrity and suitability for the position, then an offer can be made to the applicant without any further FCRA obligation.

__________     Strategic Point:

Alternatively, if the background check does not raise any concerns, but the applicant is not selected for some other reason—such as a decision to offer the position to a better qualified applicant or a decision not to fill the position at all—then there is similarly no further FCRA obligation. __________

__________     Warning:

However, if something in the background check raises questions in the employer’s view about the applicant’s integrity and suitability for the position, then the employer must next determine whether it would be legal to deny the applicant the position on the basis of the background check. If the employer concludes that it would be legal to deny the position on that basis, then the employer may move on to Step Three. __________

__________     Warning concerning criminal background checks:

As of this writing, at least 14 states have enacted laws that limit the use of criminal background checks for employment purposes. These states include Alaska, Arkansas, California, Connecticut, Illinois, Louisiana, Massachusetts, Michigan, Nebraska, New York, North Dakota, Pennsylvania, Rhode Island, and Wisconsin. Some of these states prohibit an employer from considering a criminal conviction in connection with an employee selection process unless the conviction is reasonably related to the employment in question. For example, California restricts employers from requesting or using conviction records relating to certain marijuana convictions that are over two (2) years old. __________

__________     Warning:

This reasonably related to the employment standard is frustratingly ambiguous. It does not give the employer much guidance in determining whether a particular conviction for a crime may legally be used by the employer to deny employment for a particular position. The public policy behind these statutes prohibiting discrimination against individuals convicted of criminal offenses is to allow such individuals to obtain employment and thus to reduce the likelihood that the individual will commit further crimes. As a policy goal, these statutes are understandable. They clarify that an employer may not automatically disqualify an employee or applicant from a position simply because of any conviction regardless of how remote in time or how unrelated to the employment position at issue. __________

__________     Warning:

Further, be advised that, in many states, employers may not inquire about arrest records where no conviction has occurred. For example, Michigan prohibits the use of information regarding an arrest that did not lead to a conviction in connection with an application for employment.  M.C.L. § 37.2205a . __________

__________     Warning:

The employer, however, may also be sued for negligent hiring if it obtained—or could have obtained—information about the applicant’s conviction that would have alerted the employer to the risk that the applicant might commit the same or a similar crime against a co-worker, vendor, or customer. __________

__________     Warning:

Federal law and regulations may actually require criminal background checks for some jobs and industries. For example, an individual convicted of a crime involving dishonesty or a breach of trust cannot work as a bank employee or insurance for a designated period.  12 U.S.C. § 1829(a)(1) ;  18 U.S.C. § 1033(e) . __________

__________     Trap:

In other words, the employer faces possible liability to the disappointed applicant if it declines to hire him or her based on a prior conviction and possible liability to a person injured or damaged by the employee hired despite the conviction at issue. For prior convictions involving violence, this concern is most acute. __________

__________     Core Statute:

In New York, for example, it is an unlawful discriminatory practice to deny employment to an individual convicted of one or more criminal offenses unless:

· (1)There is a direct relationship between one or more of the previous criminal offenses and the specific employment sought or held by the individual; or

· (2)The granting or continuation of the employment would involve an unreasonable risk to property or to the safety or welfare of specific individuals or the general public. __________

New York Executive Law § 296(15) ;  New York Corrections Law § 752 .

__________     Core Statute:

In making a determination under this standard, the employer is supposed to consider the following factors:

· (a)The public policy of [New York] to encourage the employment of persons previously convicted of one or more criminal offenses.

· (b)The specific duties and responsibilities necessarily related to the employment sought or held by the person.

· (c)The bearing, if any, the criminal offense or offenses for which the person was previously convicted will have on his fitness or ability to perform one or more such duties or responsibilities.

· (d)The time which has elapsed since the occurrence of the criminal offense or offenses.

· (e)The age of the person at the time of occurrence of the criminal offense or offenses.

· (f)The seriousness of the offense or offenses.

· (g)Any information produced by the person, or produced on his behalf, in regard to his rehabilitation and good conduct.

· (h)The legitimate interest of the employer in protecting property, and the safety and welfare of specific individuals or the general public. __________

New York Corrections Law § 753(1) .

__________     Core Statute:

New York law absolutely prohibits an employer from discriminating against an applicant because of an arrest that was ultimately terminated—on the merits or otherwise—in the applicant’s favor.  New York Executive Law § 296(16) __________

__________     Warning:

The listing of the above factors requires the employer to consider and weigh each factor in determining whether it would be lawful to refuse to hire or promote the employee based on a prior conviction. There are no bright line tests. The employer is required to consider that New York public policy encourages the employment of previously convicted persons, but should also consider the safety and welfare of co-workers, vendors, or customers. The employer is also required to consider the seriousness of the offense, the applicant’s age when it was committed, and how much time has passed since the offense occurred. Presumably, offenses committed long ago or when the applicant was young and immature should not be disqualifying for current employment. __________

Most importantly, the employer is required to consider the specific duties and responsibilities of the employment position and whether the criminal offense at issue will have any “bearing” on the applicant’s “fitness or ability to perform one or more such duties or responsibilities.” Clearly, a recent drunk driving conviction could disqualify an applicant for a position that requires driving on the employer’s behalf. Similarly, a recent child molestation conviction would likely disqualify an applicant for a position as a child care worker.

__________     Warning:

Beyond these clear-cut examples, however, the employer runs the risk of a claim of conviction discrimination if it attempts to disqualify an applicant for a prior conviction, especially for older convictions or those for which the applicant has presented a certificate of rehabilitation. The EEOC has recently taken the position that a policy that automatically disqualifies applicants for criminal convictions is per se discriminatory. As of this writing, they filed charges against BMW and Dollar General claiming that the companies’ use of criminal background checks had a disparate impact against black applicants. __________

§ 6.06 Step Three: Provide a Copy of the Background Check to the Applicant along with a Written Statement of Rights and Request a Response

If the employer is considering not hiring the applicant or not promoting the employee because of something the employer has learned from the background check report, the employer must provide the applicant or employee with three things:

· 1.A copy of the report;

· 2.A written explanation that the employer is considering taking adverse action based on the results of the background check and requesting any response, comments, or additional information that the applicant or employee would like the employer to consider, and;

· 3.A written summary of rights under the Fair Credit Reporting Act (available atwww.ftc.gov/bcp/edu/pubs/consumer/credit/cre35.pdf).

__________     Timing:

The employer is prohibited from making a final decision prior to giving the applicant a reasonable opportunity to respond and considering any comments or information that the applicant provides. However, the employer is not required to specify or explain precisely what in the report is motivating its reasons for considering adverse action or why it considers the report to be disqualifying. [FORM] For example, the following letter is sufficient to comply with these requirements:

Dear Applicant:

The purpose of this letter is to inform you that we have received a consumer report from [name of consumer reporting agency] upon which we intend to rely in considering your employment application. Enclosed please find a copy of this consumer report. Also enclosed is A Summary of Your Rights Under the Fair Credit Reporting Act.

If you have any additional information that you would like us to consider regarding the information provided in the enclosed report or your employment application, please provide it to us within five (5) business days of your receipt of this letter. __________

§ 6.07 Step Four: Provide the Applicant with an Opportunity to Respond with Written Comments to the Background Check Results

As explained in the above sample letter, the applicant must be given a reasonable opportunity to offer additional information, which the employer is legally required to consider.

__________     Warning:

Effectively, this means that the employer cannot hire another applicant for the position until it receives and considers the additional information that the applicant has the legal right to submit. __________

__________     Trap:

It is important that the applicant be given a specific, reasonable deadline within which to provide the additional information because the applicant is not required to submit any additional information and the employer cannot legally make a final determination until either the information is received or the time deadline has expired. __________

§ 6.08 Step Five: Consider the Applicant’s Written Comments and the Background Check Results in Making a Final Determination as to Whether the Applicant will be Hired, Promoted, or Transferred

Once the applicant has submitted his or her written comments or other information, the employer may consider the background check results and any comments or information submitted by the applicant to make a final decision about the position at issue. The employer should be guided by the requirements for the position as well as the applicable legal obligations discussed in Step Two above.

If the employer decides to hire the applicant in view of the applicant’s written comments or for any other reason, then the employer need only inform the applicant of his or her selection for the position. There are no further FCRA requirements if the employer decides to hire the applicant. However, if the employer decides not to hire the applicant, then the employer must determine whether the background check results played a role in the decision not to hire the applicant. Having already informed the applicant that it was considering taking adverse action as a result of the background check results, it would generally seem likely that such results played a role in the employer’s ultimate decision not to hire the applicant. Nonetheless, it is possible that the employer will decide not to hire the applicant for some reason unrelated to anything in the background check results.

For example, the employer might accept the applicant’s explanation of the prior conviction as being irrelevant to the employment position in question or that the background check results are erroneous, but determine that some other applicant is better qualified for the position. Any applicant who reaches Step Five is likely to suspect that the background check results are what caused him or her not to be selected for the position and may bring a claim against the employer if the employer does not follow-up with the requirements of Step Six.

__________     Warning:

Therefore, it may be advisable for an employer who decides not to hire the applicant for a reason unrelated to the background check to inform the applicant of the reason for not selecting the applicant. However, the employer is not legally required to inform the applicant of any reason that is not related to the background check results. __________

§ 6.09 Step Six: Provide the Applicant with Written Notice of the Fact that the Background Check Results Played a Part in the Selection Process and that the Applicant was not Selected as a Result

__________     Warning:

If the employer determines not to hire the applicant and that the background check results played a part in that decision, then the employer must provide the applicant with written notice of that fact, the name, address, and telephone number of the consumer reporting agency, and a statement that the consumer reporting agency did not make the adverse employment decision.  15 U.S.C. § 1681m(a) (1,2). __________

__________     Warning:

Along with written notice that the consumer report played a role in the decision not to hire the applicant, the employer must also provide the applicant with notice of the applicant’s right to obtain a free copy of the report and to dispute the accuracy of the report.  15 U.S.C. § 1681m(a)(3) . Even though the applicant should already have a copy of the results of the background check (from Step Three above), the employer is legally required to provide the applicant with notice of the right to obtain a copy of the report for free and to dispute its accuracy with the credit reporting agency. __________

__________     Core Form:

The following sample letter complies with these requirements:

Dear Applicant:

This notice is provided to you in accordance with the Fair Credit Reporting Act (“FCRA”). In our letter to you dated , we provided you with a copy of a consumer report, pre-authorized by you, that the Company obtained as part of its hiring process and advised you that the Company intended to rely upon it in considering your application for employment. We offered you the opportunity to provide any additional information that you wanted us to consider.

The Company has considered the additional information you provided along with the information it already possessed, including the consumer report, and the Company has decided not to offer you employment based, at least in part, on the information contained in the consumer report.

Pursuant to your rights under the FCRA, the Company is obligated to inform you of the following:

· •The consumer report was provided to the Company by a consumer reporting agency,[name, address, and telephone number of consumer reporting agency].

· •[Consumer reporting agency] did not make the decision not to offer employment, and cannot explain the specific reasons for the decision.

· •At your request, [consumer reporting agency] must provide you with a free copy of its consumer report. This request must be made, in writing, to [consumer reporting agency] at the above address, and must be received by [consumer reporting agency] within 60 days of the date of this notification. You have the right to dispute with the consumer reporting agency the accuracy or completeness of any information in a consumer report. __________

Once the employer completes Step Six, its obligations under the FCRA will be fully satisfied.

__________     Warning:

However, the applicant has the right to contest with the consumer reporting agency—not the employer—the accuracy of any information in the background check. Notably, it is not the employer’s obligation to ensure the accuracy of the consumer report. The employer is legally entitled to assume the accuracy of and rely upon the information set forth in the consumer report, even if the applicant claims that certain information is inaccurate. As long as the employer has properly followed the above steps and informed the applicant that it has relied upon information provided by a disclosed consumer reporting agency, the employer’s obligations under the FCRA have been met. __________

§ 6.11 Checklist of Items to be Considered on Background Checks

· 1.Employment Verification

· 2.Educational Verification

· 3.Reference Checks

· 4.Credit Checks

· 5.Criminal Convictions

§ 6.12 Sample Letter to Applicant on the Right of the Applicant to Obtain the Credit Report and to Dispute the Accuracy of the Credit Report with the Credit Reporting Agency

Dear Applicant:

This notice is provided to you in accordance with the Fair Credit Reporting Act (“FCRA”). In our letter to you dated , we provided you with a copy of a consumer report, pre-authorized by you, that the Company obtained as part of its hiring process and advised you that the Company intended to rely upon it in considering your application for employment. We offered you the opportunity to provide any additional information that you wanted us to consider.

The Company has considered the additional information you provided along with the information it already possessed, including the consumer report, and the Company has decided not to offer you employment based, at least in part, on the information contained in the consumer report.

Pursuant to your rights under the FCRA, the Company is obligated to inform you of the following:

· •The consumer report was provided to the Company by a consumer reporting agency, [name, address, and telephone number of consumer reporting agency].

· •[Consumer reporting agency] did not make the decision not to offer employment, and cannot explain the specific reasons for the decision.

· •At your request, [consumer reporting agency] must provide you with a free copy of its consumer report. This request must be made, in writing, to [consumer reporting agency]at the above address, and must be received by [consumer reporting agency] within 60 days of the date of this notification. You have the right to dispute with the consumer reporting agency the accuracy or completeness of any information in a consumer report.