The Background Check Compliance Checklist

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Compliance Risksfor Background Check

Providers

5 Emerging

There has never been more demand for employment background checks than today.

Companies are competing fiercely to land top candidates for open positions. At the same time, they want to avoid problem applicants that look great on paper — but who have serious red flags in their history that could cause problems for the company in the future.

That’s where you come in.

You provide background checks that are:

Put a different way, you provide employers the data they need to make informed decisions.

The problem is: the rules that govern how you gather and deliver background data are changing fast.

Introduction

Complete

Accurate

Timely

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An Example: A $13 Million FineTo mention just one example, consider the $13 million fine recently levied against General Information Services (GIS) for violating the Fair Credit Reporting Act (FCRA).¹

GIS was penalized because it:

A Changing MarketFrom the growing ban-the-box movement to rapid advances in technology, our industry is going to look very different in five years.

In this paper, we’re going to look at five emerging compliance concerns facing all background check providers in a rapidly-changing market.

The background-check market is changing rapidly, creating new compliance

risks for everyone in the industry

Failed to take basic steps to ensure accuracy.

Provided impermissible information in consumer reports.

These are just two of many areas where lack of compliance can get a company in trouble.

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Spokeo Judgment Has Not Stopped FCRA LawsuitsSpokeo did little to make FCRA-related lawsuits less attractive to litigators seeking major class-action judgments.

According to legal experts, Spokeo made it somewhat more difficult for plaintiffs to demonstrate standing in an FRCA-related case, but little more.²

The effect? Companies are just as much at risk for FCRA-related lawsuits as they were before Spokeo. And so are background check providers.

The background check industry is well aware of the spike in lawsuits related to the Fair Credit Reporting Act (FCRA) in recent years.

There was hope, however, that legal cases such as Thomas Robbins vs. Spokeo would stem the tide of lawsuits.

Unfortunately, that doesn’t appear to have happened.

Emerging Risk #1Post-Spokeo, the Risk of Litigation Remains High

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Emerging Risk #1Post-Spokeo, the Risk of Litigation Remains High

1. FCRA Will Continue to Create a ‘Target-Rich’ EnvironmentThe structure of the FCRA provides ample opportunity for litigators seeking potentially huge settlements from class-action lawsuits with large pools of claimants.

This creates a “target-rich” environment for attorneys and plaintiffs looking to sue employers and the background check providers on which they rely.³

2. FCRA Litigation Will Become More WidespreadThe FCRA’s target-rich environment has driven a surge of interest in the law — especially among attorneys working with plaintiffs to seek damages.

Both employers and background check providers should expect the legal risk created by the FCRA to remain high.

3. Companies Will Continue Making MistakesIn recent years, many large, well-respected companies have been sued under the FCRA, including:

Even government agencies are at risk, as shown by a $15 million settlement paid by the U.S. Census Bureau to settle an FCRA-related lawsuit related to their employment practices during the 2010 census.³

As long as employers continue to make FCRA-related mistakes, expect litigators and plaintiffs to continue lining up to sue them in search of multi-million dollar settlements.

Moving forward, expect several trends continue:

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For background check providers, the message is clear: the risk of lawsuits under the FCRA and other legislation shows no sign of slowing.

If it’s not already a focus in your company, now is the time to examine everything you do in your company— every data source, every reporting practice, and every disclosure — to remain compliant.

That includes evaluating the providers you partner with to gather the data you provide in your background checks.

It’s vital that you have a clear understanding where every piece of data comes from, how it got there, and whether or not it should be included in the background checks you provide to customers.

Action Steps

The number of lawsuits filed under the FCRA and other laws shows no sign of slowing. It’s vital you evaluate every source

of data you include in your background reports for compliance

Litigators are just looking for reasons to sue companies. We recently discovered a trade association that was hold-

ing a seminar solely to train people how to file class-action lawsuits against employers under the FCRA

Dawn StanderwickVice President Strategic Growth

Employee Screening Resources (ESR)

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�Emerging Risk #1

Post-Spokeo, the Risk of Litigation Remains High

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In addition to federal laws, local, city, and state governments across the country are taking action to change what information companies can (and can’t) use during the hiring process.

While each law is well-meaning, the result is a patchwork of laws employers must track — and with which they must comply.

For employers operating in more than one location, this patchwork of laws complicates every hire made in the organization, since different laws will be in force.

For example, here are just a few of the local and state governments that have passed laws in recent years:

Compliance Concern #2Growing Patchwork of Federal, State, and Local Legislation

New York CityAll employers with at least four employees are now prohibited from making any inquiry into a job applicant’s criminal history until after a conditional offer of employment has been extended to that applicant.4

San FranciscoThe city has begun enforcing a series of rules for what criminal matters an employer can consider at any stage of the employment process.5

CaliforniaThe state now restricts employers from asking applicants about criminal convictions that were judicially set aside.8

TennesseeThe state now provides some protections for employers who hire employees with a criminal background.6

IndianaThe state now restricts background check firms from reporting some types of criminal history information to employers.7

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The above is only a small sample of the many laws currently in force across the country. As time goes on, you can expect more cities and states to pass laws that restrict what you can do with the data you collect for employment background checks.

Compliance Concern #2Growing Patchwork of Federal, State, and Local Legislation

More Changes Are Certain

Changing laws at the state and local level will continue to create

compliance challenges for background check providers

If you do not have a process in place for monitoring changes to local, state, and federal laws surrounding employment law, now is the time to start.

You should also review any sources you use to gather data for background checks you provide to customers—and make sure they remain compliant with ever-changing laws.

Action Steps�

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1. Staying Compliant When Working With ContractorsFreelancers and contractors now make up 35 percent of the U.S. workforce and in the next 5-10 years, the number is expected to rise even more, perhaps as high as 50 percent.9

The rise in contract work does not mean employers will stop running background checks. It does, however, mean the rules about how you can use background check information become less clear, since contractors may not have all the same legal protections as employment candidates.

2. Working With Employment AgenciesAs a background check provider, you may provide reportsto a staffing agency with the expectation that the data will be kept private.

But there is a third party involved: the staffing company’s client.

Is the staffing company sharing your background check data to outside parties? If so, that could potentially put you at risk of a lawsuit.

The U.S. workforce is changing. The way companies hire workers is changing too.

Employees change jobs more often than ever before, and more people than ever are working as freelancers or contractors.

Many employers have turned to employment agencies and staffing companies to help them manage employment needs.

Compliance Concern #3A Changing Workforce Exposes Background Check Providers to Additional Risk

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Compliance Concern #3A Changing Workforce Exposes Background

Check Providers to Additional Risk

Complex business relationshipsand the rise of contract work will continue to

create compliance risks

If you do not have a process in place for monitoring changes to local, state, and federal laws surrounding employment law, now is the time to start.

You should also review any sources you use to gather data for background checks you provide to customers—and make sure they remain compliant with ever-changing laws.

Action Steps�

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Employers are looking to background check providers to provide completely “compliant” product and solutions.

This is a change from years past, when many background check providers simply compiled information and provided it in a report — leaving compliance issues mostly to the employers.

Today, employers want background check providers to shoulder the burden of compliance as much as possible.

If one of your customers gets sued for misuse of background check data, the first thing they’ll often do is come to you and say, “I thought you said your reports were compliant!”

To stay competitive, your company must become better at providing companies with the information they need and the compliance they’re seeking.

Your job isn’t just to dig up data anymore. It’s also to:

Keep track of the changing legal landscape

Provide data your customers can legally use at the time of the request.

Provide additional data as the candidate moves through the process. For example, by providing a criminal background check only after a provisional offer has been made to a job prospect where needed.

Compliance Concern #4Employers Are Relying on Background Check Providers for Compliant Solutions

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Compliance Concern #4Employers Are Relying on Background

Check Providers for Compliant Solutions

Your customers are looking to you to provide “compliant” products and services. If they get sued, the first thing they’ll do is ask why your reports got them in trouble

To stay competitive, put a process in place to ensure every action you take helps to maintain that compliance — both for you and for your customers.

Action Steps�

Everything related to hiring is getting more complex as we go. It’s more than some employers can keep up with. That’s

why credit reporting agencies are being asked to offer compliant, fully-integrated solutions for their customers.

William SimmonsEmployment Law Litigator and Advisor

Littler Mendelson

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Technology in the background check industry has evolved rapidly over the last few years. From automation to artificial intelligence, the progress of innovation is expected to continue.

In addition, as more public data sources upgrade the way they store and provide data, modern technology will be essential to help you gather that data — and stay compliant in the process.

As a whole, technology is a tremendous opportunity for background check providers.

Companies that use modern technology are much better prepared to meet their customers’ demands for compliant, fully-integrated solutions.

They can provide those services with less risk and for less cost than they ever could using the manual processes and multiple systems of the past

Compliance Concern #5Rapidly Changing Technology and Automation

As artificial intelligence and big data grow, there will be tools available ten years from now that we can hardly

imagine today. While this influx of technology will contrib-ute to data fulfillment decreasing in importance, at the

same time, the legal, regulatory, and litigation environment will grow dramatically.

Lester RosenFounder and CEO, Employment Screening Resources

Author of The Safe Hiring Manual

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1. Retain & Produce Documents On Demand for Compliance Audits or LawsuitsThe current ability to create and preserve a paper trail is completely unprecedented. In the past, if you were audited or sued, finding documentation from an old background check could take hours — if not days. Today, technology lets you pull the full paper trail of a background check with just a few clicks.

2. Adjust How Disclosures and Authorizations Are DisplayedWhether on paper or a website, disclosures are essential during the hiring process. The difference today is that you can easily track whether someone received a disclosure or not, based on computer activity. Disclosure information can then be instantly fed into a candidate’s file, where it will be stored securely should there be a disclosure question in the future.

3. Automatically Produce and Send 1681b or 1681k DocumentationModern systems can automatically produce and send documents such as the 1681b or 1681k. Like the disclosure trail, the system automatically records all actions taken and keeps them on record for future reference — providing a much better paper trail for these key documents than was possible in the past.

Technology can help you do what you simply couldn’t do even five years ago, including:

Compliance Concern #5Rapidly Changing Technology and Automation

Technology will make the background check industry look very different in five

years than it did today

Evaluate the technology you’re using. If you’re doing anything that we mentioned above manually, there’s room for improvement in your company — and a risk that the competition will pass you by.

Action Steps�

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If there’s one thing we want you to take away from this white paper, it’s this: things are changing in the background check industry.

Trial lawyers are looking for any excuse to file a class-action lawsuit against you.

Employers are looking to you to be an expert on the subject of compliance.

Technology is advancing, helping companies stay competitive in the midst of all these changes.

This is a time to be proactive — to take steps to position your company to thrive in this new and ever-changing environment.

Recap & Conclusion

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¹ Consumer Finance Protection Bureau. CFPB Takes Action Against Two of the Largest Employment Background Screening Report Providers for Serious Inaccuracies

² Employment Screening Resources. FCRA Lawsuits Will Remain a Potential Threat to Employers After Supreme Court Decision in Spokeo Case

³ Employment Screening Resources. FCRA Lawsuits Will Continue to Increase in Target Rich Background Screening Environment in 2016

4 DLA Piper. Employers beware: New York City’s new “ban-the-box” law takes effect this October

5 San Francisco Office of Labor Standards Enforcement. Fair Chance Ordinance (FCO)

6 Employment Screening Resources. Two New Tennessee Employment Laws Take Effect July 1

7 Nolo. Employer Use of Arrest and Conviction Records in Indiana

8 Littler. New California Laws Restrict the Discretion Employers Have to Inquire Into and Use Criminal Record Information

9 Forbes. Freelancers Now Make Up 35% Of U.S. Workforce

¹0 PreemploymentDirectory.com. Les Rosen, author, The Safe Hiring Manual

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Notes, Links, Research

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