HIRING PART I: BACKGROUND CHECKS

By Elizabeth Milito
Senior Executive Counsel for the National Federation of Independent Business Small Business Legal Center

When it comes to background checks, employers should be aware of the reasons for performing a background check, what basic information to request, and what legal boundaries exist to protect an employee’s privacy.

Why Conduct A Background Check?

Federal and state law: Employers are legally required to conduct background checks for certain jobs. Depending on your company's industry, you may need to conduct background checks and may be prevented by statute from hiring employees convicted of particular offenses.

For instance, almost every state requires a background check for anyone who works with children or in a healthcare facility. NFIB member Beth Clemons of Clemons Bus Lines, a small school bus business in Minnesota, says, “Running a background check is about protecting our clients, which in our case, are kids. We make sure that who we hire is who they say they are.”

Prevent Negligent Hiring Lawsuits: Conducting background checks can prevent negligent hiring lawsuits. Most states recognize the tort of negligent hiring, where employers are held liable for hiring an employee whose actions harm someone else.

False or Inflated Information: Conducting background checks allows employers to confirm the accuracy of information in a prospective employee's job application. Replacing an unsatisfactory employee or providing additional training is more expensive than the cost of a background check. A recent study showed that almost half of all job applicants submitted inaccurate information to their potential employer.

Do it Yourself or Outsource the Checks?

An employer may personally conduct a background check, but often the more convenient approach is to hire an outside agency such as a background check vendor, private investigator, or credit agency to conduct a background check. Always check that the outside company complies with the Fair Credit Reporting Act (FCRA), the federal law that regulates the acquisition and use of background information for employment purposes.

Employers have a range of information that is accessible, but workers have certain privacy rights that they can enforce by suing you if you pry too deeply. Failure to comply with the FCRA can subject an employer to damages including punitive damage costs and attorneys’ fees. If an outside agency is used, you must do the following to comply with FCRA:

• Give notice to the applicant and obtain written permission for the background check in a separate document
  
  
  
• Provide specific notice if the report will include interviews with others
  
  
• Give advance notice of any adverse employment decision and present the applicant with a copy of the background check upon taking an adverse action
  
  
  
• Give notice of rights and procedures to dispute inaccurate or incomplete information

What Records Should You Check?

Always be sure to check your state’s laws on background checks since the type of information you are eligible to obtain and use varies by state. The following is a partial list of information and some of the limitations to consider in a background check.

School records: Keep in mind, most schools will not release records without the consent of the student, and some schools will only release records directly to the student.

Credit reports: An employee's written consent is required for a credit report. Many employers routinely include a request for such consent in their employment applications.

Driving records: Always check the driving record of any employee whose job requires large amounts of driving (like delivery persons or bus drivers). These records are available, sometimes for a small fee, from the state's motor vehicles department.

Bankruptcies: Federal law prohibits employers from discriminating against applicants because they have filed for bankruptcy. This means you cannot decide not to hire someone solely because he or she has declared bankruptcy in the past.

Criminal records: Some states prohibit employers from asking about arrests or certain convictions that occurred well in the past. Other states allow employers to consider convictions only if the crimes are relevant to the job. Because of this variation from state to state, you should consult with a lawyer before digging into an applicant's criminal past.

Workers' compensation records: An employer may consider information contained in the public record from a workers' compensation appeal in making a job decision only if the applicant's injury might interfere with his or her ability to perform required duties.

Military service records: Members of the armed forces have a right to privacy in their service records which may be released only under limited circumstances. However, the military may disclose name, rank, salary, duty assignments, awards, and duty status without the member's consent.

This summary is by no means exhaustive of all background check requirements. All employers are advised to check their state’s laws with legal counsel for conducting proper background checks, ultimately curbing costs and avoiding liability.

HIRING PART II: REFERENCE CHECKS –WOULD YOU HIRE THIS PERSON AGAIN?

By Karen Harned
Executive Director, National Federation of Independent Business

This column covers reference checks. Both background checks and reference checks can be critical components in the hiring process.

Hiring is an unavoidable responsibility of an employer. Written applications, resumes, interviews, background checks which were discussed in the previous column, Hiring Part I: Background Checks, and contacting an applicant’s references can generate information that will help evaluate an applicant’s qualifications and assist you in picking the best candidate. It is in a prospective employer’s best interest that such information is freely and candidly available. However, is it in the former employer’s best interest to readily disclose it?

Employers who are asked to provide information on a former or current employee may find themselves in a veritable catch -22. If former employers disclose negative information to the prospective employer they may expose themselves to a lawsuit from the employee for defamation or invasion of privacy. On the other hand, a former employer who fails to provide full information about an employee may be sued by a subsequent employer or third party for fraud or negligent misrepresentation.

Fortunately, in response to this predicament, the vast majority of states have passed legislation granting businesses employment reference immunity. Although the scope of the immunity differs from state to state there are some commonalities. The remainder of this article will discuss the potential lawsuits related to providing a reference, the general characteristics of the immunity statutes, and some dos and don’ts when it comes to serving as a reference.

Potential Lawsuits

From the Former Employee

Defamation – Defamation is an oral or written statement that damages the reputation and social or professional standing of a person. In the reference context there is a risk of defamation any time a former employer provides unfavorable information about an employee to a prospective employer. What’s the best defense to a defamation claim? The truth! Recently, a Maryland court found a former employer not guilty of defamation when it provided an unfavorable reference to a prospective employer. Although the former employee was not subsequently hired, the court found that the reference contained true and documented information, and so did not constitute defamation.

From a Third Party

Negligent or Fraudulent Misrepresentation – Misrepresentation occurs when someone makes a false or misleading statement, or a “half-truth” with the intent that the listener rely on the statement. Misrepresentations can be fraudulent, for example where the speaker knows the statement is false and intends to deceive the listener. They can also be negligent, where the speaker makes a statement with no basis of knowing if the statement is true.

The Supreme Court of California allowed such a claim when a school district provided a positive reference for a former vice principal despite the former employer’s knowledge that the vice principal had previously been accused of sexual wrongdoing toward minor students. “The writer of a letter of recommendations,” the Court wrote, “owes to third persons a duty not to misrepresent the facts in describing the qualifications and character of a former employee if making these representations would present a substantial, foreseeable risk of physical injury to third persons.” Although the letter ignored the allegations altogether and instead focused on positive aspects of the vice principal’s tenure, the court held that the school district was nonetheless liable for sending a letter containing “misleading half truths” about the vice principal’s character.

Note that you generally do not have a legal duty to provide a letter of reference for an employee if you don’t wish to do so. On the other hand if employees complain about discrimination and you refuse to provide them with a letter a court may view the failure to provide the letter as unlawful retaliation. Tread carefully in this circumstance.

Immunity Statutes

Although these statutes can vary widely most share some general characteristics:

• First, most do not require a business to provide references.
  
  
  
• Second, the majority presume that an employer will provide a reference in good faith.
  
  
  
• Finally, most statutes require a plaintiff to overcome the presumption of good faith by proving that the employer knew the information was false and acted recklessly in regards to the truth.

Dos and Don’ts of Providing References

Dos

• Act in good faith and tell the truth.
  
  
  
• Obtain consents and waivers from the former employee.
  
  
  
• Verify the identity of the person seeking the reference. If you have doubts about the prospective employer’s legitimacy, ask for the request in writing.
  
  
  
• Assign a specific person to respond to references and instruct other employees to direct calls to this person.
  
  
  
• Be consistent in the type of information provided in your responses.

Don’ts

• Do not lie, exaggerate, or sugarcoat your responses.
  
  
  
• Do not use the opportunity to retaliate against the employee.
  
  
  
• Do not provide political, religious, or medical information.
  
  
  
• Do not provide unsolicited information.

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