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Legislative Constraints Collide wtih Recruiters’ Use of Criminal and Credit Checks

Explosive growth in the background screening industry during the past decade has generated near-universal adoption of criminal checks and a steady rise in credit checks for all U.S. job candidates.

 

In some industries, recruiters are using criminal and credit screening as a quick and easy method for culling the ever-larger pile of applications. But this growing reliance on screening is on a collision course with new legislative restrictions, legal challenges and mounting evidence that such results are poor predictors of behavior and performance.

Even employers that limit the types of screening results that will lead to adverse hiring decisions may violate federal law. On October 1, the Equal Employment Opportunity Commission filed a discrimination lawsuit against Freeman Cos., a nationwide convention and corporate events marketing company.

Since at least 2001, Freeman has rejected job applicants based on their credit history and if they have had various types of criminal charges or convictions, the suit claims. The EEOC says these exclusionary practices are not job-related or justified by business necessity.

In March, the EEOC settled a lawsuit against Franke Foodservice Systems, which refused to hire a black applicant who disclosed a felony conviction on his application even though the company hired a white applicant a year earlier who made a similar disclosure. A spate of EEOC and private lawsuits are pending against other companies for unlawfully denying employment to people with criminal records or bad credit histories.

EEOC hearings on screening practices in November 2008 included expert testimony that the results are not good predictors of employee behavior or performance. In addition to greater EEOC scrutiny of criminal record screening practices, a growing number of states now prohibit or limit pre-employment arrest inquiries.

One in five U.S. adults now have a criminal record that would show up on a routine pre-employment background check, according to estimates based on Bureau of Justice data.

Congress is considering a bill that would prevent employers from using credit reports in their hiring or promotion decisions. In June, Hawaii joined Washington state in limiting the use of credit checks in pre-employment screening; bans or restrictions also are under consideration in Michigan, Ohio, Connecticut, Missouri, New York and Texas. A California bill that restricts credit checks in pre-employment screening cleared the state Legislature in 2008 and 2009, only to be vetoed twice by Gov. Arnold Schwarzenegger.

Adverse actions
For 53 percent of employers, screening results adversely affect the hiring decision in 4 percent or less of the cases. Ten percent of employers report that adverse actions occur in 10 to 15 percent of the screens.

At the other end of the adverse-action spectrum, 10 percent of employers report that screening adversely affects the hiring decision in a staggering 50 percent or more of the cases.

What is clear is a growing legislative and regulatory backlash against screening practices that are not tied to demonstrable risk and business necessity. Recruiters who indiscriminately use criminal and credit screenings to cut applicants fuel the increasingly widespread calls for greater regulation and leave their employers open to costly legal challenges.

Legal and Legislative Update on Employment Law, February 2010, Bob Gregg, The Boardman Law Firm, www.boardmanlawfirm.com

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