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Proceed with Care on Employee Background Checks


Financial institutions, perhaps more than other employers, are understandably concerned about the backgrounds of applicants and employees.

Background checks, however, must be conducted properly to avoid violations of federal and state employment laws.

This in mind, a few guidelines are in order to assist Missouri banks in complying with applicable employment laws when conducting background checks. As always, individual circumstances may require thorough legal analyses, so it is also always a good idea to consult employment counsel when planning how to conduct and use background checks.

Establish A PolicyBanks should establish internal policies and procedures for background checks to ensure consistency. In particular, banks should identify positions that require background checks, the type of background checks to be conducted, when such checks will be conducted, who will conduct such checks, and who will have access to the results.

Regardless, background checks should be conducted consistently -e.g., for all applicants, all interviewed applicants, or all applicants given offers – to avoid discrimination claims. Equally important, access to the results should be limited, either to a bank’s human resources professional or other managers responsible for employment decisions. Further, the results should be kept in a separate file, distinct from an employee’s general personnel file.

The FDIC provides additional guidance on developing policies and procedures for background checks at (”Pre-Employment Background Screening Guidance on Developing an Effective Pre-Employment Background Screening Process”).

Ensure Compliance In Obtaining Formal Background Checks

Background checks conducted by third-parties on behalf of an employer are regulated by the federal Fair Credit Reporting Act (”FCRA”). Specifically, the FCRA regulates the use of ”consumer reports” and ”investigative consumer reports.” In the employment context, consumer reports include all communications (written, oral, or otherwise) from a third-party reporting agency regarding an individual’s credit worthiness, character, and reputation collected and used as a factor in assessing an applicant or employee for ”employment purposes.”

The FCRA mandates that employers may not obtain a consumer report until: (a) the employer has provided the applicant or employee with a written disclosure that a consumer report may be obtained for employment purposes; and (b) the applicant or employee has provided written authorization to obtain a credit report.

Further, if the employer seeks an investigative consumer report, the disclosure must indicate that the report may include information on an applicant’s reputation and criminal, driving, or work history.

Given these requirements, the best practice is to obtain written authorization at the outset from applicants or new employees – so that the authorization will be on file. Further, the best practice is to provide a written summary of legal rights under the FCRA at the same time – a document available from the Federal Trade Commission (”FTC”) at http://www.ftc.gov/os/2004/07/040709fcraappxf.pdf. Finally, based on FTC guidance, written authorizations used for subsequent or follow-up background checks (such as when an employee is considered for promotion) should not be more than two years old.

Ensure Compliance In Conducting Informal Background Checks

In addition, it is becoming increasingly common for employers to ”Google” applicants’ names as part of the evaluation processes. While the FCRA and other employment laws are silent on these practices, such checks carry certain risks.

Employers conducting Internet searches on applicants and employees must be very careful to pursue and consider only lawful criteria – such as demonstrations of judgment and verification of information provided on an application.

Act On Background Checks

A few steps can minimize the potential liability from taking an adverse action against an applicant or employee based on a background check.

1. Before taking any action based on information contained in a consumer report (such as denying or terminating employment), assess the type of information being considered. The bankruptcy code, for example, prohibits employment discrimination based solely on an individual filing for bankruptcy.

2. Before taking any action based on information from a consumer report, the FCRA requires employers to provide the affected individual with (a) a copy of the report and (b) a written summary of legal rights under the FCRA.

3. Before taking any action based on information obtained through an Internet search, carefully consider whether the information relates to a protected category or conduct.

4. Before taking any action, assess whether the action is consistent with prior practices. A simple check of consistency can often prevent claims of unlawful discrimination.

5. After taking action based on a consumer report, the FCRA requires each employer to notify an individual of the action and provide the following information: (a) name, address, and telephone number of the consumer reporting agency; (b) a statement that the agency did not make the decision regarding the action and is not aware of the reasons for it; and (c) a statement that the individual may obtain a free copy of the report from the agency and dispute the accuracy of any information. For rejected job applicants, this can most easily be completed by enclosing copies of the report on which the decision was based with a brief rejection letter.

6. Finally, when in doubt, whether before or after taking action, it often makes sense to consult with counsel well-versed in employment law to avoid costly litigation.