Dani Sanchez-Gleason, Esq., Labor & Employment Counsel, BMC Software, Inc.

Richard Greenberg, Esq., Jackson Lewis LLP

Recent news about economic recovery coincides with predictions that an upsurge in hiring will soon follow.  Given the level of talent available in the marketplace, not to mention the nine percent unemployment rate, employers want to be sure they make the best possible hiring decisions.  This means not only selecting an individual with the right skill set for the open position, but it also means selecting an individual who is vetted and screened as thoroughly as possible to detect potential issues that could otherwise have been avoided.  No one likes a “bad hire” that could have been avoided if only we knew_____: you fill in the blank.  While the Fair Credit Reporting Act governs background checks (and more than just credit checks) under federal law, there are an increasing number of state issues that must be considered when screening candidates for employment.  This Top Ten summarizes key state background check issues.

1. Compliance with State Drug Testing Laws

For many employers, pre-employment drug screening is an integral part of the pre-employment screening process.  While it is always recommended that any testing be conducted pursuant to a drug testing policy, some states require written policies and/or utilization of certain mandated procedures.   For example, in Maine, any employer drug testing program must be approved by the state Department of Labor prior to implementation.  Further, to the extent applicable, an employer must ensure compliance with any mandated federal drug testing, such as testing required by DOT regulations.

2.  Compliance with State-Mandated Background Checks

Some industries, such as health care and education, often are required by state law to conduct specific background checks on industry employees.   In some instances, these checks can be conducted by a consumer reporting agency; in other circumstances, these checks need to be conducted by a state agency with access to the FBI or a similar database (in the case of criminal checks).   Employers must ensure compliance with such requirements.   There is not a level of consistency across the states as to these requirements, so a state-specific analysis is necessary.  For example, in some states but not others, an employer is required to conduct specified background checks on any individual who will be entering a home to provide service, such as a repair technician.

3.  Compliance with State Background Check Procedural Requirements

Often, in developing compliant processes for background checks conducted through consumer reporting agencies, employers only consider the federal Fair Credit Reporting Act.  However, there are approximately a dozen states which have promulgated state mini Fair Credit Reporting Acts.  These mini-FCRA laws often track the FCRA's consent and disclosure, pre-adverse action and adverse action requirements.   However, in certain instances, additional disclosure and/or language is required.  For example, California law requires an employer to disclose the specific checks being conducted as well as to provide information regarding the individual’s right to inspect the file maintained by the consumer reporting agency.  Other states like Minnesota and Oklahoma mandate that employers notify individuals of their right to obtain a copy of a report in all circumstances.  Further, in New York, depending on the scope of the check, a disclosure of the state's limitations on use of criminal record information may be required. 

4.  Understand Reporting Limitations Imposed on CRA’s by State Laws

To avoid frustration, it is vital that all employers understand the limitations imposed on consumer reporting agencies by applicable state law.  Under the FCRA, a consumer reporting agency is not limited from reporting any convictions, but is generally limited to reporting other adverse information that is more than seven years old unless the individual's compensation would be in excess of $75,000 per annum.   However, some state laws restrict reporting of convictions over seven years old unless certain salary thresholds are satisfied.  For example, in New York, criminal conviction information over seven years old may not be reported unless the individual is expected to earn over $25,000 per year.  Further, some state laws prohibit reporting of any arrest information and/or information regarding pending arrests.  While there is an argument that some of these reporting limitations are preempted by the FCRA, the available caselaw on this issue is limited.  These limitations reiterate the importance of a broad inquiry on the employment application regarding criminal history. 

5.   Follow State Limitations on Use of Convictions for Disqualification

While federal law does not impose any per se prohibitions on an employer's ability to make job-related decisions based on an applicant’s or employee’s criminal conviction history, certain state laws impose such restrictions.  A handful of states specifically prohibit an employer from disqualifying an applicant/employee unless the conviction is job-related based on an individualized analysis.  In fact, New York imposes the strictest standard and requires an employer to consider numerous factors prior to making a disqualification decision, including the length of time since the offense and the individual's rehabilitation.  Simply put, in New York, absent a conversation with the individual prior to disqualifying, there is a strong argument that the employer has not complied with the statute.  Again, industry requirements must be considered.  For example, in many states, alcohol beverage control law restrictions often require employers to disqualify applicants/employees with certain convictions from positions in which the establishment maintains a liquor license.

Of course, due to the EEOC's focus on the adverse impact of employers' use of information regarding criminal history, it is strongly recommended that all decisions be made based on an individualized, job-related analysis and that employer policies do not contain per se disqualification standards. 

6.  Follow State Limitations on Use of Arrests that Did Not Result in Convictions

Federal law also does not bar employers from using information regarding arrest records for employment decisions.  State laws, however, do pose limitations.  A series of states prohibit use of arrests that did not result in convictions for employment purposes.   Employers do retain the right to question applicants/employees about the underlying facts leading to the arrest and make independent decisions based on such facts.

Again, due to the EEOC's focus on employers' use of information regarding criminal history, employers should strongly consider at most limited use of arrests that did not result in conviction. 

7.  Follow State Limitations on Use of Pending Arrests

Adding to the complications for employers, some jurisdictions distinguish between an employer’s rights with respect to non-pending and pending arrests.   For example, in New York, an employer may not base an employment decision on a non-pending arrest but may consider a pending arrest.

Again, due to the EEOC's focus on employers' use of information regarding criminal history, employers should consider avoiding employment decisions based solely on pending arrests, particularly if the pending matter is not significant and/or would not result in incarceration. 

8.  Follow State Limitations on Use of Credit History

While only four states – Hawaii, Illinois, Oregon and Washington – expressly restrict or prohibit an employer from conducting credit checks, similar legislation is pending in a significant number of states including Florida, Michigan and Montana.   Employers should ensure any checks in states with restrictions comply with applicable state law.
Also, it is vital to note that the alleged adverse impact of employer credit checks is a focus of the EEOC.  Accordingly, regardless of state laws, employers should ensure there is a rational basis for any disqualification decisions and, to the extent practicable, avoid any per se disqualification guidelines. 

9.  Analyze the Propriety of Internet Checks

Employers are increasingly turning to social media for information about job applicants. So long as the employer does not violate state or federal discrimination laws, nothing currently prohibits an employment decision based on information an applicant places in the public domain.  Nevertheless, employers should balance the need to obtain information against the risks associated with such searches.  Federal and/or state laws prohibit employers from basing employment decision in whole or in part on protected characteristics, such as race, age, sexual orientation, marital status, disability, genetic information sexual orientation and political affiliation.  Employers also should avoid circumventing a potential employee’s privacy settings by pretending to be someone else in order to gain access to a restricted network. A best practice is to obtain consent or at least disclose to individuals such checks are conducted.

10.  Follow State E-Verify Requirements

Though a candidate may have been hired for a position, there is one last crucial piece that must be completed as part of the onboarding process - verification of authorization to work in the U.S.  Your first thought may be that I-9s are a federal document and that any E-Verify requirements are limited to federal contractors.  However, numerous states have begun to mandate the use of E-Verify for public employers and/or their vendors.  Most noteworthy, in the last three and a half years, four states - Arizona, Mississippi, South Carolina and Utah - have required the use of E-Verify for all employers in the state.  More states are likely to require E-Verify’s use in the near future.