The Devil Inside: The Legal Liabilities of Background Screening

Article excerpt

A routine criminal background check by a major bank with operations in several states found that an applicant applying for a teller position in Wisconsin had felony convictions for rape and sexual assault. Following established corporate procedures, the hiring manager informed the applicant of these findings, and swiftly rejected his application for employment. Within weeks, the applicant filed a wrongful hiring discrimination lawsuit. The bank defended the action vigorously but was found to have violated fair hiring laws and was ordered to pay a judgment of more than $1 million as well as offer the sex offender employment within the company. What went wrong?

As the bank would soon discover, compliance with both federal and state laws regulating background checks is paramount in all screening processes. The existing regulatory environment is a patchwork of disparate rules and regulations, but an employer must follow all relevant laws in force in the locale where they are hiring to avoid creating potentially costly liability.

The bank had established what it thought were reasonable hiring standards and had followed all the privacy roles contained in the Fair Credit Reporting Act (FCRA) pertaining to background checks. But it had ignored local restrictions that stated an employer could only consider prior criminal convictions that were significantly related to the performance of the applicant's prospective job. The court in this case ruled that since a bank teller working behind a security partition would never be in physical contact with customers, there was no possibility for assault or rape during the conduct of his job. Therefore, the bank could not use the prior felony convictions in its hiring deliberations.

Why Screen?

Savvy risk managers know that when it comes to recruiting and hiring a quality workforce, character counts. With more and more evidence confirming that resumes from many of today's job applicants often contain discrepancies, employers cannot rely on a piece of paper and a person's interviewing skills alone. Thus, a comprehensive background check is increasingly becoming a required practice for employment purposes.

A background check is, in very broad terms, an inquiry into an individual's character, general reputation, personal characteristics and overall ethical patterns. Depending on an employer's risk reduction goals, a background check may include a criminal history search as well as a thorough review of credit reports and/or driving records. More rigorous background checks may include verification of employment history, education, professional references and professional licenses held, and mandated industries also include drug testing and fingerprint records.

The overall goal of requiring a background check as a condition of employment is to hire the most qualified applicant, while simultaneously reducing the risk of hiring the wrong applicant. Some of the most compelling risk reduction reasons for conducting background checks include:

* Reduce shrinkage. A national study by the University of Florida indicates that 48% of inventory shrinkage is due to employee theft. A criminal records search can help identify potential thieves before they are hired.

* Protect your customer. Many applicants will access to customers' personal identification information during the execution of their job. A criminal records search can identify those with a history of fraud to safeguard operations.

* Reduce workplace violence. Criminal searches can identify applicants with a history of violence that could disrupt operations, ruin its reputation and lead to potential lawsuits.

* Eliminate drug use. Drug-free workers are more productive, miss fewer days of work and better embrace an organization's goals and values.

* Uncover deception. Applicant integrity is an essential character trait, so verification of employment and education history is essential to make sure that applicants have the experience that they claim and can achieve the performance and efficiency that an organization expects.

* Meet legal requirements. Background checks are mandated by law for employment in several industries (banking, transportation, etc.), or required by insurance companies as a condition for coverage.

No matter why a background check is conducted, the way the search is handled clearly impacts overall reduction of risk and liability for an employer. Unfortunately, as seen in the Wisconsin sex offender example, conducting the background check using improper processes and procedures can actually create as much risk as it eliminates.

For example, to reduce costs and accelerate the hiring process, many employers are relying solely on a variety of national criminal databases (NCD) to perform their criminal background checks. While there is certainly value in searching an NCD, it should never be a first line of defense in preventing unwanted hires. The old adage "You get what you pay for" truly applies, since an NCD is not a comprehensive, nationwide search of criminal records as the name implies. In fact, most of these databases contain incomplete criminal records from less than 28% of the counties in the United States, and they often include listings of traffic violations that have little value for pre-employment screening purposes. Additionally, these databases are updated and maintained in a manner that may generate errors and partial record information not suitable for making the best hiring decisions.

Most risk managers understand that an NCD is not recognized as a best practice or a stand-alone technique. In general, this is because NCD data is not considered compliant with the Fair Credit Reporting Act (FCRA). Therefore, using an NCD as a sole source during a criminal search actually creates substantial legal liability for an employer and gives a false sense of security.

If risk and liability reduction are truly the goals of performing background checks, employers must partner with a background-screening provider that can deliver inclusive and accurate results down to the county level and guarantee that the results are complete. Many companies are equipped to provide fast, comprehensive and competitively priced background searches that go far beyond just checking an NCD.

Managing Compliance in a Noncompliant World

With accurate data in hand, employers must now focus on meeting the challenge of maintaining compliance with the plethora of state and federal regulations that mandate how this information can be used.

The FCRA is the federal law that governs how criminal case information is used in the hiring process. It protects the applicant and the employer by setting a threshold for reporting past criminal offenses, but most states have enacted their own versions with varying restrictions on data use for employment purposes. To limit liability, it is essential that employers only use information they are legally entitled to consider during the hiring process.

With so many dissimilar state laws in force, it becomes imperative that background-screening partners are well versed on state employment and privacy laws in every jurisdiction where their clients are hiring. Even large companies with sizable internal legal staffs of employment law experts are often unaware of all the regulations they are facing in all the jurisdictions that they are hiring in, particularly in firms that operate in many states. Therefore, a complementary source of hiring law intelligence is an absolute necessity.

There is some innovative technology that can be used to deliver compliance and consistency during the background check. Processes can be put in place that include an automated rules engine to provide the intelligence to correctly adjudicate each background search, and automatically base decisions on the local regulations in force where the hiring is occurring. Special thresholds for certain crimes can be included to help reduce the risk for employee-related loss as well.

In addition to significantly reducing potential liability during the hiring process, the auto-adjudication capabilities provided by a rules engine may have many other risk reduction benefits. For example, use of an auto-adjudication process allows employers to set corporatewide hiring standards while maintaining compliance with contrasting state-to-state regulations.

Setting companywide standards takes the personal biases of recruiters and hiring managers out of the hiring process, replaces it with consistent decision making, and eliminates the time-consuming review of search results by multiple people to expedite the hiring process. This can also significantly reduce the liability for subsequent lawsuits based on sex, race, religion or age bias, or even a tendency to deny employment to applicants that have had prior DUIs or poor driving records if such offenses are not material to an applicant's actual job performance.

Risk managers can now easily acquire accurate and cost-effective background-screening services as a cornerstone for building workforces with character. More importantly they have access to new auto-adjudication tools that can assist in navigating the compliance maze of federal and state hiring laws. Cost-effective loss prevention and liability reduction is clearly achievable while remaining compliant in a noncompliant world.

Catherine Aldrich is executive vice president for Accurate Background, Inc.

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