One recent survey reported that 51 percent of employers conducted background checks in 1996; by 2003, this had increased to 80 percent.
Although background checks can be valuable, they can also lead to litigation if not conducted properly. As with many employee issues, background checks are governed by myriad state and federal regulations that can create pitfalls.
The Fair Credit Reporting Act
The FCRA, in general, is applicable to background checks conducted by employers through third parties for a fee. The name of the statute is misleading, though; the FCRA is applicable to a wide variety of background checks, including criminal backgrounds, driving histories and even harassment investigations. Due to its broad scope, any time that your company seeks information regarding employees or applicants from a third party, the FCRA should be considered.
If applicable, the FCRA requires the employer to provide a disclosure to the individual, prior to conducting the check, that a background check may be conducted. This disclosure must be on its own separate document. Next, also prior to the background check, the employee or applicant must sign an authorization permitting the background check.
Additional FCRA requirements are only applicable if adverse action results (i.e., termination, demotion, etc.). Prior to taking the adverse action, the employee must be provided with pre-adverse action notice, a copy of the background check and a summary of rights under the FCRA. Thereafter, if the individual does not explain the background check, an adverse action letter must be provided.
This letter, unlike other termination letters in Ohio, must include information regarding the agency that conducted the background check and the individual's rights under the FCRA.
Amendments to the FCRA
In December 2003, President Bush signed into law the Fair and Accurate Credit Transactions Act of 2003. Although FACT significantly amended the FCRA, two amendments most impact employers.
First, the FCRA was expanded to apply to background checks involving medical information, including any information regarding past, present or future physical, mental or behavioral conditions, the provision of health care or the payment for health care. Before obtaining such information, FACT requires employers to receive the employee's "specific written consent" for disclosing this information.
The second amendment is beneficial to employers. Prior to the 2003 amendments, the FCRA had been extended to investigations by third parties into allegations of sexual harassment and other employee misconduct. The amendments minimize the FCRA requirements that must be satisfied in such situations. Specifically, if the investigation falls within certain requirements, the employer may conduct the investigation without the disclosure and authorization forms.
However, if adverse action does result, a summary of the investigation must be provided to the employee.
Some states, including, New York, California, Minnesota and Oklahoma, have statutes that alter the FCRA requirements. However, Ohio has no such statutes, and compliance with the FCRA permits Ohio employers to conduct background checks.
That said, Ohio law should be considered when conducting background checks. First, Ohio law mandates that certain employers conduct background checks on applicants prior to placing them in certain positions.
Second, as with all employee practices, Ohio and federal law mandate that background checks be conducted in a nondiscriminatory manner. In order to help verify nondiscrimination, employers should set guidelines for acceptable background checks.
DAVID A. CAMPBELL is a partner in the Cleveland office of Vorys, Sater, Seymour and Pease LLP, where he practices in the labor and employment group. Reach him at (216) 479-6168.