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A Better Partnership


Dec 2015
December 09, 2015

Avoiding the Minefield of Pre-Employment Background Checks

Every employer wants a safe, qualified and trustworthy workforce. Pre-employment background checks have traditionally helped employers achieve this objective. But under the Obama administration, government agencies have accelerated enforcement efforts regarding background check violations. Employers who conduct background checks must be sure of two things: first, that their information-gathering doesn’t have a disproportionate effect on minority applicants; and second, that their information-gathering complies with the Fair Credit Reporting Act (FCRA).  

Avoiding Disparate Impact

Many policies put in place by employers are “facially neutral,” meaning that, as written, the policy does not single out any particular group for discriminatory treatment. But, even a facially neutral policy (such as an employer’s decision to run background checks on job applicants) may have an inadvertent disparate impact on minority applicants. Disparate impact means that a policy or practice has a disproportionate impact on a protected group. For example, requiring job applicants to be able to lift a certain weight may have a disparate impact on women. If the employer cannot show that there is a legitimate business necessity for the policy, the employer may face a legal challenge to its policy. Accordingly, employers must be careful that their policies don’t disadvantage one group over another without a legitimate business reason. Examples of policies that are often challenged for disparate impact include physical strength requirements, minimum education requirements, pre-employment testing results and criminal background checks.
Recently, BMW paid a sizeable sum to settle claims involving background checks. BMW switched logistics contractors at a South Carolina production facility. After the switch, BMW required the new contractors to run background checks on all existing employees who wanted to continue working at the facility. As a result of these background checks, Black employees were disproportionately barred from continuing work at the facility. Approximately 80% of the incumbent workers who were disqualified as a result of these background checks were Black. The EEOC challenged the practice and BMW agreed to pay $1.6 million to settle the claims and to undergo training and reporting requirements to prevent similar issues from arising again.

But in EEOC v. Freeman, a federal appeals court chastised the EEOC for its overly aggressive pursuit of these types of cases. There, the EEOC brought suit against an employer who conducted criminal and credit history checks, alleging that both had a disparate impact because they disqualified Black applicants at a higher rate. The trial court disagreed, finding that the EEOC failed to show a statistical effect on Black applicants. On appeal, the appellate court held that the EEOC’s reliance on unsound data and analysis rendered its conclusions about the employer untrustworthy. The appeals court also cautioned the EEOC against abusing its authority, noting that the agency could “face consequences” for continued overzealousness. Although the employer prevailed, it did so only after years of costly litigation.

To avoid a disparate impact claim, employers should take special care when basing employment decisions on factors learned through background checks. In short, if a background problem is more commonly found in people of a particular protected class (e.g., race, color, national origin, gender), even a facially neutral background check policy may prove problematic unless there is a legitimate business justification for the policy.

Observing the Fair Credit Reporting Act

From its title alone, many employers assume the FCRA deals only with traditional credit checks. In reality, however, the FCRA covers much more. The FCRA places strict requirements on employers whenever a “consumer report” is obtained for employment purposes. Consumer reports include such things as educational histories, employment histories, driving records, criminal background checks and can even encompass reference checks if those checks are performed by a third party.

Many employers choose to use third-party vendors to perform background checks. Although there is nothing wrong with this approach, if a third-party vendor is used, the FCRA requires an employer to:
  • Provide separate, advance written notice to the applicant or employee;
  • Get the individual’s authorization to obtain the information;
  • Certify to the third-party vendor that the employer is in compliance with the FCRA;
  • Provide a pre-adverse action notice and additional documentation to the individual before taking an adverse action (such as denying employment) based in whole or in part on the report;
  • Give the individual reasonable time to correct or explain information in the report prior to implementing any adverse action; and
  • Provide to the individual an adverse action notice containing specific information.
Failure to comply with the FCRA can expose employers to enforcement action by the government or a private cause of action by the applicant or employee. These violations arise even where the FCRA violation is purely technical. This year, Home Depot settled a class action lawsuit for $1.8 million for the technical FCRA violation of improperly including extraneous language in its background check authorization form. In September, Whole Foods paid a settlement of approximately $800,000 for a similar technical violation.

In short, FCRA compliance is complicated and employers must carefully navigate it to avoid liability. If you need help navigating the FCRA maze or evaluating your other hiring policies and procedures, please contact anyone in our Labor and Employment Law Practice Group.   

A Few Background Check Best Practices to Consider
  • Inform the applicant in advance of background checks.
  • Disclose any third-party agency used.
  • Disclose decisions made based on third-party reports.
  • Apply the same standards to all applicants in the same job classification.
  • Avoid categorically refusing to hire applicants with a criminal record.
  • Consider whether “ban the box”* laws apply.
  • Never ask about medical history.
  • Don’t make decisions that disadvantage one group of applicants based on status.
  • Preserve collected information for at least one year.
  • Dispose of collected records securely (by shredding, burning, etc.).
  • Be sure to comply with state and local laws.
*Ban the Box

Throughout the year, President Obama has called on employers to eliminate the criminal history question from job applications. As of today, 19 states have complied. Although Michigan has not yet followed suit, many county and city governments – including Detroit, Kalamazoo, Ann Arbor, East Lansing, Genesee County and Muskegon Country – have taken their own steps to “ban the box.”


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