A background check or background investigation is the process of looking up and compiling employment history, criminal records, commercial records, and financial records of an employee.

Background verification has been conducted for both current as well as potential employees for several reasons and the type of screening depends upon the nature of the job. The relevance of backgrounds checks is ever increasing for reasons such as an increase in negligent hiring lawsuits. A bad decision can wreak havoc on a company’s budget and reputation as well as ruin the career of the hiring official. Hence companies are ever on the alert on whom they bring into the organization. There has also been an increase in falsified or inflated information in the job market making recruiters wary of believing anything claimed in the resume upfront.

Negligent hiring is a legal claim filed against an employer. It is made by an employee, customer who is a victim of an employee with a background of similar incidents. The negligent hiring claim argues that the employer knew or should have known their history before hiring them.

Background reports can range from a verification of an applicant’s Social Security Number to a detailed account of the potential employee’s history and acquaintances. There is evidence that employers are now searching popular social networking Web sites such as Facebook for the profiles of applicants. A recent study found that 44% of employers use social networking sites to obtain information about job applicants.

What is FCRA?

Fair Credit Reporting Act was established in order to set standards for employment screening. Under the FCRA a consumer report there are certain limits set on the background check done on an employee/applicant. The FCRA says the following cannot be reported:

  • Bankruptcies after 10 years.
  • Civil suits, civil judgments, and records of arrest, from date of entry, after seven years.
  • Paid tax liens after seven years.
  • Accounts placed for collection after seven years.
  • Any other negative information (except criminal convictions) after seven years.

However the FCRA made an amendment whereby criminal convictions can be reported indefinitely. Under the Fair Credit Reporting Act, the employer is required to get your permission before obtaining the records and certain records are protected as confidential such as education records, military service records and medical records.

Under federal law, if the employer uses information from the consumer report for an “adverse action” – that is, denying the job applicant, terminating the employee, rescinding a job offer, or denying a promotion – it must take the following steps.

Before the adverse action is taken, the employer must give the applicant a “pre-adverse action disclosure.” This includes a copy of the report and an explanation of the consumer’s rights under the FCRA. After the adverse action is taken, the individual must be given an “adverse action notice.” This document must contain the name, address, and phone number of the employment screening company, a statement that this company did not make the adverse decision, rather that the employer did, and a notice that the individual has the right to dispute the accuracy or completeness of any of the information in the report.

Two major loopholes that have been reported in the FCRA are, first, if the employer does not use a third-party screening company but, rather conducts the background check itself, it is not subject to the notice and consent provisions of the FCRA. Secondly, the employer might tell the rejected applicant that its adverse decision was not based on the contents of the background investigation, but, rather for reasons other than the background report, whereby the applicant cannot contest or view his background verification report. Some of the gaps have been filled recently by allowing the applicant to view his report through annual file disclosures.

An employer must be aware of the following rights under the FCRA, violations of which could cost the company dearly.

  • The applicant/employee has the right to know what is in his/her file.
  • The applicant/employee has the right to ask for the credit score.
  • The applicant/employee has the right to dispute inaccurate or incomplete or unverifiable information hence it should be ensured that CRA provide accurate and correct information.
  • Consent must be obtained before conducting a background check.
  • Access to report files should be restricted to necessary personnel only.

Background checking can supplant an organization’s loss prevention efforts by helping provide a safer environment for employees, volunteers, and others. The most common reason among employers for not conducting background checks is cost. However, the cost of background checks represents a fraction of the cost of: terminating an individual; re-recruiting, re-hiring, and re-training his or her replacement; and defending a lawsuit brought by a victim of a dishonest or violent individual’s actions which can range in the millions of dollars.

Impact of a Bad Hire.

It has been found that the impact of a bad hire affects the company not only financially but has adverse effects overall.It can lower employee morale and decrease in productivity can be the biggest negative consequences. Other negative consequences include: lost customers and market share, and higher training, recruitment, and severance costs. It is said that the average cost of a bad hire is 2.5 times the employee’s salary. 42% of survey respondents said the cost of a bad hire is at least 3 times the employee’s salary.

Benefits of Pre-employment Check

Background checks go a long way in providing for a safe, productive work environment and avoiding litigation as a result of negligent hiring. The best practice for an accurate, cost-effective criminal background check is to research where your applicants have lived, worked, and gone to school during the last 7 years. Properly documenting pre-employment background checks does not guarantee you won’t be sued, but will drastically reduce the chance of being found guilty of negligence or discrimination.The net annual return on investment for background screening is over 900%. There are scarce few business expenses that can generate the type of ROI that background screening can.
According to the US Small Business Administration, for every dollar an employer invests in employment screening, the return on investment ranges from $5-16, resulting from improved productivity, reduced absenteeism, lower turnover – and decreased employer liability. The United States Department of Commerce reports that 30% of all business failures result from theft or embezzlement and internal employee related thefts occur 15 times greater than external theft. Overall embezzlement losses exceed $4 billion every year and hence will justify for proper background screening policy in an organization.

Conclusion

The benefits of a comprehensive employment background screening include increased applicant quality, sustained employee reputation, reduced costs of hiring and training new employee, reduced workplace violence, reduced negligent hiring liability, reduced losses from employee dishonesty, making the right hire the first time, and avoiding negative publicity. The bottom line is that pre-employment background checks help an organization be more successful. That means greater profits to for-profit organizations and greater impact for non profits.

Disclaimer: The content of this post does not constitute direct legal advice and is designed for informational purposes only. Any issues regarding compliance and obligations under United States or International laws or regulations should be addressed through your legal department or outside counsel.