Outsourcing Background Checks - Brief Article

HR Magazine, March, 2001 by Charlotte Garvey

Third-party background checks can shield you from lawsuits, but they don't offer complete protection. Here are tips that can further limit your exposure.

You've heard the horror stories: A company rushes headlong to fill a position without conducting a background check. Later, calamity strikes and the company learns it hired a dangerous individual into a sensitive position.

To avoid workplace disasters involving theft, violence and fraud--and the legal repercussions they can bring--many HR professionals hire outside screening companies to help them discover any skeletons in the closets of potential employees.

While using a third party for such checks can provide practical and legal advantages, the legal protection afforded employers is far from complete. It is akin to having a shield that protects your head and torso, but leaves your legs exposed. As long as you recognize this--and act accordingly--the shield provides a benefit. But the moment you assume you are better protected than you actually are, you open yourself to the possibility of being lanced by a lawsuit.

The Benefits of Using Outsiders

Hiring a third-party investigator buys your company more legal protection than if you perform your own investigation, according to Mike Coffey, a Texas-based former HR manager turned background investigator. The Fair Credit Reporting Act (FCRA), the primary federal statute governing third-party background checks, provides limited legal immunity to employers who hire third-party investigators. (The act also protects investigators themselves and anyone who provides them information.)

This legal immunity applies to suits alleging defamation, invasion of privacy or negligence in connection with the investigation. There is no comparable immunity for employers who conduct their own investigations, says Coffey.

In addition to FCRA liability protections, there are other advantages to farming out pre-employment checks. "Companies today don't really have the facilities to do their own background checks," says Barry Nadell, president of InfoLink Screening Services Inc., Chatsworth, Calif. And "references are just not enough," he says. "You need to dig deeper into a person's background."

Doing some checks in-house can save employers money, but "finding the expertise is always the trick," says Coffey--particularly when searching for legal information that may be hidden in dusty record books stacked in county courthouses. For applicants who have lived in multiple counties or states, investigators may need to conduct numerous courthouse checks, so "it becomes a cost tradeoff issue," says Coffey, president of Coffey Consulting in Fort Worth, Texas.

In addition, using a third party may give applicants a greater sense of privacy and dispel the impression that possible future co-workers are prying, says Les Rosen, president of Employment Screening Resources, Novato, Calif. Rosen says many large companies outsource checks on professional credentials and educational background as a way of demonstrating that all applicants are handled objectively.

Notification and Consent

The legal protection gained by using a third party is not absolute. HR still must take certain steps to minimize legal liability.

For example, under the FCRA, employers are obligated to notify applicants and employees before requesting background information on an individual's "credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics or mode of living." This is the case whether the background check is conducted internally or externally.

In general, applicants must be notified in writing that a background check will be conducted, and they must sign a form consenting to it. "The golden rule is, 'Nothing gets done without consent,'" Rosen says.

Some third-party vendors provide clients with disclosure and authorization forms. FCRA interpretations from the Federal Trade Commission (FTC), which administers the law, suggest that disclosure documents can include requests for such additional information as birth date, Social Security number, driver's license number and current and former addresses, says Coffey. Having such information can ensure the accuracy of the background check and can reduce the time and expense of this process.

Dealing with Negative Information

HR professionals also have legal hurdles to overcome when background checks turn up negative information on lob applicants. In such cases, HR managers should make sure they comply with the law to minimize their legal risks when acting on this information, experts say.

First, employers should review the information and be sure it is FCRA-compliant. For example, the FCRA requires that all data based on public records--such as criminal dispositions and motor vehicle records--be accurate and up to date. Moreover, information involving civil suits and judgments that is more than seven years old must not be included in a report. This requirement potentially excludes data gathered periodically through Internet-based database services. (For more information, see "Screening Your Screening Provider" on page 104.)