Background checks are an important tool for both lawyers and their business clients. They provide useful information and help validate the results of hiring processes. They also require lawyers and employers alike to carefully navigate a diverse and often confusing array of federal and state laws. An ideal background check accomplishes two goals: identifying the preferred candidate for the job while reducing an employer's potential legal liability. To achieve these goals, lawyers and their clients must understand how different laws can shape the substance and form of any background check.

Consider the following scenario. A job applicant walks out of your client's office after an interview. The applicant has an engaging personality and an impressive list of accomplishments, and the client thinks she is perfect for the job. Only one obstacle remains before your client is ready to extend an offer: the background check. The client calls you for advice about what to do next. What do you tell your client? Should he ask the applicant for references? Hire a third-party investigator to handle the legwork? Type the applicant's name into Google to see what turns up? Ask the applicant for her Facebook name and password?

Dramatic technological advances, combined with general economic uncertainty, have significantly changed the scope and nature of background checks over the past few years. The advent of services such as Google, Facebook, and Twitter, as well as governmental programs like E-Verify, has given employers easier access to more background information on prospective employees than ever before. At the same time, an intensely competitive job market has allowed employers to be more selective with staffing decisions, giving job applicants greater incentive to be misleading about potentially damaging background information.

Given these developments, it is not surprising that the federal agency responsible for enforcing most U.S. employment laws, the U.S. Equal Employment Opportunity Commission (EEOC), has recently shown an increased interest in cracking down on illegal background checks, specifically those that consider arrest and conviction records and credit history information. Notably, in January 2012, the EEOC announced a $3.13 million settlement with Pepsi Beverages concerning the use of arrest records to eliminate certain job applicants from consideration.¹ And in April 2012, the EEOC updated its guidance on criminal background checks for the first time in more than 20 years.²

Reasons to Do Background Checks

Despite the potential liabilities, background checks remain an important and, in some cases, essential part of the hiring process. Perhaps the most common reason to conduct a background check is to verify information provided by an applicant to ensure that the applicant will be successful in the job and advance the interests of the business. Although background checks may be conducted before extending an offer of employment, typically it is better to conduct a background check after making a job offer, because doing so at that stage is cheaper (because you are conducting a background check on only one applicant rather than the entire applicant pool) and carries less risk of appearing discriminatory.

Regardless of whether the check is conducted before or after making an offer, verifying applicant-provided information is essential to help prevent future performance issues and ensure that the employer has hired exactly who it thinks it has hired. Recent examples of resumé misrepresentation involving chief executives at RadioShack, Veritas Software, and Lotus Corp. demonstrate that even high-profile employees at large, public companies can fool the hiring committees and get away with resumé fraud for years.³

Background checking is also essential for ensuring safety, preventing theft, and protecting employers from potential tort liability. Not only can identifying a history of violence or theft in an applicant's background help avert an unfortunate incident from occurring in your workplace, but also the existence of a background checking procedure may help other employees to feel safer and more secure in the workplace.

In addition, a background checking procedure may help protect an employer from a negligent hiring suit should an employee later injure a customer or coworker. Wisconsin law recognizes a cause of action for negligent hiring; that is, when the wrongful act of an employee is the cause-in-fact of a plaintiff's injury, an employer may be held liable if the employer's negligence in hiring the employee is a cause-in-fact of the employee's wrongful act.⁴ In such a case, the employer may be liable for negligent hiring even if the employee's wrongful action is not in itself an actionable tort.⁵ A background check will likely reveal information about the violent or criminal history of job applicants, and clients, in the exercise of due diligence, should consider that information before making hiring decisions. Failure to check an applicant's background may lead to bad hiring decisions and unnecessarily expose a business to a liability risk.

In certain industries, such as banking or securities, a background check may be required by federal law. A background check might also be required by state statutory or administrative requirements. For example, Wisconsin's Caregiver Law requires background checks for workers who are responsible for the care, safety, and security of children and certain adults.⁶

Contents of a Background Check

To initiate a background check, a business usually will need the applicant's name, Social Security number, and recent (typically, encompassing the past seven years) addresses. The prospective employee's birthdate is also helpful, but to avoid opening the door to an age-discrimination case employers should not ask for that until after the job offer is made. Consequently, conducting a background check only after the employer has made a job offer (which is contingent on passing the check) and before the person starts work is a good practice.

But not all background checks are created equal. Although most background checks will cover an applicant's educational, employment, and criminal history to some extent, some employers may seek access to additional information, such as an applicant's credit or military history. Historically, employers obtained information about an applicant's personality, background, and experience through a combination of the applicant's job application, resumé, interview, and personal and professional references. Today, this information might also be obtained through a Google search of the applicant's name or a review of social media websites such as Facebook, LinkedIn, or Twitter.

While for certain types of jobs a criminal history check is also typically included in a background check, the process of obtaining that information may be formal (using a third-party investigator) or informal (asking an applicant to list prior convictions), depending on an employer's resources. When designing a background check process, employers should keep in mind that different laws may apply depending on the nature of the information being obtained (personal information, criminal history, credit information, and so on) and on the method used for obtaining the information (in-house investigation, third-party investigative firm, and so on).

Laws Covering Background Checks

Antidiscrimination Laws. Improper background checks may run afoul of federal and state antidiscrimination laws. On the federal side, Title VII of the Civil Rights Act of 1964 (Title VII) prohibits employers from refusing to hire any individual because of the individual's race, color, religion, sex, or national origin.⁷ Title VII prohibits both intentional discrimination ("disparate treatment") and practices that are not intended to be discriminatory but in fact have a disproportionately adverse effect on protected-group members ("disparate impact").⁸

Although Title VII does not directly regulate background checks, it does affect how information obtained through a background check may be used in employment decision-making. Notably, the EEOC has found that the use of criminal-history checks to screen job applicants may have a disparate impact on African-Americans and Hispanics because of disproportionate arrest and conviction rates for these groups.⁹ Because of this, absolute bars on employment – such as a no-hire policy for applicants with prior arrests or convictions – are almost always considered unlawful under Title VII.

If an employer's facially neutral policy regarding the use of background check information is shown to have a disparate impact on a protected group, the policy, to survive a Title VII challenge, must be shown to be 1) job related and 2) consistent with business necessity.¹⁰ When dealing with arrest and conviction records, this means that an employer must look at the nature and seriousness of the offense, the amount of time that has passed since the criminal act, and the relationship between the criminal act and the job being sought. The EEOC treats the use of arrest records less favorably than the use of conviction records for purposes of determining business necessity, because being arrested does not necessarily correlate with having committed a crime.¹¹

The use of arrest records in employment decisions is even more problematic under Wisconsin law. Like Title VII, the Wisconsin Fair Employment Act (WFEA) prohibits the use of information obtained through a background check in a way that would have a disparate impact on a protected class.¹² However, unlike Title VII, the WFEA explicitly prohibits disparate-treatment discrimination based on an individual's arrest or conviction record.¹³ A Wisconsin employer may not refuse to hire any individual on the basis of his or her arrest or conviction record unless the charges on that record are criminal charges and those charges are substantially related to the circumstances of the job in question.¹⁴ Furthermore, a Wisconsin employer can never take into account an applicant's prior arrests (other than pending charges) or expunged convictions, even if substantially related to a particular job.¹⁵

Using Internet sources such as Google and Facebook to search for background information on applicants may open the door to other types of discrimination lawsuits as well. For example, an applicant's Facebook profile may reveal information about his or her race, religion, national origin, sexual orientation, or family status (for example, that a woman is pregnant), which may directly or indirectly taint the decision-making process.

Employers who ask job applicants to provide their user names and passwords for social networking or email and websites as part of a background check may open themselves to liability above and beyond a Title VII suit. Two U.S. Senators, Richard Blumenthal (D-CT) and Charles Schumer (D-NY), have recently called on the Department of Justice and the EEOC to investigate whether such practices violate the Stored Communication Act and the Computer Fraud and Abuse Act, which prohibit intentional access to electronic information without proper authorization.¹⁶ In addition, many states have passed laws prohibiting this practice.¹⁷ Seeking access to applicants' or employees' social media and email accounts may also trigger liability under the National Labor Relations Act (NLRA) because of the practice's potentially chilling effect on workers' rights to engage in protected concerted activity guaranteed under section 7 of the NLRA.¹⁸

Fair Credit Reporting Act. The Fair Credit Reporting Act (FCRA) should also be considered when conducting a background check. The FCRA applies whenever an employer uses a third party that is engaged in the business of collecting background information to gather information on a job applicant or employee. The third party may be a consumer-credit reporting company, a person or company specializing in conducting investigations, or a cooperative nonprofit organization that regularly engages in the practice of assembling or evaluating consumer-credit information.¹⁹ Lawyers who regularly perform background checks for their clients are likely subject to the FCRA's requirements, which include providing clients with a notice detailing the various obligations for users of information under the FCRA.²⁰

While the FCRA does not prohibit the use of third-party information gatherers for background checks, it does require that an employer provide notice to and obtain written permission from the subject of the background check before obtaining any reports from a third party. This notice must be "clear and conspicuous," in writing, and in a document that consists solely of the notification.²¹ Combining the notification with any forms other than the written authorization form – such as the job application – may render the notification defective for FCRA purposes.²²

If the background check reveals information that contributes in any way to a decision to reject the applicant's job application, the employer is required to undertake another series of steps to comply with FCRA requirements. First, before taking any action, the employer must give the applicant a notice that includes a copy of the report relied on to make the decision as well as a copy of "A Summary of Your Rights Under the Fair Credit Reporting Act" (a Federal Trade Commission (FTC) publication), which should be given to the employer by the investigating entity.²³

The purpose of the advance-notice requirement is to allow the applicant an opportunity to review the report in case the information is incorrect. Although the FCRA does not specify how much time an employer must give the applicant to review the report and communicate any objections, the FTC has indicated that five business days from the time of notice may be reasonable depending on the particular facts of the employment situation.²⁴

Once a reasonable period for review and dispute has passed, an employer may reject the applicant, but it must again provide the applicant with notice – either orally, in writing, or electronically – that includes information regarding the company that supplied the report, a statement that the supplier did not make the adverse employment decision and cannot give specific reasons for the decision, and information regarding the applicant's right to dispute the accuracy or completeness of any information furnished by the third party.²⁵

Immigration. Certain employers, such as federal contractors or subcontractors, may be required to participate in the Department of Homeland Security's E-Verify program, which confirms an employee's employment eligibility by comparing information on an employee's Form I-9 to data gathered by the Department of Homeland Security and the Social Security Administration.²⁶ Because the I-9 form should not be filled out until after an offer of employment has been made (to avoid potential Title VII liability), an E-Verify background check should not be used in the decision-making process. Employers who are not required to use E-Verify may still use the program on a voluntary basis.²⁷

Employer Pitfalls and Best Practices

Uncovering Prejudicial but Unusable Information. Perhaps the most common problem employers face when conducting background checks is deciding what to do when they uncover potentially prejudicial information about an applicant or employee, but the information cannot legally be used in the decision-making process. This danger is magnified when employers ask applicants for passwords or access to applicants' social media profiles or email accounts. Examples of this problem range from discovering that an applicant was arrested in connection with (but not convicted of) a violent crime to accidentally discovering, when looking at an applicant's Facebook page, that a job applicant is pregnant.

When a background check uncovers this kind of potentially prejudicial information, it may expose the employer to liability whether or not the ultimate decision is based on the information, simply because of the appearance of impropriety. Once a decision-maker has seen possibly prejudicial information, it can be very difficult to prove that the decision-maker did not take that information into account when making his or her final decision.

One very effective way to avoid these kinds of situations is to insulate decision-makers from the investigative process. In other words, the person or persons who make employment decisions should not be involved in the gathering and screening of background check information and should receive only the final product of such efforts. Those responsible for collecting information should review all information before relaying it to the decision-makers and excise all information that cannot legally be used in the decision-making process.

Overly Broad Policies.Another problem is that, for convenience purposes, some employers prefer to adopt bright-line hiring policies – such as "no felony convictions" – rather than engage in a more subjective and individualized evaluation process. As described above, bright-line policies that fail to take into account job-relatedness and business necessity typically run afoul of Title VII and the WFEA. When using background check information to make an employment decision, especially arrest and conviction record information, employers must know the law and critically examine all screening policies to make sure that they are job-related and consistent with business necessity.

Failing to Be Upfront With Applicants. Some employers may get into trouble by failing to be upfront with job applicants. Keep in mind that if an employer is using a third party to conduct part of the background check, the employer must satisfy FCRA requirements.²⁸ Furthermore, there is usually no good reason for an employer to be misleading or evasive about the nature and scope of its background checking process. Indeed, keeping applicants informed about the background checking process may facilitate discussion about the applicant's background that can help the decision-maker make a more informed and appropriate hiring decision. While information publicly available on the Internet is generally considered fair game, employers should never try to gain access to an applicant's private information – such as a Facebook account – by covert or dishonest means.

Moreover, publicizing that applicants will be required to undergo a background check may persuade some less desirable candidates to decide not to apply for employment. Having applicants sign an acknowledgement and authorization concerning a background check shows that a business conducts its hiring in a professional manner, adding credibility to the process.

Conclusion

Background checking is a valuable – and sometimes essential – part of the hiring process. Whether you are doing the check for your own law practice or advising a client on background checking options, it is important to understand how a variety of laws may apply to background checks. Careful implementation of legal and consistent background checking policies and procedures is an important part of the due diligence expected of any hiring process and is necessary to avoid many legal issues that could lead to expensive and time-consuming lawsuits.

Endnotes

¹ U.S. Equal Employment Opportunity Comm'n, Pepsi to Pay $3.13 Million and Made Major Policy Changes to Resolve EEOC Finding of Nationwide Hiring Discrimination Against African Americans (Jan. 11, 2012), www1.eeoc.gov/eeoc/newsroom/release/1-11-12a.cfm.

² U.S. Equal Employment Opportunity Comm'n, EEOC Enforcement Guidance, Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964 (April 25, 2012), www.eeoc.gov/laws/guidance/arrest_conviction.cfm.

³ Veritas CFO quits amid resume roil, San Jose Bus. J., Oct. 3, 2002, www.bizjournals.com/sanjose/stories/2002/09/30/daily56.html; RadioShack CEO's resume raises questions, MSNBC.com, Feb. 14, 2006, www.msnbc.msn.com/id/11354888; Jon Auerbach, Background of Lotus chief under fire, ZDNet, April 29, 1999, www.zdnet.com/news/background-of-lotus-chief-under-fire/95847.

⁴ Miller v. Wal-Mart Stores Inc., 219 Wis. 2d 250, 262, 580 N.W.2d 233 (1998).

⁵ Id.

⁶ Wisconsin Dep't of Health Servs., Caregiver Program (including Background Checks), www.dhs.wisconsin.gov/caregiver/index.htm (last revised March 30, 2011).

⁷ 42 U.S.C. § 2000e-2(a).

⁸ Ricci v. DeStefano, 557 U.S. 557 (2009).

⁹ U.S. Equal Employment Opportunity Comm'n, Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964, April 25, 2012, www.eeoc.gov/laws/guidance/arrest_conviction.cfm.

¹⁰ Ricci, 557 U.S. 557.

¹¹ U.S. Equal Employment Opportunity Comm'n, Policy Guidance on the Consideration of Arrest Records, Sept. 7, 1990, www.eeoc.gov/policy/docs/arrest_records.html.

¹² Racine Unified Sch. Dist. v. LIRC, 164 Wis. 2d 567, 595, 476 N.W.2d 707, 718 (Ct. App. 1991).

¹³ Wis. Stat. § 111.321.

¹⁴ Hart v. Wausau Ins. Cos., ERD Case No. 8401264 (LIRC, April 10, 1987) .

¹⁵ Wis. Stat. § 111.335(1)(a).

¹⁶ Sen. Charles E. Schumer, Press Release, March 26, 2012, http://schumer.senate.gov/Newsroom/record.cfm?id=336396.

¹⁷ Catherine Ho, Md. Employers Cannot Collect Facebook Passwords, Wash. Post, April 15, 2012, http://tinyurl.com/8a4agfr; Jessica Guynn, Assembly votes to keep Facebook passwords private from employers, L.A. Times, May 10, 2012, http://tinyurl.com/6vjlc67.

¹⁸ Ben James, Facebook Access May Expose Employers to Labor Actions, Law360, March 26, 2012, www.law360.com/privacy/articles/323083/facebook-access-may-expose-employers-to-labor-actions. (Access to full article requires free trial or paid access to site.)

¹⁹ 15 U.S.C. § 1681a(f).

²⁰ U.S. Federal Trade Comm'n, Haynes-LeBlanc Opinion Letter, June 9, 1998, www.ftc.gov/os/statutes/fcra/leblanc.shtm. The FTC's Notice to Users of Consumer Reports: Obligations of Users Under the FCRA can be found at www.ftc.gov/os/2004/11/041119factaapph.pdf (last visited July 7, 2012).

²¹ 15 U.S.C. § 1681m(d)(1).

²² 15 U.S.C. § 1681b(b)(2); see also Singleton v. Domino's Pizza LLC, No. DKC 11-1823, 2012 WL 245965 (D. Md. Jan 25, 2012).

²³ U.S. Federal Trade Comm'n, Bureau of Consumer Protection, Using Consumer Reports: What Employers Need to Know (Jan. 2012), http://business.ftc.gov/documents/bus08-using-consumer-reports-what-employers-need-know.

²⁴ U.S. Federal Trade Comm'n, Brinckerhoff-Weisberg Opinion Letter, June 27, 1997, www.ftc.gov/os/statutes/fcra/weisberg.shtm.

²⁵ 15 U.S.C. § 1681b(b)(3)(B)(i)(III).

²⁶ U.S. Citizenship & Immigration Servs., What is E-Verify?, http://tinyurl.com/9u6h9y.

²⁷ See Benjamin T. Kurten, "Form I-9: Verifying Employment Eligibility – Can I Go Too Far?" 85 Wis. Law. 16 (July 2012); see also Erich C. Straub & Davorin J. Odrcic, "E-Verify: Electronic System to Confirm Employment Eligibility," 85 Wis. Law. 22 (July 2012).

²⁸ For a recent example of how failing to abide by FCRA requirements may lead to legal liability, see Landry v. Wal-Mart Stores Inc., No. 2:12-cv-03113 (D.N.J., filed May 24, 2012).

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