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A CARPET CLEANING FIRM in California hired an employee after only a brief interview. Shortly after he began work, the employee robbed and killed a client in her home. The victim’s husband sued the company. The case went to trial and a jury awarded the victim’s family $9.38 million in 2002. After an appeal by the company, the parties eventually settled out of court for an undisclosed amount.

Had the company conducted a criminal record check before making its hiring decision, it would have learned that the worker had recently been released from federal prison in another state for violent crimes committed 15 years earlier. That information could have saved the client’s life and helped the company protect both its reputation and its bottom line.

This case illustrates the importance of thorough preemployment screening. The process must, of course, be conducted within parameters established by state and federal laws, such as the Fair Credit Reporting Act (FCRA). Special care must be applied with regard to using criminal databases and credit reports, verifying education credentials, searching social networking sites, conducting international searches, and addressing the vetting of contract and temporary employees.

Criminal Records

Companies have to carefully consider how they obtain and apply information about criminal histories.

Obtaining information. For most jobs, private businesses do not have the legal right to search official FBI criminal records. Companies must, therefore, find other ways to obtain the information. Many criminal-history databases compiled from open sources are available today. These databases, which are not official FBI records, appear to be extremely valuable to employers because they give quick and relatively inexpensive access to millions of records and cover wide geographic areas.

There are several problems with such databases, however. First, their completeness can vary; not all jurisdictions are covered. Timeliness is another concern; these databases are subject to the vagaries of individual court clerks who have a lot of leeway about when and how they enter data into a computer system.

Thoroughness and accuracy are also problematic. Some authorities do not make dates of birth available to the database compilers, which can lead to a mix-up of records with people who share the same name.

In addition, in cases where individuals have gone back to court and received some sort of judicial relief, the old records routinely show up. Texas, for example, has a process of “deferred adjudication” that allows a consumer to obtain a court order setting aside a criminal matter in certain circumstances. However, if the criminal record is still in a database someplace, the supposedly quashed record may come back to life whenever the person applies for a job.

A related issue is criminal identity theft, where a victim’s identity has been stolen and a crime committed using his or her name. Even if the identity-theft victim goes through the laborious process of clearing his or her name, when historical data is reported from a database, such a person may be victimized once again.

The FCRA attempts to minimize the occurrence or impact of these types of errors by requiring that one of two precautions be taken when information is gleaned from a database. The first is that the company conducting the search maintain strict procedures designed to ensure that the record is complete and current, which typically means going to the courthouse to verify facts before they are relayed to a client; the second is that the firm notify the consumer of the fact that public record information is being reported by the consumer reporting agency at the same time such public record information is reported to the employer.

The second option is often referred to as contemporaneous notice. The idea is that if a person is notified that the employer is receiving an incorrect record, then he or she would have the opportunity to immediately notify the employer and the screening firm. However, the contemporaneous notice provision has been a source of problems for employers.

The first problem with contemporaneous notice is that technology such as email allows instant notification of results from background firms to employers, but the same instant notification is less likely to occur between the background screening firm and the job applicant with whom the firm has had no direct contract.

In 2008, plaintiffs won a $20 million settlement in a class action suit where the notification of negative information from a database search that was provided to an employer was not promptly given to the subjects involved.

The other problem with contemporaneous notice being used instead of confirming information at the courthouse is that the screening firm cannot be sure the record is complete, up-to-date, and belongs to the job applicant. Some states are addressing this issue. In California, for example, contemporaneous notice is not allowed and a screening firm must verify the accuracy of the record before it is reported to comply with state law.

The bottom line is that while database searches can be used as secondary sources to supplement a courthouse search or to guide a courthouse search to the correct jurisdiction, they should not be used as a sole screening tool. And while FCRA doesn’t directly apply to employers doing the searches themselves, it behooves them to adhere to these best practices.

Using criminal history. Even assuming that employers receive accurate and current criminal records that belong to the applicant, there are issues on how to properly use those records. The U.S. Equal Employment Opportunity Commission (EEOC) has issued notices warning employers that the use of a criminal record can have a disparate impact on protected groups. According to the EEOC, if an applicant is not hired due to a prior crime that had no bearing on the job being sought, the background screening can be judged discriminatory.

For example, in one such lawsuit (El v. SEPTA, U.S. Court of Appeals for the Third Circuit, 2008) an applicant claimed that a prospective employer’s background screening policy was discriminatory because it unnecessarily disqualified minorities—who were more likely to have criminal records. In the case, SEPTA, a transit company, refused to hire Douglas El because of a 40-year-old murder conviction. El had been convicted of a murder that occurred in a gang fight. He had not been the shooter and was not the only person convicted of the murder.

SEPTA requested summary judgment—a hearing based on the facts of a case without a trial—arguing that the preemployment screening program was required to keep the public safe and was a necessary business practice. The U.S. District Court for the Eastern District of Pennsylvania found in favor of SEPTA. El appealed the decision.

The appeals court also ruled in favor of SEPTA, but it raised significant issues in its discussion of the case that could have ramifications on the use of background checks. First the court refused to determine whether employers are legally allowed to establish a zero-tolerance policy to weed out applicants who might pose an unacceptable level of risk. Instead, the court noted that whether such a policy is consistent with business necessity must be resolved by courts and juries on a case-by-case basis.

In its decision, the court also pointed out that SEPTA produced expert witnesses who stated that criminals are likely to reoffend within the first three years after they are released from prison. But none of the witnesses could say whether a crime committed by an employee 40 years earlier would present a security risk, and El did not present contradictory evidence.

In the written opinion of the case, the court noted that “had El produced evidence rebutting SEPTA’s experts, this would be a different case. Had he, for example, hired an expert who testified that there is a time at which a former criminal is no longer any more likely to recidivate than the average person, then there would be a factual question for the jury to resolve.”

The EEOC has recommended that employers look at the nature and gravity of the crime, the nature of the job, and the age of the crime to determine whether there is a business justification to deny employment.

Where an arrest did not result in a conviction, employers need to be even more careful. Numerous states have laws that restrict the consideration of arrests not resulting in convictions, and the EEOC has taken the position that an arrest without more is just a police officer’s opinion.

Employers can also run into trouble when using automated scoring guidelines, where applicants are placed in categories such as “green” for no record, “red” for a disqualifying criminal record, or “orange” if the situation is not clear. The problem with an automated scoring system is that it can have the effect of being discriminatory if the “red” candidates are automatically rejected without taking into account whether there is a business justification. A best practice would be to have a trained staff member individually review each rejected applicant and document the process.

New York has taken this concept a step further in a law that became effective in February. The new law places a greater emphasis on employers analyzing a past criminal record to determine whether there is a business justification not to hire a person. Companies must consider the duties of the job being offered, the relationship between the offense and the job, how long ago the conviction occurred, the applicant’s age at the time of the conviction, how serious the offense was, and how well the applicant is following parole and rehabilitation rules.

The New York law requires that a notice of the factors an employer must consider be provided to job applicants. Employers must also provide applicants with a written notice before a check is conducted and another notice after the check if it uncovers a criminal conviction. (Federal law only requires notification of adverse action.)

Employers are also given some protection under the New York law. When a company finds that a job candidate has a prior criminal history but hires the person anyway, the company is given increased protection in negligent hiring lawsuits if the company made a reasonable and good-faith determination under the factors set out in the New York law that the person should be hired despite a criminal record. If sued, the employer is given a “rebuttable presumption” that the employer was not negligent and that the employee’s prior criminal record should not be admitted into evidence to be used against the company.

Credit Reports

Employers must also be aware that similar issues of discrimination surround the use of credit reports. A credit score is not a standard part of an employment credit report, because there is no evidence to suggest that a credit score is a valid predictor of job performance. Much as with a criminal record, for an employer to factor in a credit history, the company should have a job-related justification.

No federal law prohibits conducting credit checks. However, the EEOC has expressed concern that credit checks—like criminal records checks—could lead to discriminatory hiring practices. In 2008, the EEOC released guidance on the use of employment tests during the application process. The agency noted that such guidance was necessary, in part, because the number of lawsuits claiming discrimination based on credit reports and other selection procedures has been on the increase.

Though no states have made credit history checks illegal across the board, Washington state passed a law in 2007 that prevents an employer from considering a credit history as part of the hiring decision unless it is substantially job related and the employer’s reasons for the use of such information are disclosed to the applicant in writing.

In 2008, the California Legislature passed a bill that would have severely curtailed the use of credit reports for employment, but it was vetoed by the governor.

When might a credit history be relevant to a job? It could be legitimate to check credit history for a position where the person will handle cash. If an employer discovers that a person is saddled with debt, for example, it could be a red flag that the person would be under pressure to embezzle funds.

However, even if the law permits it and it is relevant to the job, employers should tread carefully; credit reports must be taken with a grain of salt. A credit report may contain information that is inaccurate, irrelevant, or out of date.

Education Credentials

With the recession bringing higher unemployment, employers will need to scrutinize applications even more carefully for inflated or fictional academic degrees. The number of degree mills and Web sites offering fake diplomas has skyrocketed, adding to the problem. In fact, my dog has received a very genuine-looking diploma in business administration purportedly issued by the University of Arizona through an online diploma-selling service.

In 2004, a scandal erupted after an internal government watchdog agency reported that 28 senior officials who were then serving in the federal government had degrees from diploma mills or unaccredited universities. To address this problem and help employers sort the good from the bad, the U.S. Department of Education established a Web site that lists schools with legitimate accreditation.

As with other types of fraud, the criminals are always adapting. In response to the government’s efforts, degree mills have created fake agencies to accredit the fake degrees.

Anytime an applicant claims to have earned a degree—and especially when that credential is a requirement for the job—an employer needs to take steps to ensure not only that the applicant went to the school and received the degree, but that the school is legitimate and that the degree represents genuine educational accomplishment.

Social Networking Sites

Employers have discovered social networking sites such as Facebook or MySpace as potential sources of intelligence about applicants. However, the fact that information is available online does not mean that it’s a good idea to use it without developing policies and procedures.

For example, if an Internet search reveals information that cannot be factored into a hiring decision, such as an applicant’s ethnicity, national origin, sexual orientation, religious preference, or marital status, the company could be exposing itself to a discrimination lawsuit. A similar issue can arise if the search of social networking sites reveals a photo that indicates personal characteristics or physical disability.

Once the hiring organization obtains prohibited information, the applicant could infer that he or she was eliminated from the candidate pool due to a discriminatory practice. An applicant could argue that the information influenced the hiring process, and it is very difficult for the company to prove that it did not.

Privacy is also a potential issue. Sites such as Facebook or MySpace have “terms of use” policies that appear to limit the use of such sites to personal social networking. Facebook or MySpace users could argue that they had a reasonable expectation of privacy, since they only expected that others who were interested in social networking would be viewing their materials. The use of a pretext to bypass privacy settings to view a profile, such as creating a fake online identity, would likely cross the line into a violation of privacy.

Some states have statutory protections in place to limit an employer’s consideration of a worker’s off-duty conduct. Courts might view the use of information from social networking sites as crossing the line into consideration of off-duty behavior.

Cases addressing the relationship of social networking sites and hiring decisions have yet to find their way to federal appeals courts. Meanwhile, employers should proceed with caution. The most conservative approach would be to only view these sites after consent is obtained and there has been a conditional job offer. This process guards against allegations of invasion of privacy or discrimination.

However, even at this stage, employers must be certain that they consider only information that serves as a nondiscriminatory predictor of job performance. For example, one employer looked at an employee’s social networking page after tendering a conditional offer only to find that the applicant had publicly posted derogatory comments about his past employers and coworkers. The employer considered the action evidence of unprofessional behavior and withdrew the offer. This is valid and legally defensible.

International Scope

Given the mobility of workers across international borders, an employer’s obligation of due diligence may no longer be limited to employment screening just in the United States. A 2000 government study shows that 11.5 percent of the population consists of immigrants, and an increasing number of workers have spent part of their professional careers abroad.

Employers cannot assume that the U.S. government has conducted background checks on workers who hold visas. Government checks appear to be aimed at reviewing watch lists rather than verifying credentials or checking criminal records for employment purposes.

Given these issues, employers should consider background screening internationally for criminal records, employment history, and education credentials. Standard background checks conducted in the United States do not include international employment and criminal records. One caveat is that international checks typically take longer and are more costly than domestic screening, but they can be worth it if they help a company limit its exposure to future liability.

Extended Work Force

Another issue during a recession is the increased use of temporary and contract employees. Many firms that have comprehensive procedures in place for their full-time work force routinely open themselves up to risk by not properly vetting personnel provided by staffing agencies or other service providers.

Companies should require that temporary workers, vendors, and independent contractors undergo screening equivalent to that done for staff. These third parties should be subjected to regular audits to ensure compliance with the screening protocols.

To implement an effective background screening program, companies must dedicate themselves to screening both thoroughly and effectively. To do this, employers must consider a variety of factors, from the quality of criminal records to the wisdom of using social networking sites as sources.

Lester S. Rosen is an attorney and president of Employment Screening Resources, a background screening firm headquartered in Novato, California. He has authored two books (The Safe Hiring Manual: The Complete Guide to Keeping Criminals, Terrorists, and Imposters Out of Your Workplace and The Safe Hiring Audit: The Employer’s Guide to Implementing a Safe Hiring Program). Rosen chaired the steering committee that founded the National Association of Professional Background Screeners (NAPBS) and served as the organization’s first co-chair. He was a member of the committee that formulated the ASIS Preemployment Background Screening Guideline and is also serving on the revision committee.