The Impact of Poor Compliance On Your Organization

Mary Poquette

As I discussed in my previous article, compliance with law and regulation in employment screening is important to employers and candidates. And, there is much law and regulation with which employers must comply, including the U.S. Federal Fair Credit Reporting Act (FCRA), State FCRA laws, ban the box, criminal history limitations, credit limitations, security requirements, international privacy laws, and more.  

The cost of employer compliance in background screening comes in the form of partnering with a qualified screening provider, utilizing trusted legal counsel, educating employees involved in the screening process, modifying processes to accommodate new compliance requirements, and monitoring ongoing activity to ensure compliance. All in all, background screening compliance costs are not all that different from compliance costs when outsourcing any other professional service, such as benefits management or payroll. 

The cost of poor compliance, however, can be much higher in background screening than other professional services.

The Cost of Poor Compliance: Candidates
Presumably the most important asset of any organization is its people. Anything that interferes with the acquisition, retention and productivity of employees is costly. Poor recruiting compliance interferes with optimal employee performance, with one of the worst outcomes being the loss of qualified, motivated candidates and employees.

A poorly managed, non-compliant screening program presents numerous opportunities to lose qualified candidates. Examples:

  • An improper disclosure containing a waiver of liability or other extraneous language tells the candidate the employer either does not know the law or is choosing to ignore it, neither of which is a positive sign to the candidate.
  • Disqualifying a candidate without following the adverse action process leaves the candidate without an opportunity to correct or explain unfavorable information in the background report. If the unfavorable information is inaccurate or irrelevant, the employer has lost a qualified candidate. The employer appears rigid, incompetent, or worse to the candidate.

A negative candidate experience is seldom limited to a single candidate. The employer behavior is likely a pattern of behavior, resulting in the loss of multiple candidates. And, the candidate experiencing the undesirable employer behavior often shares their story through social media. Eventually the negative experience becomes part of the company brand, making it more difficult for an employer to attract and retain top talent – and more difficult to successfully market goods and services to customers.

The Cost of Poor Compliance: Litigation and Regulatory Investigation
The other big cost of poor compliance in employment screening comes in the form of litigation and regulatory investigation. Hundreds of class action cases have been filed against employers for alleged non-compliance in background screening. The most common claims of non-compliance in class action litigation include alleged employer failure to provide proper disclosure, authorization and follow the adverse action process – all employer obligations under the FCRA guidelines. Employers in all industries have been targeted, including health care, transportation, staffing, banking, retail and manufacturing. Although these class actions seldom go to trial, out of court settlements of $3-$8 million are common with some settlements being even larger.

Poor compliance by employers may also result in regulatory investigation. The U.S. Equal Employment Opportunity Commission (EEOC) has pursued employers who appear to use blanket disqualification policies in employee selection and retention. Examples include multi-million dollar settlements with a large beverage company and an auto manufacturer. Claims brought by plaintiff’s bar and government regulators are not always successful, of course. But win or lose, employers pay a hefty price in the form of legal expense, brand damage, and distraction from core business objectives.

How to Avoid Compliance Issues
What steps can an employer take to prevent the loss of qualified candidates and possible legal action? Consider the following 10-point checklist.

  1. Disclosure. Inform the candidate before requesting a background check. Ensure the disclosure is clear, conspicuous and in a document consisting solely of the disclosure (or disclosure and authorization).
  2. Authorization. Obtain consent from the candidate before requesting the background check.
  3. Pre-Adverse Action. If considering an adverse employment action based in whole or part on the background report, provide notice (along with copy of background report and summary of rights) to the candidate before making an employment decision.
  4. Opportunity to Dispute. Provide the candidate with an opportunity and means to dispute background report content before making an employment decision.
  5. Adverse Action. Provide an adverse action notice if a negative employment action is actually taken.
  6. Avoid Blanket Disqualification. If background results include a criminal conviction, per EEOC recommendation, consider the circumstances of the conviction and especially relevancy to the job.
  7. Train Employees. Ensure responsible employees are knowledgeable about the screening program and compliance requirements.
  8. Monitor Activity. Conduct regular quality and compliance audits.
  9. Consult Legal Counsel. Consult with qualified legal counsel to ensure program integrity and defensibility.
  10. Choose a Screening Provider. Providers assist clients in achieving and maintaining compliance, while providing technology and tools to streamline and provide a great candidate and employer experience.

This information is provided for general educational purposes only and is does not constitute legal advice, express or implied. Consultation with qualified legal counsel is recommended.

Avoid FCRA Litigation with These Background Check Best Practices

Mary Poquette is the Owner and Principal Consultant of Poquette Screening Solutions, LLC and a 20-year veteran of the background screening industry.

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