Legal aspects of background checks for employment: What you need to know

Hiring the wrong person for a role can be expensive and time-consuming. That’s why many employers use a combination of pre-employment screening methods to gain a clearer picture of candidates. These include talent assessments, resume reviews, and background checks. 

Background checks may help you better understand a candidate and uncover any red flags that could affect their suitability for a role. However, it’s crucial that you conduct them fairly and lawfully, or you risk facing costly financial penalties and lawsuits. 

In this article, we look at some key legal issues to consider when conducting compliant background checks in the US.

What is a company background check?

Company background checks provide employers with additional information about candidates' or employees’ backgrounds and characters. They give employers a fuller picture of an individual to help them assess their suitability for a position. 

Some background checks may be required by law. For example, anyone working with children must have a criminal history check. Employers may also have their own background check policy, such as conducting criminal record checks on anyone applying for a role that involves handling money. 

These checks help keep the organization, its employees, customers, and clients safe by raising any red flags employers otherwise wouldn’t know about.

Employers can run background checks using online information and publicly available records. However, the scope of information available to employers can be limited. For this reason, many employers use pre-employment screening services or consumer reporting agencies to run background checks. 

Generally, US employers are legally allowed to conduct background checks on candidates and employees. However, access to different types of information can be limited, and specific processes must be followed. 

It’s also essential to keep the information received in context. Background checks are a small part of hiring and should be part of a multi-measure approach when making recruitment decisions. Incorporating background checks with personality and skills testing promotes data-driven hiring practices and removes bias.

What is covered in an employment background check?

Employment background checks can dig deep into personal information and may include various details.

• Education: Schools, attendance dates, and qualifications

• Identity: Social Security number validity and right to work in the US

• Employment history: Job titles, previous employers, reference checks, dates of employment, previous salaries

• Criminal records: Previous or pending felony and misdemeanor charges, arrest records, and dismissed charges 

• Civil court records: Non-criminal court proceedings

• Driving history: License validity, DUIs, or driving suspensions

• Credit checks: Credit inquiries and previous bankruptcies

• Medical history: Surgical procedures, allergies, family medical history, and medications

• Military records: Enlistment, assignments, training, performance, and qualifications

• Social media activity: Bullying, racism, nudity, and/or negative online presence 

Employers typically run background checks at the state and federal levels. For some roles, it may also be necessary to run international background checks. 

Why is it important for companies to conduct a background check legally?

Company background checks can be a vital piece of the hiring puzzle. They provide employers with more information about candidates or employees to help them decide whether they are suitable for a role and the organization. 

It’s crucial to conduct and use background checks lawfully. If you don’t, you risk facing penalties, including large fines. You may also face lawsuits from candidates or employees who feel unfairly treated.

Legal considerations when conducting a background check for employment

Check applicable federal and state laws 

This article discusses several vital federal laws that regulate background checks in the US. But there are also laws and regulations at the state or local levels that may apply to you. These laws may be more restrictive than federal laws regarding what information you can access and may require you to take additional steps when conducting checks. 

For example, some states allow employers to ask candidates for their social media usernames but prohibit them from asking for passwords. There are also varying state laws around criminal history checks, which we discuss in more detail below. 

You must understand your local, state, and federal legal obligations before running any background checks by speaking to an attorney. 

Don’t discriminate against candidates 

Under federal anti-discrimination law, it’s illegal for employers with 15 or more employees to discriminate against someone based on a protected class. 

Protected classes include race, national origin, color, religion, sex, disability, genetic information, or age (over 40 years old). This prohibition against discrimination applies to pre-employment background checks. 

You can’t discriminate against someone when deciding how to conduct background checks. While you can adapt checks to a role, such as requesting driving histories for positions that involve driving a vehicle, you can’t tailor background checks to individuals, like only running a check on candidates of a certain race or age.

You also can’t use the results of background checks to make discriminatory employment decisions. For example, you can’t rule out candidates of a particular religion based on their financial records when candidates from other faiths aren’t subject to the same approach. 

Anti-discrimination law also generally protects applicants and employees from background check policies that, on the face of it, appear to apply equally but have a disparate impact on a protected class. For example, a policy to exclude candidates with criminal records that places people of a shared national origin at a significant disadvantage is likely unlawful.

The Equal Employment Opportunity Commission (EEOC) is responsible for enforcing federal anti-discrimination laws and offers a range of resources about background checks on its website. 

Proceed with caution regarding medical or genetic information

You can only request medical information from candidates in very limited circumstances. Under federal law, employers can’t ask candidates any disability or medical-related questions before a conditional offer of employment. They can, however, ask general questions about whether the applicant can perform the job and how they would do it.

Employers can only inquire about current employees’ medical situations if they relate to their jobs and are “consistent with business necessity.” This is typically where you have evidence that the employee can’t do their job or poses a safety risk due to a medical condition. 

Generally speaking, employers are prohibited from requesting genetic information from candidates and employees. You can never use genetic information to make employment decisions. 

Check the laws concerning criminal records

The laws around the types of criminal records employers can obtain and how they can use this information vary between states. 

Under federal law, consumer reports can’t include arrest records that are more than seven years old. In some states, employers are prevented from requesting expunged records or records of arrests resolved without a conviction. There are also states that limit how far back criminal records can go when employers request them. 

Some states also have ban-the-box or fair-chance hiring laws. These laws prevent employers from conducting criminal history checks until after the initial interview or a conditional offer of employment. 

They are designed to ensure minor criminal convictions don’t automatically rule a candidate out of the hiring process and encourage employers to consider the broader context of an applicant’s criminal history and circumstances. 

Obtain the candidate’s consent

Employers must obtain a candidate’s written consent before requesting certain records by law. For example, educational and military records typically require approval from the individual to be released to an employer. 

It’s a good idea to always get candidates’ consent for background checks, even if there isn’t a legal requirement. This encourages openness and transparency around your company’s background check process and ensures applicants know their rights. 

Comply with the Fair Credit Reporting Act (FCRA) 

If you use a consumer reporting agency to conduct background checks, you must follow specific procedures under the FCRA. 

Firstly, you must inform the candidate in writing that you may use the information in employment-related decisions. You must do this in a stand-alone document, separate from the employment application. 

If the background check includes an investigative report – where interviews are conducted about the candidate’s character and lifestyle – you must tell the candidate this. 

When requesting background information from the consumer reporting agency, you must certify that you have informed the candidate and obtained their written permission, complied with FCRA requirements, and won’t use the background information in violation of federal or state equal opportunity laws.

Suppose you intend to take adverse action against a candidate, such as rejecting their application based on the information you receive from the reporting agency. In that case, you must also follow specific steps. You must give the candidate:

• A pre-action adverse notice

• A copy of the report on which you are basing your decision

• A Summary of Your Rights Under the Fair Credit Reporting Act from the company that prepared the report

These steps enable the applicant to respond to any negative information before you take adverse action against them. 

After taking the adverse action, you must:

• Inform the candidate that the report was the reason for rejecting their application

• Provide them with the details of the company that conducted the background check

• Explain that the company didn’t make the adverse decision or provide reasons for it

• Tell the candidate they can challenge the report and get a free report from the company within 60 days 

The Federal Trade Commission (FTC) enforces the FCRA and offers further information on its website. 

Create a background check policy

While not a legal requirement, having a written policy on background checks is useful. 

Ensuring your policy complies with all relevant laws helps your hiring managers conduct background checks lawfully and consistently. It also encourages transparency with your employees. A policy lets them know what to expect regarding background checks and how your organization uses them. 

Your policy should, at a minimum, identify the types of background checks conducted, how the information from these checks may impact hiring decisions, and when you will perform them. It should also set out how applicants and employees can dispute inaccurate information. 

Use a reliable background check company

If you intend to use an external company to run background checks on candidates, choosing one that adheres to lawful conduct is essential.

The Consumer Financial Protection Bureau lists consumer reporting companies as a starting point for your research. When researching companies, you should consider the types of checks they run, the timeframes for reports, and the cost of their service. 

Confirming that the company’s processes are FCRA and EEOC-compliant is also essential. This information is typically available on the provider’s website. Otherwise, you can request it. 

You can also ask whether the company is accredited by the Professional Background Screening Association (PBSA) – a non-profit professional standards organization – and whether its employees hold FCRA accreditations via the PBSA or National Consumer Reporting Association. 

These typically indicate that a company’s background check processes are compliant. 

Incorporating background checks in your pre-employment screening

Background checks can be a valuable part of your pre-employment screening, combined with resume reviews, interviews, and skills assessments. Whether you conduct these background checks yourself or via a consumer reporting agency, you must comply with relevant federal, state, and local laws. 

While this article covers some key legal considerations, speaking with an attorney is the best way to fully understand your legal obligations. This helps you reduce the risk of penalties or lawsuits for noncompliance while improving the quality of your hires. 

For a multi-measure approach to hiring, use TestGorilla’s pre-employment skills testing combined with background checks for bias-free, data-driven recruitment decisions.

Take a product tour or sign up for a free plan to find out more.

Disclaimer

The information in this article is a general summary for informational purposes and is not intended to be legal advice. Laws are subject to constant change, and their application varies based on your individual circumstances. You should always seek legal advice from a qualified attorney about your legal obligations as an employer. While this summary is intended to be informative, we cannot guarantee its accuracy or applicability to your situation.