What Employers Need to Know About Conducting Background Checks

If you’re a U.S.-based employer, it’s likely that you routinely conduct background checks on your
prospective employees. According to a recent survey, at least 72% of all employers do so for
the purpose of protecting their companies. It’s an elective measure that you can use during the
hiring process or in the case of promoting or reassigning employees within your company, but
conducting an employee background check can do more than just offer you some peace of
mind. Sometimes, it can uncover serious red flags about a candidate that you wouldn’t have
caught otherwise.

Background checks conducted the right way can:

  • ensure workplace safety,
  • mitigate liability,
  • protect your company reputation,
  • determine the candidate’s professional eligibility, and
  • verify the candidate’s claims of experience and qualification.

But there’s a wrong way to investigate candidates, too, which can expose you to costly litigation
and fees. Understanding the federal laws and commissions that regulate the use of background
information for employment purposes will help you protect your organization from penalties
while allowing you to make informed, quality personnel decisions.

Employer and Candidate Rights

An employer has every right to require that their candidates undergo a background check, to ask direct questions about their qualifications in the interview process, and to make hiring decisions based on the information that they find. But they must do so while complying with certain federal, state, and municipal laws that are designed to protect applicants and current employees from discrimination.

These nondiscrimination laws are enforced by the Equal Employment Opportunity Commission (EEOC) while the rights of anyone subjected to a third-party background check
(including prospective employees) are protected by the Fair Credit Reporting Act (FCRA).

Before Conducting a Background Check

Here’s what you need to know about complying with the EEOC and FCRA before you even begin the process of conducting a background check:


In the investigative period of the hiring process, you are free to delve into the individual’s work and education history, criminal record, financial history, and even their social media presence
and habits. A standard employee background check covers all of these areas, but the EEOC mandates that if you are going to conduct a background check on any applicant, you must do so
on every applicant.

Just as it is illegal under EEOC guidelines to make adverse hiring decisions based on an individual’s status within a protected class, it is illegal to only conduct background checks based
on the same information: a person’s race, age, national origin, color, sex, religion, disability, or genetic information (including family medical history).

A few tips to protect yourself from accusations of discrimination at this stage, as outlined by the EEOC, are:

1. Have uniform policies in place that treat every candidate equally in the hiring process.

2. Don’t seek out or ask questions about a candidate’s genetic information. This information is further protected under the Genetic Information Nondiscrimination Act (GINA).

3. Refrain from asking questions about a candidate’s medical history before making a conditional job offer, and even post-hire, unless there is objective evidence that the individual cannot safely perform their job for medical reasons.


The Fair Credit and Reporting Act is enforced by the Federal Trade Commission (FTC), and outlines specific procedures and protocols that must be followed when working with a credit reporting agency (CRA), which is a third-party company in the business of collecting background information. Most, if not all, employers will work with a third-party company to conduct a comprehensive background check on their candidates.

Before you even begin the process of conducting a check, the FCRA requires that you to do following:

1. Make clear to the applicant that the results of the background check may be used to inform your decision to hire them. The notice must be in writing and provided in a document separate from an application for employment. You can include additional information on the notice, but you don’t want to confuse or detract from the core purpose of the notice.

2. If the background check will include an “investigative report,” you must notify the applicant of their right to a clear description of the scope and nature of the investigation and then provide such a description. An investigative report is a more subjective exploration of a candidate’s character, reputation, personal traits, and lifestyle.

3. Procure the applicant’s written permission to conduct the background check. This request for permission can be included in the notice described in item 1, which informs the applicant about the background check. If you want to establish an ongoing understanding that a background check may be requested at any time during the person’s employment with your company, you must make sure it’s explicitly stated in the notice.

4. If you are working with a third-party background screening company or CRA, you must certify with them that you: 1) have gotten permission from the applicant to run the report, 2) have made sure you’re in compliance with FCRA requirements, and 3)will not misuse the information or discriminate against the individual.

Reviewing the Background Report

Now that you’ve received the information you’ve requested, here’s what you need to know as you allow what you’ve learned to influence your hiring decisions:


Again, regardless of the source of the information, federal law prohibits you from using the information to discriminate. As a rule of thumb you should always:


  • Judge everyone according to the same standards. This means that if you decide not to reject an applicant of a one ethnicity despite certain financial or criminal histories, you must also consider applicants of other ethnicities who have the same or similar histories.
  • Pay close attention to and revise if necessary hiring policies and practices within your company that have, in legal terms, a “disparate impact” on certain protected demographics, and which are not “job related and consistent with business necessity.” This means that you must be careful not to follow policies that base hiring decisions on issues that may be more prevalent among individuals of a certain race, color, national origin, sex, or religion, and among those who have a disability or are aged 40 and older, and which aren’t a fair indicator of whether or not the individual will be an effective and safe employee.
  • If the report reveals a problem that is connected to an individual’s disability, be open to allowing the individual to demonstrate their ability to perform the requirements of the job. Unless doing so results in significant difficulty for your organization both financially and operationally, the candidate should not be automatically disqualified based on negative information that was directly caused by their disability.

The FCRA and Adverse Action

If your findings prompt you to take adverse action (the decision to fire an employee or not to extend a job offer to an applicant), the FCRA has outlined a certain protocol that must be followed to protect yourself from penalties:


  • Prior to finalizing any adverse action, you must provide the employee or applicant with:
    • a copy of the consumer report that informed your decision
    • a copy of a document called “A Summary of Your Rights Under the Fair Credit Reporting Act.” This document should have been made available to you through the screening company that provided the report.


By providing prior notice, a copy of the report, and informing them of their rights, the individual will have the chance to review, dispute, and/or explain the information in question. Should your decision remain unchanged, you must follow these steps:


  • After taking adverse action, you must provide the individual in writing, orally, or electronically with the following information:
    • that they were rejected for the position because of information revealed in the report
    • the contact information of the CRA or screening company that sold the report
    • that the third-party company is uninvolved in all hiring decisions and can’t provide further information on the adverse action
    • that they have 60 days to dispute the contents of the report and to request another report for free from the same third-party vendor
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