The ability to hire and retain a competent, responsibleworkforce distinguishes the great human resources managers from themerely mediocre ones. Retention is highly valued in most successfulbusinesses because hiring on limited information often comes downto more luck than skill, and nobody wants to engage in hiring moreoften than absolutely necessary.

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Any seasoned HR professional can tell war stories about theperfect interview and flawless resume that led to a disastrousemployee.

Those stories are more frequent when an employer fails to accessthe information it has a right to review before a hiring decisionis concluded. The hires that have the highest likelihood of successare the ones made with the most complete information availableabout the candidate’s skills and character.

The most important tool a hiring manager can use to identify anddeliver the best employees is a background check. Such a check mayinclude information from multiple sources, including creditreports, employment verifications and criminal record searches.Most employers use a vendor to access this information, but thereare some who engage in these searches and verificationsthemselves.

When an employer uses these third-party vendors to obtain andprovide the information, the entire process — including access tonon-credit information — is subject to the federal Fair CreditReporting Act (FCRA). Those vendors are generally known as consumerreporting agencies. It is critical that an employer use a reputableorganization and verify for itself that both its company and itschosen consumer reporting agency are in compliance with theFCRA.

Attacks on multiple fronts

While the rules that govern a potential employer’s access to acandidate’s background through these resources are not new and havealways been strict and specific, recent attacks on multiple frontshave left the business community confused and concerned about itsability to gather the information necessary to make sound hiringdecisions.

The Equal Employment Opportunity Commission (EEOC) and othergovernmental agencies sharpened their focus principally on anemployer’s access to an applicant’s criminal background, andwhether it is appropriate to use criminal history to make adecision about future conduct.

Class action lawyers, on the other hand, usually attack theprocess and attempt to catch employers in compliance failures,which are often inadvertent and harmless, but can have costlyconsequences. Thus, it is more critical than ever for employers toknow the rules and how to navigate them.

The FCRA adverse action process

As a reminder, the FCRA requires an employer that intends to usea background check in a hiring decision (or any employment-relateddecision) to follow specific steps. The failure to comply risksexposure to monetary penalties in private lawsuits that can includepunitive damages.

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Most employers are aware that the FCRA requires disclosure toanyone for whom a background check is sought, and requires thatemployers obtain authorization from that applicant before thereport is acquired. But many fail to provide the notices andauthorization in a form that the FCRA approves. These oftenharmless failures can lead to class actions when they are systemicand built into the hiring process. Thus, all employers should audittheir forms regularly to ensure they are in compliance.

More often, employers fall victim to the FCRA’s adverse actionprocess. The FCRA requires two separate steps before an employercan refuse to hire an applicant (or take any other adverse actionagainst an existing employee if the background check was sought fora promotion decision or some other purpose).

The first requires the employer to provide a pre-adverse actionnotice stating that the FCRA will provide the candidate anopportunity to learn that something uncovered in the backgroundcheck may impact his or her application for employment. This noticemust include a copy of the report and Summary of Rights under theFCRA. A failure to provide the pre-adverse action notice andattached documents can lead to exposure in a lawsuit even if thereason for the decision not to hire based on the background checkis perfectly sound.

The second step in the adverse action process requires anemployer to provide notice of the adverse action once the decisionhas been made. This two-step process should illustrate that theFCRA is designed so that employers will not make a snap decision onthe information received but will, instead, provide the informationto the employee and then make a subsequent decision after theinformation has been discussed.

Obviously, this structure is not always practical or evenpossible. But it is nevertheless critical that an employercarefully apply the two-step approach (even where the ultimatedecision is obvious from the moment the background check is firstreviewed) to avoid technical compliance failures that can lead toexpensive litigation.

This is particularly true because strict compliance with FCRAobligations can also shield an employer from exposure to state lawdefamation, privacy and negligence claims based on the reporting ofthe information sought in a background check, which could becomeimportant in the not-so-rare situations when a background checkcontains errors.

Obtaining the consumer report

But whether and how an employer may use a consumer report is adifferent issue from the process by which it may be obtained. Anemployer that properly adheres to the disclosure and authorizationrequirements and that complies with the two-step adverse actionprocess has only cleared the threshold hurdles. The next step is todetermine the extent to which the information can be used, and forwhat purpose.

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It is in this context where the challenges begin to mount for ahiring manager. For most, the principal reason to conduct thebackground check in the first place is to ensure that the applicanthas a character consistent with the culture in the workplace.Secondary reasons are really just subsets of the main purpose.

Because hiring to retain is so important to long-termorganizational success, hiring an applicant often depends onfactors that have nothing to do with the specific tasks required toperform the job.

Instead, smart hiring managers know that a skill set can betaught, but whether the applicant will work well with co-workers,will show up to work every day and on time, and is trustworthy andresponsible are considerably more important in the long term thanwhether he or she is a talented welder. But these characterquestions are often a subjective decision and are, thus, morecomplicated.

A hiring manager knows that his or her job might be on the linefor a mistake. Consider the applicant who has sexually harassedemployees at a prior job or had an accident while drivingdrunk.

Plaintiffs’ lawyers are not afraid to argue, on one hand, thatan employer violated the FCRA in gathering information to conduct abackground check on an applicant — while simultaneously arguing, onthe other hand, that the failure to conduct a background check wasnegligent when the same applicant engages in sexual harassmentagainst a co-worker.

And while the EEOC guidelines suggest that criminal historycannot be used to reject an applicant unless the offense isspecific to a job requirement (e.g., felony theft isa reasonable reason to reject a bookkeeper), the decision to hirean employee with a criminal record may have implications that gobeyond the isolated hiring question and expose the employer topotential lawsuits and issues with insurers.

The good news is the FCRA does not dictate whether an employercan hire an employee based on information in the background check.As long as the information is used for a permissible purpose (likehiring) and the employer properly complies with the process forobtaining the information and disclosing the reason for thedecision, the FCRA permits employers to use the information to makeany decision they choose.

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The EEOC guidelines and Title VII prohibit the use of theinformation for a discriminatory purpose. So, a hiring manager whocomplies with the FCRA and fairly considers each background checkon its own merits based on the specific job and the unique workenvironment to which the applicant would be assigned should feelcomfortable in every hiring decision.

More importantly, the hiring manager will have confidence thatthe decision was made with the most information available and putthe company in the best possible position to retain the employee inthe long term.

Best practices

A few best practices for hiring in a complicated worldinclude:

• Make sure you treat everyone the same; if you conductbackground checks (and you should), do it for everybody.

• Keep medical information separate and do not ask questions aboutit or obtain any information on it until after a conditional offerhas been made.

• Provide notice about a background check; get anauthorization.

• When making an employment decision, apply the same standards toeveryone; in other words, do not reject an applicant of one race orethnicity with a negative criminal history but hire an applicant ofa different race or ethnicity who has the same criminalhistory.

• Follow the FCRA’s two-step adverse action process with areligious zeal.

• Limit knowledge about the information obtained to only thosewith a specific need to know. That limitation is especiallyimperative if negative information is discovered but the decisionis made to hire the applicant anyway.

This article was excerpted from Law Journal Newsletters,offering 17 monthly newsletters that provide analysis of the latesttrends in all major practice areas. Learnmore.