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Dos and Don'ts for Employee Background Checks

Katharine Paljug

Before you start conducting background checks on new hires, be sure you are complying all federal and state screening laws and regulations.

  • The Fair Chance to Compete for Jobs Act of 2019, new IRS rules and several state-level regulations are among the new developments you should know about with employee background checks.
  • Background checks are legal if you follow certain rules.
  • Several states have passed laws limiting employers from accessing a person's medical records and checking their union status or conducting credit checks, salary checks, and drug tests.
  • This article is for employers looking to ensure that their background checking processes are legally compliant.

With so much information available online – some of it public and some that is accessible for a fee – looking into an employee's background can be confusing and potentially problematic for businesses. To help with the process, many businesses use a reputable background check provider.

Are social media profiles fair game? What about credit reports? Can a business require a candidate to take a drug test before making a hiring decision?

It depends, Tricia Meyer, the founder and managing attorney at Meyer Law, told Business News Daily.

"Pre-employment checks may consider information like drug testing, court records, credit records, character references, driving records, education records, etc.," said Meyer. Businesses may periodically check on this information for current employees as well.

The information that is legal for employers to access, however, depends on many factors, including the industry, whether the business is in the public or private sector, and in what state the business is located.

Here's what you need to know about the legality of vetting an employee's background.

[To stay compliant, you are best served hiring a background check service to conduct your screenings. Here are the top background providers we recommend.]

Background check laws that may apply to your business

Federal laws apply to all businesses, state laws, however, vary greatly. And if you do business in more than one state, it can become confusing to know which laws apply to your situation.

"The general rule is that the law of the state where the person works will apply over other choices, so if they are being interviewed in the state where the employee will work, that state's law will govern," said Meyer. "However, it is ultimately dependent on which state has the greatest interest in the situation. For example, if someone did the actual hiring, background checks all within a company’s headquartered state, then that state's laws would likely govern as the applicant's 'home' state would not come into play."

Meyer stressed the importance of following state laws during any hiring decisions to avoid complaints with the United States Equal Employment Opportunity Commission (EEOC), National Labor Relations Board or other federal and state agencies that govern hiring practices.

"If you are an applicant, make sure you know what protections and rules an employer should adhere to, and if you are an employer, make sure you take such state-specific laws into consideration during your hiring process," said Meyer. "Employers should review their hiring practices to ... make sure that decisions do not run afoul of any federal or state laws and are supported by requirements of the job."

Important federal and state background check laws to know include:

  • The Fair Chance to Compete for Jobs Act of 2019. This law, which goes into effect December 20, 2021, bans federal agencies and contractors from inquiring about a job applicant's criminal history until the applicant receives a conditional job offer. Limited safety exceptions exist.
  • New I-9 form. As of May 2020, employers must use the new Form I-9. All employees whom you hire must complete Form I-9 to verify their identity and confirm their employment authorization.
  • State marijuana screening laws. As of May 2020, New York City employers may not screen employees for marijuana or THC use, with extremely limited exceptions. Employers who violate this law can be prosecuted per New York City's discrimination and human rights statutes.

    Nevada employers may not use marijuana screening results to influence hiring or firing decisions. Additionally, Nevada employees can challenge the results of any marijuana screens administered during their first 30 days of employment.
  • State fair hiring laws. Maryland employers with at least 15 full-time employees cannot ask job candidates about their criminal histories before their first interview.

Employers in Grand Rapids, Michigan, cannot use criminal records, including non-conviction records, as a factor in hiring decisions. Grand Rapids employers who deny jobs to people with criminal records must show that targeted screens and individualized assessments revealed other reasons why the candidate was denied.

As of July 2020, no employer in Waterloo, Iowa, can research a job candidate's criminal history before a conditional job offer is extended.

  • State salary history bans. As of January 2020, private employers in New Jersey cannot ask a candidate for their salary history, benefits and other compensation-related matters pertaining to prior jobs.

Key takeaway: As an employer, you should be aware of provisions from the Fair Chance to Compete for Jobs Act of 2019, which prevents inquiring about a job applicant's criminal history; background check laws in your state; and you should use the updated Form I-9 to verify the identity and employment authorization of new hires.

Background checks: Legal, with conditions

Employers are allowed to commission or gather background information on current and potential employees, including criminal background checks. However, the  EEOC maintains strict rules governing the procedures employers must follow for conducting background checks and what information they can access. These rules specify that:

  • The employee must be notified in writing that the background check is being conducted and may impact their employment eligibility. This notification must be a stand-alone document separate from the employment application.
  • The employee must provide written consent to the background check.
  • If ongoing background checks are a condition of employment, a business must say so explicitly in its written policies.
  • If any personal interviews are conducted to learn about an employee's reputation, lifestyle or character, the employee has a right – and must be notified of that right – to a description of the nature and extent of these interviews.

Editor's note: Looking for the right background check service for your business? Fill out the questionnaire below to have our vendor partners contact you about your needs:

Between social media and online search, employers can access a great deal of information about potential or current employees without needing to employ a traditional background check. If information is publicly available online or easily found with a search engine, employees should expect that businesses can and will find it.

However, many states have rules in place to protect employees' privacy on social media sites.

"Employers are no longer allowed to request an employee's login information for social media accounts," Meyer said, adding that trying to bypass privacy settings is also not allowed. In the past, employers would often try to view accounts by creating a fake profile themselves or asking the social media company for access. "If a candidate has an account set to private, it's important that the employer not bypass their privacy rights."

Medical records: Legal, with limits

Unless their medical history directly impacts an employee's ability to do their job, such as when joining the military, medical history should not be part of a background check. The Americans with Disabilities Act (ADA) limits the medical information that an employer can legally gather during an interview or background check. The ADA makes it illegal for employers to discriminate in hiring decisions based on an applicant's medical history or disability status. [Read related article: ADA Requirements That May Surprise You]

The Fair Credit Reporting Act requires that an employer obtain written consent before requesting a worker's credit report. The FCRA is a federal law, so this consent is required in all 50 states. Some states, including Illinois, California, and Colorado, place additional limits on whether and when an employer can access a candidate's credit information. Some industries have exemptions, such as the trucking industry.

The FCRA also requires that employers inform workers if the information in their credit file is being used against them. If a business refuses to offer employment based on the information in a credit report, it must give that reason explicitly, along with the name, phone number and address of the credit reporting bureau that provided the information. This allows applicants to correct potential misinformation before a final hiring decision is made.

In some industries, such as manufacturing or nuclear energy, drug testing is a legally required safety measure. Most government jobs require the candidate to undergo drug testing. Some states limit drug testing to industries where it is required by law, while others require businesses to prove that drug use is a legitimate safety concern that therefore requires employee testing.

"Drug testing is typically up to the discretion of the employer and may be part of a comprehensive background check," said Meyer.

To be valid in court, drug testing policies must be written down, accessible to employees, and applied equally and consistently to all current or potential workers.

Potential employees can refuse a drug test as part of a background check. In some states, however, they can be denied employment for that refusal. Current employees can also refuse drug tests, but they can be fired for that refusal if testing requirements are spelled out in the employer's written policies.

In most states, asking an employee about their current or former union status is not a violation of the law. But, warned Meyer, it is almost always inappropriate, and in some states, it could cause legal trouble.

"Some state courts have found that … inquiries regarding union status or membership could be an unfair labor practice by the employer to discriminate in hiring decisions," said Meyer. In general, union activity is considered a protected right and should not be part of a background check.

Salary checks: Illegal in some states

Salary checks have recently come under scrutiny because of their effect on pay equity. Many state laws now limit whether an employer can check the previous salary to encourage equal pay for equal work. If an employer asks about a previous salary – which is currently or soon will be illegal in New York City, New Orleans, Philadelphia and all of Massachusetts – a potential employee is not obligated to reply.

Protected information: Illegal

Under Title VII of the Civil Rights Act, certain protected information should never be used to make a hiring decision.

Protected information includes age, race, ethnicity, color, sex, religion, national origin, disability, marital status and pregnancy. It is illegal for an employer to ask about these characteristics during a background check, interview or, for current employees, a performance review.

Given the information shared online, especially on social media, though, it is possible and likely that a business will accidentally learn about protected characteristics during other parts of a background check. However, it is illegal for this information to influence employment decisions.

Key takeaway: There are varying restrictions and limitations on credit checks, drug testing, medical record checks, salary checks and union status checks when conducting background screenings.

Additional reporting by Max Freedman.

Image Credit: Iamstocker / Getty Images
Katharine Paljug
Business News Daily Contributing Writer
Katharine Paljug is a freelance content creator and editor who writes for and about small businesses. In addition to Business News Daily, her articles can be found on Your Care Everywhere, She Knows, and YFS Magazine. Visit her website to access her free library of resources for small business owners.