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Employment Screening – A Legal & Regulatory Minefield Part 2 – The Beginning!

February 26, 2015 12:10 am

The hiring decision is obviously important – to employers and prospective employees.  Good decisions are the result of good (complete and accurate) information and a selection process that leads us safely through a legal and regulatory minefield – both of which are addressed in Part 1 of this series.  Part 2 (this post) speaks to the reasons behind the process.

The Dilemma

“Negligent hiring” is a well-established cause of action.  A quick internet search on key words “negligent hiring” and “criminal background” leaves no doubt.

Ironically, steps taken to mitigate the risk of the negligent hiring claim increase the risk of a “disparate impact” discrimination claim – wherein a “facially neutral” business practice – such as use of criminal records for employment screening purposes – is found to have a disproportionate impact on one or more protected groups.

“Business necessity” is the only defense against a “disparate impact” claim.  According to the Equal Employment Opportunity Commission (EEOC), there are two ways to establish “business necessity”:

  1. A statistical analysis that establishes a clear correlation between the policy or practice in question and risk or job performance; or
  2. A process that takes into account the nature of the offense, its relationship to the position, when it occurred and other relevant factors – before declining an applicant or terminating an employee based on criminal history.

Options 1 is impractical for all but the very largest employers.  Options 2 is doable, however, makes good business sense AND mitigates the disparate impact legal exposure.

The EEOC recommends that employers not ask about convictions on initial job applications.  A growing number of states (and municipalities) prohibit the practice.

The vast majority of applicants are declined based on other considerations.  The best candidate – based on work history, education, skills and interview performance is often clean.  So not asking the question until later in the process substantially reduces the risk of a discrimination claim – with no real down-side.

Let’s assume for a moment that our best candidate – the one we hope to hire based on skills, experience, interview performance and references – discloses (and is found to have) a criminal conviction.  It is worth a few minutes to consider the facts – the nature of the offense, its relationship to the position, when it occurred and so on  – before rejecting them – right?

Not persuaded?  Consider the cost (in time, treasure and reputation) associated with defending a disparate impact claim.  That should do it!

Pre-employment Credit Checks

Considering an applicant’s credit history – with relatively few exceptions – is a bad idea.  First of all, use of credit (much like the use of criminal records) may form the basis of a “disparate impact” claim.  Secondly, there is little or no empirical support for the practice – in other words, no business necessity defense (for the majority of positions).

There are a growing number of states (10 currently) that prohibit use of consumer credit information for employment screening purposes – except for those positions where that information is “substantially job related” – such as:

  • A managerial position that involves setting the direction or control of a business, division, unit or an agency of a business;
  • Involves access to personal or financial information of customers, employees or the employer, other than information customarily provided in a retail transaction;
  • Involves a fiduciary responsibility to the employer, as defined under the law;
  • Provides an expense account or corporate debit or credit card;
  • Provides access to certain confidential or proprietary business information, as defined under the law; or
  • Involves access to the employer’s nonfinancial assets valued at $2,005 or more, including, but not limited to, museum and library collections and to prescription drugs and other pharmaceuticals.

Limiting use of credit to a handful of exceptions has virtually no down-side (in terms of selection) and will help keep you out of court.

Disclosure and Authorization

The Fair Credit Reporting Act (FCRA) requires that:

  1. “A clear and conspicuous disclosure has been made in writing to the consumer at any time before the report is procured or caused to be procured, in a document that consists solely of the disclosure, that a consumer report may be obtained for employment purposes; and”
  2. “The consumer has authorized in writing (which authorization may be made on the document referred to in clause (i)) the procurement of the report by that person.”

When and if you do use credit for employment screening purposes, we recommend advising the applicant in writing that you are doing so and the reasons you believe the data to be “substantially job related” or a bona fide occupational requirement (required in a least two states – Washington and California).


Section 604 of the FCRA requires that “…the person who procures the consumer report on the consumer for employment purposes shall provide to the consumer, by oral, written, or electronic means, notice that a consumer report may be obtained for employment purposes, and a summary of the consumer’s rights under Section 615… of this title….”

Section 604 also requires that “…before taking any adverse action based in whole or in part on the <employment screening report> the person intending to take such adverse action shall provide to the consumer to whom the report relates – (i) a copy of the report; and (ii) a description in writing of the rights of the consumer under this title….”

Giving applicants an opportunity to review reports and correct anything they believe is reported in error – before adverse action is taken – is a good thing – for employers and applicants.   It is a check and balance against errors – errors that may result in bad decisions by employers and hardship for applicants.   It holds consumer reporting agencies (and those furnishing data) accountable (for accuracy) – also a good thing.

Transparency is good.  It is for that reason, we recommend providing a copy of employment screening reports and the CFPB Summary of Rights document to all applicants – whether adverse action is contemplated or not.  It is for that reason that we include the CFPB Summary of Rights in each and every employment screening report we produce – to streamline the process for our clients.


Employers would seem to be caught between a rock and a hard place – between the negligent hiring and disparate impact exposures – as well as business necessity.  But a thoughtful approach to the selection process actually makes is possible to more thoroughly vet prospective employees AND stay out of court.  See Part 1 in this series for the answer.

Visit Moco Incorporated or® for more information regarding employment screening best practices.



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