In today’s employment market, companies are competing for talent and must move quickly to make hiring decisions. This means conducting background checks with employment contingent after a candidate has started working, or even for all applicants in high volume recruiting areas like retail, restaurant, and hospitality. This can complicate the background screening process when it comes to legal compliance.

When making personnel decisions, including hiring, retention, promotion, and reassignment,  employers want to consider the backgrounds of applicants and employees. Except for certain restrictions related to medical and genetic information, it’s not illegal for an employer to ask questions about an applicant’s or employee’s background, or to require a background check.

Most companies use some form of employment background screens to protect against hiring risks. Using background screening, recruiters and hiring managers can check for prior criminal behavior and charges, test for drug abuse, verify employment records, get employment references, and more. The goal is to create a safe (and more productive) workplace that lends itself to a company’s employer brand and work environment.

Legal Compliance and Employment Background Checks

Whenever a company uses an applicant’s or employee’s background information to make an employment decision, regardless of how you got the information, you must comply with federal laws that protect applicants and employees from discrimination. That includes discrimination based on race, color, national origin, sex, or religion; disability; genetic information (including family medical history); and age (40 or older). These laws are enforced by the Equal Employment Opportunity Commission (EEOC). In all cases, make sure that you’re treating everyone equally.

Additionally, when you run background checks through a company in the business of compiling background information, you must comply with the Fair Credit Reporting Act (FCRA). The Federal Trade Commission (FTC) enforces the FCRA. It’s a good idea to review the laws of your state and municipality regarding background reports or information because some states and municipalities regulate the use of that information for employment purposes.

The FCRA applies when you use consumer reports to determine eligibility for employment.

If you use consumer reports to make eligibility decisions, make sure you review the Notice to Users of Consumer Reports. Consumer reporting agencies (CRAs) are required to give you this document to inform you of your obligations under the FCRA. Other federal or local laws also may apply to your use of consumer reports.

When you get a consumer report, you must certify to the CRA the purpose for which you will use it. Why is this important? When consumers request copies of their files, CRAs must inform them about who has obtained reports on them. The candidate or employee must be informed that a background (credit) check is being conducted and that the terms of employment may be revoked based on information gathered during the background check. Additionally, the candidate or employee must be notified of any adverse action, and given the opportunity to dispute inaccurate information.

What is Adverse Action?

In short, adverse action means that a company is considering not hiring an applicant based on the information in a background check report that negatively affects the applicant’s employment. This could mean denying employment, but can also mean denying a promotion or transfer. Pre-Adverse And Adverse Action Notices are processes that inform the applicant that the company is considering not moving forward with the employment process.

The adverse action notice may be provided verbally, electronically, or in writing. I cannot emphasize enough that a written adverse action notice is best because it provides proof of compliance. The CRA that provided you with the consumer report may have a model adverse action notice.

So what happens when the background screen finds information about a candidate that might cause a company to deny employment? How should a company handle the situation with the candidate, and – more importantly – how do they handle it in a fair and legally compliant way? Today’s economy means that you may be interviewing and screening more candidates than ever before, along with a higher risk for adverse action complaints based on employment rejection.

If a candidate makes it far enough through your interview process that they are a finalist for your open position, or have already been hired contingent on a background check, but is then rejected due to information uncovered through a background screening, the FCRA requires that the employer issues a notice to a candidate allowing them the opportunity to provide more information. This is the pre-adverse action notice.

In order to maintain FCRA compliance, the pre-adverse action notice should be sent (or provided) to potential candidates before making a final decision. If the pre-adverse action notice is sent to the candidate before adverse action (deciding not to hire the candidate) is taken, it is an opportunity to allow the candidate (or employee in the case of contingent or current employee background checks) the opportunity to dispute the information contained in the background report.

It also give you, as the employer, time to provide the required information. As part of the notification process under the FCRA you must provide the candidate with a disclosure that includes a copy of the Federal Trade Commission document “A Summary of Your Rights Under the FCRA.” It’s imperative to send this notice before you’ve made a final hiring decision in order to avoid legal liability. In cases of current employees, the notice should make clear that the terms of their employment are subject to change or invalidation based on information discovered during the background check process.

While the FCRA doesn’t have specific guidelines for how long to wait between pre-adverse and adverse action notices to candidates (it does state that five business days is “reasonable”), since the goal is to give the candidate time to respond or correct the adverse information, I recommend 15 days between notices – at the minimum. And again, this should be in writing.

The only way to stay on top of your time-to-hire and remain compliant legally when it comes to background checks is to make amendments to your employment contract. The most important factor is to have a plan in place before conducting checks that includes clear language on an employment contract that the offer or initial employment period is extended and viable only if the background check is complete and returns no adverse information.