HR Management & Compliance, Recruiting

How to Protect Your Business from a Background Screening Lawsuit

Illegal preemployment background checks can lead to millions of dollars in lawsuit payouts. Be aware of these common pitfalls to avoid a similar fate.  


Online background check websites make it appear to unwitting employers that running an employment screening on a new hire is as simple and safe as booking a flight on Expedia but cheaper. The ubiquity of background check websites and third-party agencies makes it seem like this service is a simple commodity and that they all offer the same level of protection. In fact, you (the employer) should be extremely wary of choosing a background check provider based on cost or perceived ease of access. Not only might you get inaccurate results, but your company might also get sued. Just ask companies like Amazon, Wells Fargo, and Target, which are all being hit with multimillion-dollar lawsuits for incorrectly screening job applicants.1

Companies that thoughtlessly outsource their preemployment screening to under-qualified background screening agencies can end up endangering their employees, their finances, and their reputations. It all comes down to information: What can you view, and when can you view it? And don’t count on the big databases to make those decisions for you.

To ensure your business doesn’t pay the price for background checks that go wrong, your preemployment background screening process needs to be handled by a partner that thoroughly understands federal and local statutes regarding information disclosure and consideration.

The Dangers of Bad Background Checks

There are a number of things that can trip you up and expose you to liability when running background checks, and be aware that outsourcing the work to a third party or running it online does not automatically offer protection.

Read On for a Checklist of Pitfalls to Watch Out For:

Written Consent

Failing to get written consent by the candidate through a stand-alone disclosure before running a background check on a candidate is against the law in most instances.2 A good screening partner will make sure all consent documents are not only signed but also signed legibly in all applicable places and by the intended screening recipient. Electronic waivers are even better; they don’t get lost, and they’re easier to organize.

Mistaken Identity in a Background Check

When background screening agencies run a check, they may provide you with crimes committed by other people of the same name. It’s a common misconception that every crime is stored by Social Security number. Name and date of birth (DOB) still play a huge role. If you rescind a job offer based on a misreading of the screening or database reports, you could be liable. A recent PBS article details the case of Kevin A. Jones, who was denied a job because of a mistaken identity on a poorly reviewed background check. The error cost him a job opportunity, to which he responded by hiring legal counsel to refute the claims found in the screening—a suit he won.3

Not Allowing Screening Recipients to Respond to Findings

The Fair Credit Reporting Act (FCRA) mandates that applicants have the right to review the results of their background check and to contest them. When making an adverse decision against job candidates, employers are required to make the background check report available to them, give them enough time to review the report, and either dispute it or respond with an explanation. Additionally, employers must send a copy of “A Summary of Your Rights Under the Fair Credit Reporting Act” along with the background check report.4

Collecting Information Beyond Legal Bounds

Legal issues arise when employers rescind an offer after checking for information beyond the legal scope of a preemployment background check. Medical records and genetic information are prohibited; checking them to determine an applicant’s job-worthiness is considered discrimination. In 8 states, employers can’t look at convictions older than 7 years.5 It’s important that you be up to date with your state and city laws before running background checks or work with a third-party agency that ensures your compliance. The 7-year limit is just one of many complex legal boundaries restricting what you can and cannot take into account; the best agencies will scrub clean the background screening results of any information you are not legally allowed to weigh when making a hiring decision—before you look at the report.

Reading the Database Reports Before They Are Scrubbed

A common error is relying too heavily on the databases that are widely available and notoriously inaccurate. Online criminal database screenings must be combined with court record repository searches for the best, safest results. Then, they should be scrubbed of nonactionable items like arrest records, expunged crimes, and other data that frequently show up in the reports—data that will get you in trouble if you see them and act on them.

Finding the Right Screening Provider

Background checks are an integral part of the modern hiring process, and performing them should mean your company is protecting itself from danger and liability—NOT opening itself up to these perils. Consider the spate of recent lawsuits a valuable lesson in making sure you do your homework when it comes to choosing screening providers. If major corporations can fall prey to bad information, small and midsize businesses should be especially cautious.

With the danger of hiring people who could put your business and current employees in danger or the legal risk of overreaching both at play, you may need help from a team of qualified experts. The most reputable background screening agencies (known as consumer reporting agencies) work closely with the companies they serve to understand the risks for which employees need screening. Not every company’s background check needs are the same; in fact, it’s quite the opposite.

Jared Rosenthal is the Founder and CEO of Health Street. Rosenthal is a CEO turned entrepreneur, reality TV show host, and tech innovator. While coming up the ranks of corporate America, he cultivated a model of mobile marketing using RVs to deploy teams of people to the streets of NYC, replicated it in Chicago, and then brought it to dozens of cities nationwide, at one point managing over 400 people.

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