SI Review: July 2013


Room for Error

Background checks help screen workers but could also expose employer to liability

By Eric H. Rumbaugh

The most common rationale for conducting background checks is that employers and staffing agencies face liability if they do not. If a business engages someone who ends up harming someone else, the business faces potential liability. Liability depends on whether the business was negligent, and the elements of a claim of negligent hiring or supervision vary from state to state. But not all screening practices are equal.

Along with ensuring job qualifications, the use of background checks can help protect an employer against liability for negligent hiring, supervision or retention. At the same time, these policies may also expose an employer to liability if they run afoul of the Equal Employment Opportunity Commission (EEOC)’s guidelines.

Disparate Impact

One way in which this can happen is if the use of such a policy results in a disparate impact upon identifiable groups of applicants or employees. Clients often supply staffing companies with screening criteria. Both entities face liability, and if they have not done so recently, should re-visit their background check policies immediately.

Some states outlaw discrimination based on arrest or conviction records. The EEOC, meanwhile, sees criminal record charges and credit checks as a form of race discrimination. According to new EEOC Guidance issued in April 2012, employers’ use of criminal records can give rise to both disparate treatment and disparate impact claims. Disparate treatment may occur if an employer rejects an applicant with a criminal record and hires another applicant with a similar criminal record if the rejected applicant belongs to a protected class and the hired applicant does not. In other words, two individuals may have similar criminal records, and treating those individuals differently may be discriminatory.

According to the EEOC, if an employer’s facially neutral policy has a disparate impact, the employer must show that the policy is job-related and consistent with business necessity. The 2012 guidance includes a detailed discussion of the three factors relevant to the job-related/business necessity defense (i.e., the nature of the offense, the amount of time since the offense was committed and the nature of the job), as well as several examples of employment practices that the commission argues are discriminatory. The 2012 guidance also outlines best practices for employers.

The EEOC recommends that employers implement a “narrowly tailored” written policy and procedures for screening applicants and employees for criminal conduct. The EEOC’s recommendations regarding contents of these policies and procedures are loosely drawn from the three factors it looks at to determine business necessity: the nature of the job (including the job requirements and actual circumstances of work); the specific criminal offenses that may demonstrate unfitness for the job; and the duration of exclusions for criminal conduct (i.e., what conduct is too old to be relevant?). The EEOC also recommends recording justifications for the policies and procedures that are implemented, and recording “consultations and research considered in crafting the policy and procedures.”

Nevertheless, it is important to note that the guidance is not law — it is the commission’s enforcement position, which is not always upheld by courts. Therefore, refusing to follow some or all of the recommended best practices in the guidance might not necessarily result in liability, although it might result in a reasonable cause finding or litigation brought by the EEOC against an employer.

Matters get trickier when an employer uses a third party to assemble background information on applicants or employees, because the Fair Credit Reporting Act (FCRA) is likely implicated. Despite its name, the FCRA covers most employment background checks, including criminal record checks, even if a “credit” check is not involved. The FCRA requires certain disclosures to be given and authorizations to be obtained from an applicant/employee prior to the collection of background information; it also requires employers to provide notice to an applicant or employee prior to and after taking an adverse action based upon information contained in a background report (including arrest, conviction or credit information).

Even if background checks do not have a disparate impact on any protected group, they can still create liability. Some employers are unknowingly violating the FCRA every time a person applies for employment. Employers should regularly review their FCRA forms and practices, as many employers (even the sophisticated ones) regularly make FCRA mistakes.


The filing of two major cases involving background checks confirms the EEOC’s renewed focus on this area of the law.

In EEOC v. Freeman, filed in 2009, the EEOC alleged that a company engaged in nationwide pattern of unlawful discrimination based on background checks. Specifically, the EEOC looked at poor credit history (affecting African-American applicants) and criminal history (affecting African-American, Hispanic and white male applicants). The EEOC investigation was triggered by a single complaint from an African-American woman who alleged the company discriminated against her based on credit history. The case is ongoing.

Another major case involving background checks is EEOC v. Kaplan Higher Educ. Corp., filed in May. In that case, the EEOC alleged that the employer’s use of credit reports in its hiring process had an unlawful disparate impact on African-American applicants. After the defendants successfully excluded the EEOC’s expert, they moved for summary judgment and won. The court recently denied the EEOC’s motion for reconsideration of the decision. The Kaplan case does not represent a vindication of background checks, though, as the EEOC lost because of courtroom mistakes. Employers should still expect vigorous litigation in this area.

Backbround Checks and Staffing Agencies

Background check suits are not brought solely by the EEOC, and, as shown by the following examples, they can involve staffing firms.

In the 2010 case Lamdin v. Aerotek Commercial Staffing, et al., a staffing firm terminated a worker allegedly based on the results of a background check. The background check report allegedly contained false information, including inaccurate statements that the worker had been convicted of a felony and had served jail time. However, the court ruled that the worker could not sue the staffing firm under the FCRA because the staffing firm was not a consumer reporting agency.

In Henderson, et al. v. MDT Personnel LLC, filed in 2011, the plaintiffs filed putative class action against the temporary staffing firm after they were denied employment. The staffing agency procured consumer credit reports on the plaintiffs from an outside agency and informed the plaintiffs that they were not eligible for employment based on the reports’ indications that the plaintiffs had criminal records. The plaintiffs alleged that the staffing agency violated the FCRA by failing to provide copies of their consumer reports and a written description of their rights under FCRA or an opportunity to dispute the accuracy of the information in the reports. The court denied the staffing agency’s motion to dismiss and allowed the case to proceed.

In Keen v. Miller Envtl. Group Inc. (2012), the plaintiff sued a staffing firm and its client company for negligent hiring of another worker who was assigned by the staffing firm to the same client company. The plaintiff fell ill one day and the contingent worker offered to drive her home. She alleged that the worker sexually assaulted her after driving her home. (A grand jury later declined to indict the worker.) The contingent had stated in his application that he had no criminal history, and he signed a consent for the staffing firm to conduct a background check. The staffing firm, however, hired the worker allegedly without ever performing the background check, and the worker turned out to have a lengthy criminal history.

The plaintiff sued for negligent hiring, arguing that Mississippi imposed a duty on employers to conduct criminal background checks. She also argued that the staffing firm and the client company breached self-imposed duties to perform background checks. The court found that case law across the country shows that employers do not have a general duty to conduct background checks on all new hires, regardless of circumstances, and the particular facts of the case did not impose a duty to conduct a background check. Turning to the issue of internal policies, the court found that in Mississippi, non-compliance with an internal policy is not dispositive of a breach of duty. Therefore, the failure to perform a background check was not dispositive evidence of a breach of duty by the staffing firm or the client company. Accordingly, the court affirmed summary judgment in favor of the staffing firm and the client company.

Background checks create challenging issues for employers and staffing agencies. Both staffing agencies and their client companies can have legitimate interests in screening their workers to ensure job qualifications and to help protect against liability for negligent hiring, supervision or retention. Nevertheless, some screening practices may attract scrutiny from the EEOC and expose an employer to liability. It is essential for staffing firms and client companies to be aware of and remain in compliance with any applicable state or federal law that may be implicated by use of arrest or conviction information, or credit checks, in making employment decisions.

Eric H. Rubmbaugh is a partner with Michael Best & Friedrich LLC. He can be reached at


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