No one wants to get burned by hiring a bad apple, so it’s common for employers to conduct background checks to lessen the chance of bringing a dishonest employee into the workplace. But as hazardous as it is to have shady employees, it also can be dangerous to step out of line when checking people out. A background checking tool making headlines recently comes in the form of databases filled with names and information on employees who have been accused of stealing from their employers. The databases are mostly used in the retail world. 
The New York Times recently detailed how employers are using databases from companies including First Advantage Corporation, HireRight, and GIS. The article points out that the databases are now considered legal, but attorneys and federal regulators are taking a close look to see if they may be out of compliance with the Fair Credit Reporting Act (FCRA).
Workers finding their names in the databases may not have been convicted of any crime or even have been arrested. Often their names are added after they’ve being questioned at work and then signed a statement just to end the matter. A concern is that employees may be innocent but feel coerced into signing. They may have no idea that they’ll end up in a database that can keep them from finding new work. It’s that “blacklisting” aspect that has caused at least some attorneys to advise against using the databases.
Landmines?
Even though it’s crucial to get thorough information on potential employees, Sara H. Jodka, an attorney with Porter Wright Morris & Arthur LLP in Columbus, Ohio, calls such databases “landmines for potential litigation.”
Jodka cites the stance the Equal Employment Opportunity Commission (EEOC) has taken on background checks along with hazards presented by the FCRA, which outlines procedures that employers must follow in obtaining criminal history information from “third-party consumer reporting agencies” such as the database companies.
“Employers are really rolling the dice if they choose to use these databases,” Jodka says, adding that the risk of litigation is likely to outweigh any benefit. She explains that the FCRA requires those keeping information to use “reasonable procedures” to make sure information is fair and equitable to the consumer.
The law also requires procedures designed to ensure that whenever public record information that is likely to have an adverse effect on a consumer’s ability to obtain employment is reported it is complete and up to date.
Who’s at risk?
Jodka says both the employer using the databases to check out potential employees and the employers providing information risk legal trouble. The FCRA requires those who furnish information to a credit reporting agency to make sure it is completely accurate, and they must correct information if they receive notice that what they’ve provided is incorrect.
In addition to the FCRA, many states have laws on what employers can and can’t do regarding background checks, Jodka says. “An employer using these databases would have to ensure they are complying with all federal and state laws regarding the use of this information or they could face liability,” she says.
Even if an employer doesn’t use one of the databases, precautions are in order when using other information turned up on a background check. For example, the EEOC has guidance on how employers should use criminal history records.
Jodka advises against using arrest records, and even conviction information must be used with care. She says an employer can defend excluding an applicant because of a criminal conviction if it can demonstrate that use of the conviction is job-related and consistent with business necessity.
To do so, an employer needs to show that a screening policy is valid under the Uniform Guidelines on Employee Selection or that the employer uses “a targeted screening process” that takes into account the nature and gravity of the offense, the amount of time that has passed since the conviction, the nature of the job, and that “the employer gave notice to the applicant that he or she was screened out of the job because of a past criminal conviction and gives the applicant the opportunity to demonstrate that the exclusion should not be applied to them.”
EEOC focus
The EEOC has been challenging employer use of credit reports and criminal histories and has guidance explaining that although Title VII of the Civil Rights Act of 1964 doesn’t prohibit the use of such information, employers risk liability in two ways.
“First, Title VII prohibits employers from treating job applicants with the same criminal records differently because of their race, color, religion, sex, or national origin (‘disparate treatment discrimination’),” a question-and-answer sheet from the EEOC says. “Second, even where employers apply criminal record exclusions uniformly, the exclusions may still operate to disproportionately and unjustifiably exclude people of a particular race or national origin (‘disparate impact discrimination’).
Steven Collis, an attorney with Holland & Hart LLP in Denver, wrote an article on the use of criminal records and background checks in the March issue of Colorado Employment Law Letter. He points out that the EEOC recommends that employers develop “a targeted background check policy that, at a minimum, considers the nature of the crime, the time elapsed since the offense, and the nature of the job for which the individual is applying.” Discussing a job candidate’s criminal record with him or her also is advised.
Collis also points out that eight states—California, Connecticut, Hawaii, Illinois, Maryland, Oregon, Vermont, and Washington—have laws restricting the use of credit histories in employment decisions.
Effective July 1, 2013, Colorado will join the list of states that prohibit employers from considering an applicant’s or employee’s credit history in employment decisions unless the information is substantially related to the employee’s current or potential job as Senate Bill 18 becomes effective.