While employers screen applicants for many different types of information, the most common types of information screened are criminal background and credit history.  Restrictions on the collection of criminal and credit information exist at the federal, state and local level. All of these laws work together to form a patchwork of statutes, ordinances, and guidance that can be a challenge to navigate. Read on for an overview of Federal and State requirements for employers.  

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Background Screening Restrictions: Making Sense of Federal and State Requirements

Wed Jul 26, 2017

Background Screening Requirements Federal & StateHiring is one of the most important things that HR Professionals do, and hiring mistakes can jeopardize company culture and even create liability.  It’s no wonder that employers turn to background screening to find the right candidates and manage risk.  At the same time, an increasing number U.S. applicants find themselves in the tough position of looking for a job with a criminal record. 

Legislators, courts and activist groups are trying to find a balance in the tension between the employer’s need to screen applicants and making sure applicants get a fair shake in the hiring process.  There has been an uptick in litigation against employers for violations of background check laws in recent years; and at the same time a movement by activists and state legislators to introduce bills that limit how, when, and for what reason employers can screen applicants. 

Three Main Categories of Background Screening Restrictions
While employers screen applicants for many different types of information, the most common types of information screened are criminal background and credit history.  Restrictions on the collection of criminal and credit information exist at the federal, state and local level.

There are three main categories of restrictions employers should consider when screening criminal and credit history:

  • Federal and state discrimination laws that generally require that the employer’s screening policy be job related and consistent with business needs to defend against claims of discrimination;
  • Federal Fair Credit Reporting Act (FCRA) and state equivalents that generally require consent and disclosure of screening information; and
  • State and local “ban-the-box” restrictions that limit when an employer can ask about criminal background.

All of these laws work together to form a patchwork of statutes, ordinances, and guidance that can be a challenge to navigate.

Discrimination Laws Limit Background Screening to Be Job Related and Consistent with Business Needs
A number of discrimination laws administered by the U.S. Equal Employment Opportunity Commission (EEOC) restrict employers from putting screening processes in place during the hiring process that have a discriminatory impact on protected groups.  In 2012, the EEOC issued guidance that explains how employers can defend against claims of discrimination by showing that the screening policy is job related and is consistent with business needs:  

  • Employers must show that their criminal background check policy is job related and consistent with business need by considering: (a) the nature and gravity of the offense or conduct; (b) the time that has passed since the offense or conduct; and (c) the nature of the job held or sought.
  • Employers should not use arrest history alone to disqualify candidates, but instead should look to the conduct underlying the arrest and determine if the underlying conduct makes the candidate unsuitable for the position.
  • EEOC also recommends that applicants be provided with notice explaining why they were excluded from consideration in order to give them the opportunity to explain the circumstances of the criminal conduct.
  • In certain situations, employers may be obligated by law to conduct criminal background checks. However, state and local laws are still subject to the requirement that the screening be job related and consistent with the business need.

States also have similar discrimination laws.  In many cases, the state law requirements mirror the federal requirements. 

Federal Fair Credit Reporting Act (FCRA) Laws Require Notice, Consent and Disclosures
If part of your screening process includes obtaining a consumer or investigative report on an applicant, the federal FCRA and state law equivalents will likely apply.  Most background checks acquired from a third-party vendor to screen applicants during the hiring process will be consumer reports under the FCRA.  Investigative reports involve a report based on personal interviews about the employee.

The FCRA lays out steps employers must take before obtaining a background check on applicants and employees:

  1. Tell the applicant in writing in a stand-alone document that the employer is seeking information for decisions about employment.
  2. If the background information includes an investigative report, tell the employee about the right to request a description of the nature and scope of the investigation.
  3. Get the applicant’s permission to do the background check.
  4. If the employer receives the background check information and wants to take adverse action, before taking adverse action the employer must give the applicant a copy of the consumer report, a copy of the required FTC notice, and must provide the applicant a reasonable time to dispute the report. 
  5. After taking adverse action, the employer should tell the applicant that action was taken based on the consumer report and also provide: (a) the name, address, and phone number of the company that provided the report; (b) notice that the company did not make the decision and cannot provide reasons for the employer’s decision; and (c) notice that the applicant has the right to dispute the report and get a free copy within 60 days.

States also have laws that provide for specific notice, consent and disclosure requirements like the FCRA.  Some states, such as Illinois, Maryland, Nevada, and Oregon severely limit using credit history in the hiring process, unless an exception applies.  In other states, such as California, Minnesota and Oklahoma, employers are required to provide an authorization form that contains a box the applicant can check to request a copy of the consumer report, and if checked, the applicant must receive a copy of the consumer report.

State and Local “Ban-the-Box” Restrictions Limit When and How an Employer Can Ask About Criminal Background
Ban-the-box legislation has been a trend for the past five years or so, and the movement came out of a campaign to provide workers with criminal histories access to jobs by removing conviction history questions on the job application. Several states, such as Connecticut, Hawaii, Massachusetts, Minnesota, New Jersey, Oregon, Rhode Island and Vermont have adopted some form of ban-the-box requirements.  Several large cities, such as New York City, Philadelphia, San Francisco, and Seattle have followed suit.  While the requirements across these jurisdictions are different, there are some common themes (even though not all of these themes typically appear in the same laws):

  • Many jurisdictions delay the employer’s inquiry about criminal history until after a conditional offer of employment is made, until the employer has conducted the first interview or until the applicant is otherwise selected
  • Many jurisdictions prohibit the use of any arrest history to make hiring decisions
  • In some jurisdictions, employers must obtain written consent and provide a copy of the report
  • Some laws limit employers from asking applicants about certain first-time offenses
  • Certain laws distinguish between public and private employees

How to Make Sense of It All
There are numbers of best practices that employers can use to help get organized when it comes to background screening:

  1. Take a step back and articulate all the reasons why your organization screens applicants, taking into consideration the unique requirements of the positions at your company.
  2. Once you understand why you are screening certain applicants, you can tailor your screening activities to that purpose - including what types of information you will ask about and which roles will be impacted.
  3. Identify which federal, state and local laws impact you and determine if you will try to comply with all of the requirements in one policy or through a state-by-state approach.
  4. Create a written policy that outlines the reasoning behind the screening, which roles are impacted and apply it consistently to these roles.
  5. When it comes time to take adverse action, make sure you have a process for your team to follow any special requirements in the impacted jurisdiction.

Disclaimer: The information provided in this post is provided for informational purposes only and should not be relied upon or construed as legal advice and does not create an attorney-client relationship. You should review with your legal advisors how the laws identified in this post may apply to your specific situation.