I have been asked by clients about what exposure they have if they hire a person who will go into customers’ homes without checking to find out that he was convicted of child molestation, or into a credit card facility without checking to find out that he was convicted of computer hacking. I have to tell my contractors that if a lawsuit were ever filed arising out of injury or damage by such an employee, the employer could expect to be asked, “What screening did you do before employing this person, or assigning this person to this project?” If the plaintiff in the lawsuit could establish that the employer was negligent in hiring or assigning the employee, there could be liability.
Beyond just worrying about the contractor’s exposure to suits from customers, I have heard from more clients of late that their customers, particularly financial institutions, computer database or credit processing facilities, are requiring such screenings as a condition of allowing contractors to work in their facilities. Sometimes the customer asks the contractor to “certify” that the contractor has conducted a “thorough” background check, and sometimes the customer requires that information — including Social Security numbers and dates of birth — be given to the customer or its own outside screening firm.
The contractors then ask me questions such as: if we screen before hiring, do we have a duty to periodically update the data to check for subsequent information? Should we be checking for records other than just criminal convictions, such as resumé fraud?
A contractor’s choices are to do no screening; to do pre-employment screening only; to also do updated screening; to do the screening yourself or hire a firm to do it; or to give sensitive information about your employees to an outsider. All of those choices have risk. As you might expect, there are laws out there regulating the gathering and use of information about potential or current employees.
The main law to be concerned about is the oh-so-misnamed “Fair Credit Reporting Act,” which is enforced by the Federal Trade Commission. That act applies not only to information credit reporting agencies such as Equifax, Experian and Trans Union gather and supply to banks and credit card companies, but also to information used in making employment decisions.
If a person is denied employment (including assignment to a particular project, if not getting the assignment could be considered an “adverse personnel action,” which is what the person suing you will claim), you, the employer, can be sued, as well as the Credit Reporting Agency, called a “CRA.” The kind of information that CRAs typically provide to prospective employers includes:
- Credit history of how timely or delinquent a person has been in paying bills.
- Records of any criminal convictions, no matter how long ago.
- Records of any bankruptcy filing in the last 10 years.
- Records of judgments and lawsuits for seven years (or longer if the statute of limitations hasn’t run out).
- Tax liens for seven years from the time they are paid.
Where does this information come from? Mostly from public records such as court filings, or from credit card companies and banks, who got permission to share it in all that fine print that is part of the credit application and monthly statements. (“We may report information about your account to credit bureaus. Late payments, missed payments, or other defaults on your account may be reflected in your credit report.”)
In addition, employers or prospective employers can, for an additional fee, obtain an “investigative consumer report,” which may contain information obtained through interviews with a person’s neighbors or co-workers about the person’s lifestyle, character and reputation. Employers and prospective employers have to obtain the consent of the person before they can get a report, and if the “investigative consumer report” is requested, the person is supposed to be notified in writing.
If all goes well and the person is hired, promoted or selected for a great assignment, everyone is happy and there are no negative consequences. If a person is denied employment, however, further duties arise to disclose the basis for denial. Since these reports are known to sometimes contain errors (a study by the U.S. Public Interest Research Group in June 2004 found an error rate of 79%), an employer should expect to have some additional time tied up in dealing with the employee’s protests and efforts to correct the record.
The Fair Credit Reporting Act does not apply if you do the investigation yourself — only if you use information from a CRA. This does not mean, however, that you are home-free.
While CRAs are in the business of collecting, safeguarding and disseminating information about people, you as a business owner may not know exactly what you can do. The consequences of doing the check and doing it wrong can be severe. Given that there are legitimate business reasons to do background checks, though, this is one area where a contractor should get professional advice from the best sources to make sure that the proper procedures are in place, and that the employer, customer and employee are all treated fairly.