Hiring the wrong employee can be devastating for your business. For example, according to the U.S. Department of Commerce, employee theft causes 30 percent of small business failures, and embezzlement losses exceed $4 billion every year. The Bureau of National Affairs puts that figure even higher—at as much as $25 billion.
A comprehensive background screening policy is your company’s best defense against bad hires. However, constantly evolving laws governing these procedures continue to increase employer compliance challenges.
The federal Fair Credit Reporting Act (FCRA) is the national standard for pre-employment background checks. It covers the issuance of consumer reports for many purposes including those used to determine a candidate’s eligibility for hiring, promotion and retention. Under the act, employers must notify candidates if they will be using a third party to compile a credit report, obtain the candidate’s consent, and provide details should the report result in an “adverse decision.”
State Specific Regulations
Unfortunately, it’s not as simple as complying with the FCRA. California, Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Oregon and Washington are among the states that have enacted their own laws pertaining to background checks—in all cases providing additional protections for job seekers and additional headaches for employers.
Consider California Assembly Bill 22 and California Senate Bill 909. The first prohibits employers from pulling consumer credit reports on current workers and applicants for most positions. Exceptions include managerial and law enforcement jobs as well as those involving access to confidential information or the handling of large amounts of cash.
The second addresses the issue of personal information (such as a social security number) collected during the background check process and then sent outside the country (“offshore”) where it is beyond the protection of U.S. privacy laws. Under California law, employers are now required to include a website address or phone number (where applicants may research the consumer-reporting agency’s privacy and “offshoring” practices) within the pre-employment background check disclosure.
What This Means for Employers
Obviously, a company must comply with the FCRA as well as background check laws within the state in which it is located. However, lawmakers have yet to address whether a company’s pre-employment screening procedures must also comply with those of the state in which an applicant resides. This is an increasingly pertinent question, as many employers use web-based job boards to advertise open positions and may consider applicants from other states.
The wisest course of action for most employers may be to conduct pre-employment screening in a conservative manner that satisfies the FCRA as well as individual state laws—even those in which they are not located. This will require regularly monitoring of state legislative action and corresponding process updates. Although still challenging—as laws governing background check forms, practices and procedures change frequently—this should minimize an employer’s risk of non-compliance liability.