Bad Background Checks Can Prompt Lawsuits


Five ways to reduce the risk of legal woes when doing employee security checks.

By Dr. Alan Lasky

During the past few years, litigation has dramatically increased in employment background screening, due to increased regulations and scrutiny of the background screening process by the Equal Employment Opportunity Commission (EEOC), the Federal Trade Commission (FTC), and other federal, state and industry-specific auditing agencies. Recently, employment candidates have filed a significant number of class action lawsuits, causing companies to pay out millions of dollars in settlements, and creating a wake-up call for organizations to take more time and care in reviewing their background screening and hiring process.

Franchise organizations have high risk, especially when located in multiple states with various hiring managers where there is a strong need for franchise owners and managers to understand these applicable state and federal laws while standardizing their program across the organization. Here are five important areas to review with your legal counsel, pertaining to your employment screening program, to help reduce risk:

1. Following the FTC and EEOC Guidance Factors/Requirements

In recent years, both the EEOC and FTC have focused more on the topic of employment screening, making sure organizations are fair and just in their practice of hiring candidates. In April 2012, the EEOC launched updated guidance factors, emphasizing to the point of mandating how organizations use criminal records and how the records impact Title VII of the Civil Rights Act of 1964, prohibiting discrimination based on race, color, religion, sex, or national origin of a candidate. In addition, the FTC and EEOC created documents to educate both the employer and potential employee on the proper background screening process. It is important for employers to follow these guidance factors because they are best practice procedures to help reduce the risk of perceived and real discrimination.

2. Work with an Accredited Background Screening Firm

Although there are hundreds of screening firms in the United States, there are only a handful that have taken the time and care of becoming an accredited firm with the National Association of Professional Background Screeners (NAPBS). This important accreditation certifies that an employment screening firm has been audited for proper and compliant processes and procedures, securely protects private information and understands both state and federal requirements. You should always ask your screening firm whether they have obtained this accreditation because it is one of the only recognized certifications in the employment screening industry.

3. Provide the Proper Disclosure and Authorization Forms to a Candidate

Many of the latest class action lawsuits were brought because organizations failed to provide the compliant candidate forms that have the legal disclosure and authorization language. There are a few important points to make about this form that will reduce your organization’s risk considerably:

A candidate should always sign a compliant authorization form prior to your organization conducting a background check. The signed copy of the candidate’s authorization form should be kept in your company files for verification, if anyone ever questions the legitimacy of the authorization.

Federal law requires that the disclosure and authorization forms have no “extraneous” information. That is, do not add additional language on these forms, even if you feel it pertains to the hiring process. For instance, you cannot add indemnification language or ask any questions on these forms other than what is allowed by state and federal law.

A disclosure and authorization form should always be kept as stand-alone documents so it is “clear and conspicuous” to the candidate. Do not attach or merge them with other documents. For example, the background screening disclosure and authorization documents should never be merged into the job application form or stapled to another document. Your background screening firm should have compliant sample forms for your review. However, you should always confer with your legal counsel to verify that the forms are compliant and that the screening firm has sound background screening processes and procedures in place.

4. Follow the Adverse Action Process Properly

If at any time, any part of a candidate’s report influences your organization to potentially not hire a candidate, that candidate has a right to dispute the reported information for any inaccuracies. This is called the “Adverse Action Process” and is a federal law. Many organizations have been sued after they did not follow the federal and state required procedures, which likely could have been avoided if they had understood the simple, but required, process. It is an excellent idea to work with your legal counsel and background screening firm to confirm that you have the proper adverse action process and procedures prepared and that your organization’s employees, including new hires, know, understand and follow the required procedures. 

5. Review Your Own Policies/Procedures with Legal Counsel

It is always recommended to work with your legal counsel as often as necessary to verify that no changes to the laws/regulations pertaining to employment screening have occurred either at the federal level or in the state(s) where you conduct business, especially if you have multi-state locations. It is also important to understand the laws and regulations in the state where your candidate is being hired, as those state hiring rules also apply to the candidate hiring requirements. The periodic review of internal hiring process and procedures is essential so that your organization reduces its risk by committing to legally sound, standardized screening and hiring procedures. By providing information to your employees in your written company policies and procedures manual and regularly updating hiring staff on the required procedures, you will ensure consistency in your hiring program.

Focusing on these five areas in your background screening program, you will help reduce risk of lawsuits or other unintentional consequences from inadequate process and procedures. If any additional information is needed, we always suggest speaking with your legal counsel and you can also reach out to Universal Background Screening, as we are dedicated to providing compliant and accurate employment screening to the franchise industry.

Dr. Alan Lasky is a Senior Vice President with Universal Background Screening with 19 years of experience in consumer reporting, focusing on compliance and reducing risk for franchise organizations nationwide. Learn more here.