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Part 1 of this article can be found here.

The Fair Credit Reporting Act

Having considering the perils summarized above, an employer who still decides to use employee criminal background checks faces additional restrictions under other federal statutory provisions, namely the Fair Credit Reporting Act (“FCRA”). An employer who uses consumer reports to make employment decisions, including hiring, retention, promotion or reassignment, must comply with the FCRA. The Federal Trade Commission (“FTC”) enforces the FCRA.

Use of employment-related background checks by employers to discover information about the work history, education, criminal record and financial history of job applicants has become ubiquitous. In one recent survey of employers, 92% of those responding stated that they subjected all or some of their job candidates to criminal background checks. The reasons for increased employer reliance on criminal background checks are straightforward - to control theft and fraud and address heightened concerns about potential liability for workplace violence and negligent hiring. It is not illegal for an employer to ask questions about an applicant’s or employee’s background, or to require a background check. However, anytime an employer uses that information to make an employment decision, irrespective of how the employer has obtained the information, the employer must comply with federal anti-discrimination and credit reporting laws, and state and local restrictions.

Background Check Photo (00297714).jpg

On January 29, the Department of Labor, Office of Federal Contract Compliance Programs (“OFCCP”) issued Directive 306, which encourages federal contractors and subcontractors not to ask about criminal convictions on job applications. According to OFCCP, such questions can result in individuals being treated differently because of their race, national origin, sex, or other protected characteristics.

OFCCP issued the directive to address its concern that hiring policies and practices that exclude employees and potential employees with criminal records violate Title VII of the Civil Rights Act of 1964 (“Title VII”). In support of its statement, OFCCP cites a study which found that one in three adults has a criminal history record. Of those adults, a high percentage were Hispanic and African-American. Based on the study, OFCCP reasons that employers who have a blanket policy of not hiring individuals with criminal convictions will exclude a greater number of Hispanic and African-American individuals resulting in “disparate impact” on these individuals, which would likely be in violation of Title VII. Thus, because of the impact, OFCCP recommends that employers “refrain from asking about convictions on job applications."

Credit Report

Employers choosing to utilize the consumer report or “credit report” as a method of evaluating potential employees face a myriad of legal pitfalls.   Both the Fair Credit Reporting Act and Title VII of the Civil Rights Act of 1964 provide guidelines employers should follow to avoid potential legal liability. 

The usage of consumer reports as a pre-employment tool is disfavored.  While the practice itself is legal, the Equal Employment Opportunity Commission (EEOC) is of the opinion that the practice of inquiring into the assets, liabilities or credit rating of a potential employee tends to impact more adversely on minorities and females.  The EEOC’s position is that the usage of consumer reports in the pre-employment context is permissible only if the employer can show that such information is essential to the particular job in question.  In other words, the test must be related to the job the employee will perform and must be consistent with a business necessity.