In recent years, an ever-increasing number of employers are conducting some form of background checks on job applicants and employees. In fact, in a 2004 study, the Society for Human Resource Management reported that 96 percent of human resource professionals indicated that their companies conduct some form of reference checks on prospective hires. That number nearly doubled from 51 percent less than a decade ago.

And for good reason — background checks reveal that nearly half of all employees have some discrepancy in information they report to their employers. In fact, of the nearly 6 million background checks performed by ADP Screening and Selection Services in 2006, 41 percent of employment, educational and credential checks revealed a difference in information between what the applicant provided and what the source reported, and 5 percent revealed a criminal record in the last seven years.

Despite these figures, many employers still grapple with whether to conduct criminal background checks on new hires and current employees.

On one hand, employers could face negligent hiring claims if they hire someone with a criminal record — such as in New York state case T.W. v. City of New York, where the court held that there was a factual issue regarding whether a youth organization had a duty to conduct a pre-employment background check of an employee who allegedly sexually assaulted a minor child attending the youth organization.

On the other hand, employers may obtain and use criminal background information lawfully. Background checks have a potentially disparate impact on certain minority groups. The Equal Employment Opportunity Commission’s policy guidance on the consideration of arrest records in employment decisions under Title VII of the Civil Rights Act of 1964 noted that, nationally, blacks and Hispanics are arrested in numbers disproportionate to whites, and that barring individuals on the basis of arrest records alone disproportionately excludes those groups from employment.

As a preliminary matter, whether or not to conduct a background check may depend in part upon a company’s industry. Employers in many industries, including those involved in child care, health care, elder care, education and those who work with other "vulnerable populations" may be required by state law to perform criminal background checks.

New Jersey, Pennsylvania and Delaware require background checks for health-facility employees and child care personnel. Specifically, New Jersey mandates background checks for nurse’s aides and personal-care attendants, assisted living facility employees, home health aides, residential child care and school employees and school bus drivers. Similarly, Pennsylvania requires background checks for health facility employees, nurse’s aides, school employees whose jobs routinely involve direct contact with children, and child care personnel. And these statutes may enumerate particular criminal offenses that preclude hiring an applicant.

Employers not required by law to conduct background checks on their employees may want to weigh the benefits and risks of doing so, specifically for particular positions, and make a reasoned decision on how to proceed.

All information gleaned from background is not equal. Employers need to be aware of how specific information may — or may not — be used in hiring decision. Many states prohibit employers from using arrest information when determining eligibility for employment and may even restrict access to such information. For example, Pennsylvania will not release arrest information where three years have elapsed since the arrest, there was no conviction and there are no proceedings pending. Delaware limits access to criminal history beyond conviction records, with limited exceptions, while New Jersey is the most liberal state, with no prohibition of releasing arrest information.

While many states allow employers to consider information concerning criminal convictions in making hiring decisions, some states place limitations on how such information is used. Pennsylvania only allows employers to consider felony and misdemeanor convictions to the extent they relate to the applicant’s suitability for a specific position. So, for example, a drunken driving conviction may not relate to a candidate’s suitability for a secretarial position, but it may well relate to the suitability of a candidate for a delivery job.

As noted, another concern is the risk that using arrest information — especially when such arrests did not result in a conviction — may have a disparate impact on certain minority groups. Employers need to balance legitimate public safety and liability concerns with the goals of Title VII. The EEOC consistently has invalidated employment policies creating a blanket exclusion of persons with arrest records. Yet, while an arrest, standing alone, cannot provide the basis for exclusion from hire, an employer may consider the specific conduct at issue if it indicates unsuitability for the position.

To avoid disparate treatment concerns, the EEOC promulgated criteria to evaluate such information including considering: the nature and gravity of the offense, the amount of time that has passed since conviction, and how the offense or offenses may relate to the nature of the job.

The 3rd U.S. Circuit Court of Appeals recently addressed a claim of disparate treatment in El v. SEPTA. The case examined whether the Southeastern Pennsylvania Transportation Authority blanket policy of disqualifying applicants based upon prior criminal convictions had a disparate impact on minority applicants. In El’s case, his prior 40-year-old conviction for second-degree murder was the sole reason for his employment termination as a paratransit driver transporting physically and mentally disabled passengers.

Ultimately, the 3rd Circuit held that SEPTA’s policy, prohibiting the hiring of individuals with violent criminal convictions, did not violate Title VII. The policy was justified by business necessity — specifically, public safety concerns — and the employee failed to submit sufficient evidence of an acceptable alternative policy. The 3rd Circuit, however, left open the issue of whether such policies regarding criminal convictions are per se invalid, but noted that such a bright-line prohibition policy may not be acceptable, especially when it is unsupported by evidence demonstrating business necessity.

In addition to the above considerations, employers need to ensure they are following state and federal prerequisites regarding background checks.

Some states mandate that employers obtain employee consent prior to conducting background checks. For example, New Jersey requires employers to obtain signatures of prospective employees prior to running a background check, and to provide applicants with adequate notice and an opportunity to confirm or deny the accuracy of the information. Similarly, Pennsylvania requires employers to notify applicants if the decision not to hire is based in whole or in part on criminal history. An employee’s signature at the bottom of an employment application or employment handbook may not constitute sufficient consent to a criminal background check in certain states. Companies should obtain separately documented consents.

The federal Fair Credit Reporting Act (FCRA) also regulates how background history is obtained and used. This applies to consumer reports and investigative consumer reports prepared by consumer reporting agencies — including background check vendors, private investigators and detective agencies — for the purpose of providing information to a third party, typically an employer.

Consumer reports may consist of background information, credit history checks and DMV records. Investigative consumer reports contain details regarding an applicant or employee’s character, general reputation or mode of living — obtained through personal interviews with friends, neighbors and business associates, as well as through employment verification with prior employers.

Companies using a consumer reporting agency to procure background history information must adhere to FCRA’s steps for compliance, including disclosure and authorization, certification and advance notice of adverse action. These steps include:

95Providing written notice to the employee or applicant explaining that a consumer report or investigative consumer report will be obtained;

95Securing the employee’s signed consent for the background check in a document separate from an employment application or an employee handbook;

95Certifying to the consumer reporting agency that the above steps have been followed and the company is complying with the FCRA;

95 Providing advance notice of any intended adverse action to the employee or applicant and providing her a copy of the report, along with the "Summary of Your Rights under the Fair Credit Reporting Act" written by the Federal Trade Commission. The purpose is to give the individual an opportunity to dispute or explain any inaccurate or incomplete information in the background check report; and

95Supplying the applicant or employee, upon taking adverse action, with a copy of the report, the "summary of your rights" document, and the contact information for the consumer reporting agency that furnished the report, as well as a statement that the consumer reporting agency did not make the adverse decision and cannot explain why it was made.

Employers that fail to comply with the FCRA provisions may be liable for damages, as well as fines or imprisonment if they knowingly and willfully obtain a consumer report under false pretenses.

Whether or not they are required to, conducting background checks may be in the best interest of companies. Yet, it is critical that companies obtain such information in compliance with state and federal laws, and justify the business necessity of any background check policies that disallow hiring of individuals with particular convictions. Failing to do so could expose companies to significant liability.



Carrie B. Rosen is a member in the labor and employment practice group of the law firm Cozen O’Connor, counsels companies, both large and small, on workplace policies, including background checks, in addition to representing management in response to employment discrimination complaints and assisting employers in reaching effective settlement agreements. Contact Rosen at crosen@cozen.com.