Background Check Alphabet Soup Creates Nightmares
by William J. Simmons
A Philadelphia employer conducting background screening may soon have to navigate no less than six federal, state and local laws. Other jurisdictions also have background-check related laws, creating an even larger headache for multistate employers.
Law firms conducting background checks on their own workforces and lawyers who advise employers on hiring must recognize the pitfalls the patchwork of laws cause. This article describes key traps caused by the “alphabet soup” of Pennsylvania background check laws:
The federal Fair Credit Reporting Act (FCRA);
The Pennsylvania Criminal History Record Information Act (CHRIA);
The Pennsylvania Human Relations Act (PHRA);
The Philadelphia Fair Criminal Record Screening Standards Ordinance (FCRSS);
The Philadelphia ordinance that added credit check prohibitions to the Philadelphia Fair Practices Ordinance (FPO); and
The Philadelphia ordinance banning inquiries about applicants’ salary histories (SHO—for salary history ordinance).
The FCRA regulates employers who use a consumer reporting agency to conduct background checks. The FCRA is not limited strictly to “credit” checks. It also covers education and employment verifications and criminal record searches performed by a consumer reporting agency. The key initial requirement for most employers is informed consent. The employer must obtain written authorization for the report. It also must “clearly and conspicuously” disclose in a “document consisting solely of the disclosure” that a consumer report will be obtained for employment purposes.
If the employer wants to reject a candidate based on the report, however, it must provide “pre-adverse action” and “adverse action” notices:
The employer must provide a copy of the consumer report and a proscribed notice of federal rights before any final decision is made based on the report; and
If the employer finally determines to reject the candidate based on the consumer report, the employer must provide written notice that the decision was made “in whole or in part” on the report in a letter with certain mandated language in 15 U.S.C. Section 1681b(b)(3).
Lawsuits over the last five years have raised compliance questions based on stretched readings of the otherwise-simple-sounding law, such as:
What is the proper content of a FCRA disclosure? Neither the law nor the regulators have provided a “safe harbor” form. Recent class action cases have alleged millions of dollars of statutory damages based claims that an employer’s disclosure form allegedly contained a few sentences that purportedly did not “solely” relate to the fact that a consumer report would be obtained. The U.S. Court of Appeals for the Ninth Circuit held that even a single sentence of “release” language in a disclosure willfully violated the law.
What is the possible adverse action that triggers the duty to provide a pre-adverse action notice? Some plaintiffs now allege that even an internal decision to mark a candidate ineligible is itself an adverse action (not just, for instance, when the candidate is informed will not get the job). Others challenge the use of consumer reporting agencies to deliver pre-adverse action notices or help them adjudicate report results. The claim is that the adverse action occurs when the agency applies employer guidelines to interpret negative results on the report.
The CHRIA requires that employers only deny applicants jobs based on misdemeanor and felony convictions if those convictions “relate to the applicant’s suitability for employment in the position for which he has applied.” The CHRIA also mandates written notification when rejecting an applicant based on criminal records.
Importantly, CHRIA also applies to background checks not regulated by FCRA, such as where the employer checks criminal record histories itself through the Pennsylvania State Police or court records, rather than via a consumer reporting agency.
Litigation has raised questions about the CHRIA’s interpretation such as:
Does the law apply to current employees or just applicants? What about applicants who start work conditioned on their still-to-come background check results? The law’s plain text only refers to applicants. Some litigants have tried to apply the law to employees by inference or by crafting “public policy termination” claims.
What does it mean for a conviction to “relate” broadly to the “suitability” for a position? The law offers no firm guidance or safe harbor, so the analysis varies based on the factual circumstances of each case.
If an employment decision is based on the applicant’s self-disclosure of criminal history, or that the applicant falsified statements in an employment application, does the law apply? Courts have mostly agreed that information sourced directly from the candidate does not constitute “criminal record history information” as defined by the law (meaning the law would not apply) and that falsification is outside of the law’s ambit. But litigants continue to battle over those issues.
Individuals with negative credit or criminal histories are not specifically enumerated as protected classes under the PHRA. However, the PHRC takes the stance that excluding individuals from employment based on credit or criminal history may cause an unlawful disparate impact on certain protected categories of workers (employers may be aware of a similar view espoused by the U.S. EEOC).
The contours of the “disparate impact” theory are beyond this article. But the takeaway is employers must take special precautions before deciding to use criminal or credit history to restrict employment. Otherwise, expensive and probing companywide investigations by a government agency about background check decision-making may follow. “Bright line” exclusionary rules, without assessing each individual’s particular circumstances, are disfavored. Instead, the PHRC encourages employers to assess many factors, such as: The circumstances, number and seriousness of the disqualified individual’s prior offense(s); the duties and responsibilities of the job; the time that has elapsed subsequent to the conviction, and evidence of rehabilitation. The PHRC also treats more favorably employers who ask criminal record history questions later in the hiring process, showing they gave the individual every chance to gain favor before the conviction history was revealed.
The FCRSS regulates practically each step of the background check process for Philadelphia employers:
Employers must post a notice of the law on their website and premises;
Any statement about criminal background checks in application materials must include language that consideration of the background check will be tailored to the job;
Employers cannot ask criminal record history questions on the employment application or whether an applicant would submit to a background check if hired (a disclaimer directing Philadelphia applicants not to answer will not work to comply);
Employers must wait to conduct background checks on applicants until after a conditional offer is made;
Employers may not rely on non-pending arrests;
Employers may only consider criminal convictions that occurred fewer than seven years from the inquiry excluding periods of actual incarceration;
Employers must consider six factors before deciding not to hire a job applicant because of criminal records; and
Employers must provide a copy of the criminal background check to the applicant and give them ten business days to explain or provide evidence the derogatory information is inaccurate.
The Philadelphia credit checks ordinance makes it unlawful for employers to consider a job applicant’s or employee’s credit for employment decisions. This includes information about debt, credit worthiness, credit score, payment history, bank account balances, bankruptcies, judgments, liens, or items under collection. There are exemptions, so employers must determine whether all jobs they use credit in screening for fit within the exemptions.
Where an exemption applies, the employer must still tell the applicant or employee the information that caused any adverse action. Much like the FCRA, the employer must give the applicant an opportunity to explain the information before any final adverse action.
Philadelphia’s salary history ban ordinance is not yet in effect due to federal court litigation over its constitutionality. But should the ordinance go into effect, it flatly prohibits employers from asking about the prior compensation of job applicants. It also prohibits retaliation against applicants for asserting their rights. Although the ordinance does not specifically address employment verifications that may disclose salary history, conservative employers will want to advise their consumer reporting agencies not to provide any prior compensation information as part of background checks.