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Employee Background Checks: Court Win For Employer Sheds Light On Background Check Laws

Background checks are a popular and useful tool for employers to gather information about prospective new employees—but they come with several legal strings attached. Employers need to know their legal obligations when performing background checks to ensure that they comply with several key laws and avoid costly litigation.

Pre-Adverse Action Requirements under the FCRA

If an employer uses a third party to conduct a background check, even if the report reflects only the criminal history of the applicant, the Fair Credit Reporting Act (FCRA) applies. Under the FCRA, employers have several obligations. For example, if an employer decides to rescind an offer based on information from a report, then before taking the adverse action the employer must provide the applicant with: (1) a copy of the background check; and (2) a written summary of consumer rights. The prospective employee then gets a reasonable amount of time to dispute the accuracy of the report. The employer must also meet several requirements after taking the adverse action.

An employer scored a recent win under the FCRA in Schumacher v. SC Data Center, Inc., 33 F.4th 504 (2022) an Eighth Circuit U.S. Court of Appeals case. The plaintiff in Schumacher stated on her job application that she had never been convicted of a felony. The employer offered her a position, contingent on a background check. After a third party conducted the background check it came to light that she had actually been convicted of murder and armed robbery and had served 12 years in state prison. The employer rescinded the offer without first providing the individual with a copy of the report. The applicant did not dispute the conviction but sued in part because she had not been provided an opportunity to explain the conviction. The court concluded that while the employer had violated the FCRA when it failed to provide the plaintiff with a copy of the report prior to rescinding her job offer, the plaintiff could not prevail under the FCRA because applicants do not have the right to explain the context behind accurate but negative information found on reports. Of course, employers can avoid similar lawsuits by providing individuals copies of reports prior to rescinding job offers.

Title VII Considerations

While this Eighth Circuit case benefits employers subject to the FCRA, employers should pause before refusing to allow applicants a chance to explain the circumstances behind an accurate conviction because additional laws may come into play—including Title VII of the Civil Rights Act (Title VII). The EEOC cautions employers to tread lightly when basing employment decisions on background checks because background problems can be more common to individuals of a protected status, such as race or color. Such decisions can open the employer up to liability based upon the disparate impact the determinations have on a protected class.

Also under Title VII, in excluding individuals with certain criminal histories, employers should keep in mind the decision must be consistent with business necessity and related to the job in question. Three factors relevant to this determination include: (1) the nature and gravity of the offense or conduct; (2) the amount of time that has passed since the offense or conduct or completion of the offender’s sentence; and (3) the nature of the job held or sought.

Varying Court Interpretation and State Law

The Schumacher case only applies to employers in federal court in the Eighth Circuit, which covers Nebraska, Iowa, South Dakota, Missouri, Minnesota, Arkansas, and North Dakota. Other federal courts in other states may interpret the FCRA in a less employer-friendly manner. Also, varying state and local laws may require additional steps not included in the FCRA.

These various laws can prove to be difficult for employers to navigate. If you are drafting, implementing, or have questions about background check compliance, we recommend reaching out to a member of our team to assist.