Avoiding Missteps In The Use Of Background Checks That Can Lead To Class Action Exposure

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Background checks have long been a critical screening tool for employers. However, background checks, conducted in a lawful manner have now become imperative for companies wishing to avoid liability and class action risk. Some of the country’s largest companies — Disney, Home Depot, Wal-Mart, Marriott and Starbucks — face class action lawsuits arising from issues from background checks. Other large-scale employers, including Publix, Postmates, Wells Fargo and Uber, have already agreed to pay millions in class settlements to resolve background check disputes. The reality is that compliance is not always simple and employers should proceed carefully and with
legal guidance. 

In addition to complying with states’ specific requirements, employers must consider the Fair Credit Reporting Act (“FCRA”) before conducting background checks. The FCRA requires that prior to obtaining a background report, the employer must disclose to the individual that the company may use information contained within the report as the basis for employment-related decisions. The disclosure must be a stand-alone written, “clear and conspicuous” document. The FCRA also requires that the employer obtain written authorization from the individual prior to conducting any screening. This employee’s authorization can be obtained when the company’s disclosure is made. In addition, if the company wishes to retain the right to periodically check employee backgrounds during the period of employment, the disclosure document must state that intent.

After reviewing the background report, the employer must notify the individual before taking any adverse action. The employer must provide the individual with a copy of the background report and a copy of a summary of rights, thus granting the individual the opportunity to refute any information in the report. For example, the report could contain information regarding someone with the same or a similar name, include evidence of identity theft, or include expunged information. 

While avoiding class action risk is one reason to implement good practices related to background checks, the risk of losing out on a good employee because of inaccuracies in a background report is another.

If the employer decides to take adverse action based upon information contained within the report, it must first provide the individual with a notice stating the basis for its decision and the specific information that it relied upon. Moreover, the employer must provide the individual with: (i) the name, address, and phone number of the consumer reporting company that supplied the report; (ii) a statement that the company that supplied the report did not make the decision to take the unfavorable action and thus is unable to provide specific reasons for the company’s action; (iii) a notice of the individual’s right to dispute the accuracy or completeness of the information contained within the report; and (iv) information regarding how the individual can obtain any additional free reports from the company within 60 days. Skipping any one of these steps can expose the company to potential liability.  

Employers should also consider the Guidance issued by the Equal Employment Opportunity Commission (“EEOC”). The Guidance provides that across-the-board prohibitions on hiring or promoting based on criminal history has the potential to lead to discrimination and is unlawful. Essentially, the EEOC strives to prevent applicants and employees from being placed in the “NO” pile for hiring or promotion decisions simply because he or she has some sort of criminal background. Rather, the EEOC requires employers to make decisions based on criminal background information that are job related and consistent with business necessity. The mandate requires that companies consider the type of conviction, the timing of the conviction, and whether it is reasonably related to the position being applied for. 

In many cases, employers are right to consider criminal convictions in hiring, and must do so given the potential liability they face in the event of any negligent hiring and retention claim resulting from harms caused by their employees.

However, employers, their human resource personnel, and their counsel must ensure compliance with the law and implement a reasonable and thoughtful approach, in both conducting background checks and in making hiring and firing decisions based on the information obtained.

For more information, please contact Danielle Gould at 312/840-7070 or dgould@burkelaw.com, or Rachel Yarch at 312/840-7029 or ryarch@burkelaw.com

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