Improper Use of Criminal Background Checks Could Cost You Millions
Criminal background checks can be an important resource for companies in evaluating candidates for employment. Background checks can assist employers in safeguarding their businesses, current employees and customers, while also limiting exposure to liability for negligent hiring. However, there is a growing movement to “Ban the Box” (i.e., banning questions on employment applications that require an applicant to disclose prior criminal behavior) that has materialized in various states and local governments severely restricting, or absolutely prohibiting, the use of criminal background checks by employers.
Over the past few years, the Equal Employment Opportunity Commission (EEOC) has challenged employers for their use of criminal background checks – finding that the estimated 30% of American adults with criminal records were unfairly being denied gainful employment. Lawsuits filed by the EEOC alleging discrimination, as well as class action lawsuits by individuals alleging violations of the Fair Credit Reporting Act (FCRA) relating to background checks, have resulted in significant settlements including a $3 million settlement announced recently involving a major supermarket chain, as well as a $1.75 million settlement, covering approximately 30,000 individuals, involving a popular restaurant chain.
No industry appears to be immune from this type of compliance action as over the past several years there have been many large settlements by a wide range of companies with the EEOC regarding the alleged discriminatory use of background checks and violations of the FCRA (e.g., $3 million settlement by a major beverage company, $3 million settlement by a major department store, $4 million by a nationwide retailer, $2.5 million settlement by a national pizza chain, $3.5 million settlement by a check processing company, $4.4 million settlement by a major transportation company and a $6.8 million settlement by another supermarket chain).
In addition to complying with the FCRA’s many requirements (e.g., obtaining proper authorizations to run credit reports, how those reports can be used and specific procedures employers must follow if information contained in the report influences any action), employers must also stay abreast of and comply with constantly evolving and expanding legislation resulting from the “Ban the Box” movement, which goes beyond simply prohibiting a question on an employment application. Moreover, employers with employees in multiple jurisdictions must monitor their employment practices and consider development of location-specific policies regarding criminal background checks.