Employers beware: In-house background checks can cost far more than they save

By Nicole Sitter, courtesy of SBAM Approved Partner ASE

The employment rate in Michigan continues to rise (93.3% in November), and the vast majority (87% in 2012, according to a SHRM poll) of employers are including criminal background checks on at least some of their job candidates in their candidate screening practices. However, while a majority of employers in metropolitan Detroit outsource their background checks to consumer reporting agencies (such as ASE), some conduct their background checks in-house in order to save money.

Most hiring managers and HR departments that do their own criminal background checks do them via the Internet using public databases. There is nothing illegal, as such, in the practice; however, it leaves employers vulnerable to potentially costly liabilities they may not anticipate.

Besides saving money up front, these employers do not have to get written prior authorization from their candidates (or current employees) to do these checks. But this in turn means that the applicants and employees do not know the employer is making decisions based on what it finds in these public databases, and thus may not have a chance to dispute any of the information found in them.

An applicant who is not hired (or employee who is fired) based on incorrect information may choose to sue that employer, and will have more than one set of legal grounds to choose from. Any lawyer would be happy to help a client build a case around discrimination based on mistaken identity or invasion of privacy due to inaccurate reporting of charges.

Internet databases like Internet Criminal History Access Tool (ICHAT) and Offender Tracking Information Systems (OTIS) allow any user with a credit card to log in and search for data.  Similar searches can be run on sex offender registry sites and court house systems as well. However, most employers are not aware of the risks associated with these sites. Some of those risks are these:

When criminal information is missed due to user error, it leaves a company open to negligent hiring and vicarious liability (i.e., liability for the acts or omissions of its employees committed in the course of employement.)  When an employer uses non-conviction information in hiring decisions, it can be in violation of state law prohibiting use of such information, leading to invasion of privacy lawsuits.  It runs the same risk if it uses juvenile information, which likely would have been sealed or expunged.

Smaller companies in particular can suffer from these errors; in the spring of 2013 the Sandia Drilling Company filed for bankruptcy after losing a racial and discriminatory suit filed by multiple employees with the help of the EEOC. The EEOC is on the lookout for employers whose background checking processes are discriminatory, or where they can prove Negligent Hiring, Vicarious Liability, Disparate Impact/Treatment or Invasion of Privacy.

While the best way to reduce employer liability is by conducting background checks, the best way to conduct background checks is through a Consumer Reporting Agency. A reputable agency will not only save you considerable amounts of time by conducting all aspects of the investigation themselves, they will comply with state-specific laws, all Fair Credit Reporting Act (FCRA) and Federal Trade Commission (FTC) laws and guidelines. They will review criminal information through multiple levels to ensure that users are not receiving false-positive hits or non-conviction information.  Most importantly, they will reduce the user’s risk of being targeted by a negligent hiring or vicarious liability lawsuit, because the report itself will go a long way toward showing due diligence should a lawsuit arise. 

For more information on reducing your organization’s liability in conducting background checks, contact ASE’s Pre-Employment Services group at
248-223-8058. Be sure to mention you are an SBAM member.