Background Check Laws

As a small business owner, you may be concerned about whether you are required to conduct background checks on prospective or current employers, or whether you are allowed to do so even if you are not required to do so. Understanding when a background check is required, when one is allowed, and what information can be used as the result of a background check is crucial for a small business owner in order to avoid fines, penalties and even litigation.
A background check may be required by federal or state law. Government employers often conduct background checks as a matter of course. Individual state laws also frequently require backgrounds checks when an employee will be working around certain "vulnerable" individuals such as children, elderly or the disabled. Failure to comply with state or federal laws that require a background check could subject you, as the employer, to fines and penalties or may open you up to a lawsuit on the basis of negligent hiring in the event someone is ultimately injured by your employee. Be sure to check your individual state laws with regard to background checks.
Many businesses are choosing to conduct background checks as a precautionary measure, even when not required to do so. While no measure is fool-proof for preventing fraud, tortious conduct or other libelous actions by an employee, a background check can offer some reassurance as well as provide a defense in the event something does go wrong and you are sued for damages.
What can, and cannot, be reported on a background check is extremely important to understand as a small business owner. Because a background check is considered a "consumer report", the Fair Credit Reporting Act (FCRA) sets the federal standards for what can be included; however, state laws may set further limitations. In general, anything that is considered "public record" may be included in a background check including things such as criminal convictions, bankruptcy filings and workers' compensation claims.
To further complicate matters, however, some things may be included on a background check but cannot be used against the employee when making a hiring decision. A bankruptcy, for example, may be included on a background check; however, you may not, as a general rule, discriminate against a prospective employee on the basis of the bankruptcy. Likewise, although workers' compensation claims may be included in a background check, the fact that an employee filed a claim can only be considered with regard to whether the reason for the claim may interfere with the prospective employee's ability to perform the job.