Cut Your Risk With Background Checks

Smart employers do thorough background investigations of all candidates considered for employment. But there can be two risks involved in this:

Your company learns damaging information about an applicant, and then shares this information with individuals who have no right to know. For example, let’s say a manager finds out that an applicant served time in prison. The person is hired. The manager then spreads the information around the workplace so that the newly-hired employee is shunned and even mistreated by co-workers.

After learning damaging information about an applicant, you don’t inform the person so that he or she has the chance to explain or refute it. Then, you deny employment to the individual because of the information. Later, you find out the damaging information was false.

This is what happened in a case involving Hilton Hotels. The case began when Edward Socorro truthfully replied “no” on a Hilton Hotels employment application that asked if he had ever been convicted of a felony or misdemeanor. The application form also authorized Hilton to investigate Socorro’s background.

Hilton hired a third party, IMI Data Search, to do an investigation. IMI reported to the hotel chain that Socorro had been convicted of a misdemeanor and served six months in jail. Unfortunately, this information was incorrect. Hilton didn’t investigate the truthfulness of Socorro’s statement or ask IMI to verify its report. Instead, having already hired Socorro, Hilton fired him from his sales manager job for falsely responding to the question on the application form.

Socorro sued Hilton and IMI Data Search. In 2003, the federal District Court in Illinois allowed Socorro to go forward with his legal action, based on his allegations that:

• IMI obtained false information that Socorro had been convicted and jailed.
• Hilton fired him based on that false information.
• Staff members of Hilton later repeated to others Socorro was fired because he lied on his application and was a convict who spent six months in jail.

The two parties settled the suit after the court’s ruling.

Employers Have Background Check Duties

The federal Fair Credit Reporting Act (FCRA) requires employers to use caution when making hiring, promotion, reassignment and termination decisions based — in whole or in part — on information obtained from a third-party background check or consumer reporting service.

To help avoid legal problems, here are four steps that employers must take when using third-party services to do background or credit checks on applicants or employees:

1. Disclose in a separate document (which is only the disclosure) that a consumer report may be obtained for employment purposes.

2. Get written authorization from the individual to obtain the report.

3. Before taking adverse action based — in whole or in part — on information in a consumer report, provide the individual with a copy of the report and a written description of FCRA rights.

4. When taking adverse action, notify the person of the name, address and phone number of the third-party service that supplied the report.

Smart Practice: Don’t let FCRA rules discourage you from doing background and credential checks on applicants and employees. The disclosure and written authorization requirements can work to your advantage. Simply informing all applicants that you may do a background check and asking for written permission discourages many “bad apples” from even applying and wasting your time.

Note: If your company discovers adverse information about an applicant or employee through your own efforts (not from a third-party investigation service), the FCRA does not require you to make disclosures to the individual involved. However, to protect your business or organization from the liability risk of a defamation action, do not share such information with anyone who does not have a business-related need to know. Inform the individual involved and give the person the opportunity to respond to or explain the information.

For more information about background checks, consult with your attorney.