Your Small Business Requires the Most Qualified Employees

The small business owner is faced with a number of difficult decisions; one of the most difficult as well as the most critical is whether or not to hire someone. As much as a business person needs to evaluate potential employees based on their skills and qualifications, he or she also needs to verify the background and personal information supplied by applicants.

There is somewhat of a dilemma in this regard concerning the timing of background checks. The hiring process itself consists of three levels of screening:

1. An applicant applies and is determined to be at least potentially qualified, and is invited to an interview;

2. The interview takes place, and the applicant is or is not added to the final list of candidates; and

3. A job offer is made to the most qualified applicant(s).

The question, given that the resources of the small business are limited, is when to start background checks and which checks to have performed. Since background checks cost money, it makes sense to only perform them on candidates who have passed initial screening. It is also cost-effective to perform those checks in a certain order: from general for the initial screening phase to more specific for final candidates.

The small business owner may also want to perform background checks on existing employees. This procedure should probably involve different kinds of checks than those run on prospective new hires. The extent to which such checks are performed depends both on budgetary constraints and which information is most important. Of course, the safest method is to perform comprehensive background checks on all employees; the cost from doing incomplete background checks could be considerable. A good analogy to only doing partial background checks would be buying only the minimum amount of fire or liability insurance.

The purpose of this paper, then, is to give the small business owner an overview of how background checks function and what they can and cannot accomplish, in order to assist him or her to make the best buying decisions for his or her business. The range of background checking products is an extensive one, the laws regarding background checks are often complex, and the types of information that are the most valuable vary from business to business.

An Overview of Background Checks

A recent poll showed 73 percent of all businesses and a surprising 92 percent of small businesses (those that have 10 employees or less) reported as either currently using or contemplating using background checks for new hires. This represents almost a 400% increase since the year 2000. In the period 2010-2012, 34 states have passed laws restricting the use of background checks in employment, rental, or finance decisions; in the year 2000, only 13 states had such laws (as they exist now).

Background checks such as these can be split into two broad categories: criminal (public) and personal (private) histories. Criminal histories include arrest and conviction records, records of drug, sex, and violent offenses, and federal crimes. Personal histories include credit history, employment history, school records, residence history, and driving records.

Note that many personal records in addition to criminal records are public and not private. The laws regarding what non-criminal records are public and thus open to scrutiny by anyone vary from state to state. For instance, a person’s credit history cannot be requested by a potential employer in several states, nor can a poor credit history be used as grounds for denying employment. Driving records, however, are public. Because each state is different, employers need to thoroughly familiarize themselves with the applicable laws.

The most important distinction between public-record and private-record background checks is that permission must be obtained for the latter from the person being examined. A further aspect of this distinction is that when said permission is obtained, the information must be kept strictly confidential. Many if not most people carefully guard their personal information and are wary of providing it to anyone unless absolutely necessary. There also could be lingering doubts on the part of a person who consents to background checks but is ultimately not hired; will the company maintain confidentiality and not distribute the information to anyone else?

Different Types of Checks

As outlined above, there are two basic types of checks: criminal and personal history. The distinction can also be drawn between public and private records. In general, because of the Freedom of Information Act and a host of other transparency laws, public records are relatively easy to obtain, and the procedure is much less time-consuming than it used to be, thanks in large part to the Internet. Conversely, private records are becoming somewhat harder to obtain. This is in part due to a backlash against the ease with which just about anyone can ferret out information about another person, again, due to the Internet. Many laws are being passed limiting the scope and authority of background checks on private information.

Public Information Checks

As a matter of public safety, criminal background checks are available on any individual to any member of the public. Such checks can be done at the city, county, state, or federal levels, or at any combination of the above; for instance, a regional check of, say, the New England states could be performed. It may surprise some people to learn that there is no national criminal database. A criminal conviction in one state will not show on the records from another state. Also, federal offenses do not show on state databases. Not only that, but county records do not always show up on state databases (though they are supposed to). This means that to do a thorough nationwide criminal check involves searching several, even dozens of databases.

Driving records are in fact consolidated among the states, and thus are relatively easy to check by consulting a single database. In some states, educational histories are also a matter of public record.

Private Information Checks

These include virtually everything about a person that is not a matter of public record: residence history, job history, credit report, bankruptcy filings, educational records (in those locations where such records are not public), licenses and certifications (possibly public records if the institution issuing them is a public or governmental institution).  While many Internet sites offer the ability to search such records for a low fee, the fact remains that privacy laws do exist and such searches may in fact be illegal. The prevalence of such unauthorized searches is why many persons are extremely reluctant to provide their Social Security numbers to anyone for any reason. This underscores the need for strict confidentiality on the part of the employer doing a background check.

Comprehensive Background Checks

The aforementioned difficulty in searching multiple databases for criminal history information has led to the offering of comprehensive background checks covering large areas, including the entire nation and several different types of checks. This is due in part to the realization that a check that covers only one state or region is far from conclusive; in the U.S., people move around. Also, someone in an area apparently new to them may be in that area to attempt to escape a criminal past.  If more than one type of check is not used, important information may be missed, possibly leading to an issue with that employee down the road.

For example, in 2009, Domino’s Pizza in St. Paul, Minnesota fired an employee because of his alleged driving record. The company did not perform a driving record check at the time it hired him, nor did it explicitly state what criteria it would use if such a check was ever made. As the employee was a pizza delivery driver, the criteria should have been explicitly stated. Domino’s, Inc. and the particular franchisee are now in the process of defending a class action suit. Had the company been more explicit in its policies, it would have been able to pursue its goal of excluding unsafe drivers.

There is also the problem of possible aliases and assumed names. While the Social Security number is supposed to be a universal identifier for U.S. citizens, not everyone a) has a SSN and b) has had one for all of his or her life. A comprehensive check would use Social Security records in combination with residence and job history to determine if the person examined had ever lived or worked using a different name from the one he or she is using at present. Using an alias is not illegal in and of itself, but it can be an indicator of a negative criminal or civil history.

Private information can be just as difficult to thoroughly collate as public information. Many private institutions will absolutely refuse to divulge personal information except at the explicit request of the individual. This means that many private-information background checks, in the absence of such explicit authorization, will necessarily be incomplete. There is also a concern over whether such information will be accurate. This underscores the need for thorough private-information checks as some information will corroborate other information, and any discrepancies will be apparent.

Government vs. Private Company Background Checks

Because there is no single comprehensive nationwide criminal record database, a background check that does not include every possible jurisdiction at every level will be incomplete. Those levels are county, state, and federal. The databases do not overlap. A search of county records will only reveal arrests and convictions in that county; a search of Nebraska records will not show criminal records from Kansas. Furthermore, federal offenses, such as money laundering and drug trafficking, are kept in a separate database.

Government institutions very often do not employ a comprehensive criminal database search for background screening, preferring instead to use only the databases associated with the jurisdiction in which the institution resides. For instance, a government (federal, state, or county) agency in Chicago may only search Cook County court records, and possibly do a state-level record search as well. In most cases, only a federal agency will do a federal search. In none of the above cases would the results of the search be reliable, because the search was not comprehensive. Yet, possibly because of overlapping jurisdictions, government background checks can be almost cursory compared to the most diligent privately-sourced background checks. There have been numerous instances of federal government employees passing high-level federal checks but never having been screened at the local level.

A truly comprehensive background check includes a county-level, a state-level, and a federal record search. Private background checks are often considerably more thorough than government checks because government agencies are often under funding constraints and consequently settle for what is deemed “good enough.” Also, state agencies tend to discount data from other states, and county agencies tend to discount state data. The separation of databases and jurisdictions, as well as a bit of “myopia” on the part of government agencies at the local and state level, tends to discourage the sharing of information; this is self-evident in the fact that there is still no national criminal record database, despite its obvious utility.

A private company providing background check services though, not being localized in any one jurisdiction, can provide the thorough multi-jurisdiction background check that is needed to present an accurate picture of a subject’s history. A combined and consolidated multi-county and multi-state database is the best tool for this. Government agencies, by their very nature, can only access their own databases and must request access to others’ (or, more likely, do not gain access per se but forward a request for information, which is handled only after considerable delay). The private database is not only much more comprehensive, but more accurate and efficient as a consequence. If you’re in Chicago and want to know a potential employee’s criminal history (if any), would you rather know what he’s done in Cook County, or what he’s done in the entire U.S.?

EEOC Regulations and How They affect Background Checks

The Equal Employment Opportunity Commission recently released a set of guidelines regarding criminal history background checks performed by employers on job applicants. The essential message is that it is no longer acceptable to perform blanket background checks on all applicants for all jobs: the potential criminal conduct being scrutinized must relate to the prospective job in some way. Furthermore, the eventual hiring decision, if based on the results of a criminal background check (the applicant is not hired), must be connected to specific policies and the specific responsibilities of the job. Violations of these guidelines are illegal according to Title VII, the federal law regarding hiring discrimination, and could result in civil or even criminal liability for the employer.

Let’s say, for example, that a construction company is interviewing candidates for a position driving a backhoe on-site. One candidate seems otherwise qualified but has a sexual assault conviction on his record dating from five years ago. Denying him consideration for the job would be illegal under EEOC guidelines, because nothing about that conviction relates to that applicant’s ability or inability to drive a backhoe or for the job in general. It should be noted that this is a relatively new policy; until quite recently, it was acceptable—and employers believed and erroneously, continue to believe—that an applicant’s having any criminal record was sufficient grounds for denying any application for any job. That is no longer the case.

Of course, as a practical matter, this policy/law is almost impossible to enforce. The job applicant would have to a) be interested in pursuing the matter in the first place, b) as a practical matter, remain unemployed, c) be able to conclusively demonstrate that his denial of employment was specifically due to his criminal record. In the real world, these three things almost never occur, mostly because any employer can come up with a reason (real or fictional) why the candidate actually hired was better qualified than the aggrieved rejected applicant. This is not enough reason to ignore the policy guidelines, however. A successful employment discrimination lawsuit may be unlikely, but it can be a back-breaker for a small business.

Look for reports generated by reputable check companies so that they are thoroughly detailed and contain specific information about the person examined. With a complete picture available, you can avoid taking information out of context or making decisions based on (unbeknownst to you) missing or incomplete information. This is vital for compliance with EEOC guidelines and Title VII.

State-Specific Background Check Laws

While Title VII and the EEOC are, respectively, a federal law and a federal agency, the individual states have been given a fair amount of latitude regarding their policies on hiring practices and potential hiring discrimination. This is so much the case, in fact, that the applicable laws and regulations vary widely from state to state: what is acceptable in one state may not be acceptable in another. While space here does not permit the listing of all fifty states and their policies (and such a list would be obsolete in short order anyway), we shall give an overview of the categories and types of regulations that are most in flux. Of course, it is a very good idea to check current regulations in your specific state before formulating any policies.

The noticeable trend is that employers are less free to hire and fire employees without justified reason. For about a decade, coinciding with the advent of the widespread use of the Internet, employers were able to find out information about job applicants much more easily than before. This led to what many saw as widespread abuses, as most persons’ objective view as well as federal law was that it was unjustified to deny employment to someone based on factors that did not affect that person’s ability to perform the job in question.

Now, there exist and continue to proliferate a host of regulations forbidding specific discrimination based on background checks: for instance, in Nevada, it is illegal to use sex-offender registry information to deny an applicant a job that involves no contact with the public, or only with segments of the public that would not be at risk. In Oregon for some time, and in more and more states now, it has been/is illegal to discriminate against applicants based on the results of a credit report, unless the job in question specifically relates to fiscal responsibility. This type of distinction, in Title VII issues as well, is very important: the disqualification must be specific and job-related. It would be permissible to deny an applicant with a poor credit score a job as a bank officer; it would not be permissible to deny him a job as a teller. A generalized feeling that a person is untrustworthy or unreliable is not sufficient. The latter is partially driven by the recent recession and the utter destruction of many individuals’ credit histories; the fear (probably justified) is that hiring practices based on credit scores could create a new underclass of virtually unemployable people.

Stages of the Hiring and Background Check Process

As mentioned in the introduction, the process of hiring occurs in several stages. Different types and levels of background checks are appropriate for different stages of the process. Circumscribing a definite policy for background check procedures can save both time and money for the small business.

Many employers only conduct the first and not the final stages of the background check process. A recent major controversy involved a church employee in Texas who molested several children during a church sleepover; he had been placed in a supervisory role. The person who committed those acts had three felony and five misdemeanor convictions. While none of those convictions was specifically for child molestation or other sex crimes, the parents who sued the church argued—successfully—that the church had been negligent in not performing a background check on the offender. The church lost a large judgment.

Obviously, not all applicants need to have any background checks performed on them at all; usually, the majority of those who submit resumes will not even be considered for the position. The first time to think about background checks is when those half dozen or so resumes are pulled out of the stack. This would be a good time to perform a simple reference check, such as former employers, residence, and possibly educational history. Note here, as in further along in the process, that all searches of private (non-public) information must be done only with expressed written consent on the part of the applicant; most employment applications contain such permissions, along with a signature space, but resumes usually do not. The supplying of personal information by the applicant does not entitle the prospective employer to verify that personal information unless the abovementioned expressed written consent is given. This is why employers practicing due diligence ask candidates to fill out consent forms before conducting any checks.

The second stage, once the consent forms have been obtained and searches of basic information have been done, is to do job-specific background checks. Note that this is not confined to criminal history, and in fact, such searches should be confined to the last stage of the process. Rather, at a point roughly commensurate with the in-person interview, the candidate’s qualifications should be scrutinized. Licenses, certifications, and educational history should be verified. This is when a credit check should be done, if appropriate, and a driving history obtained, if appropriate.

 The final stage should only occur after a tentative hiring decision has been made and a job offer (contingent on a criminal background check) has been tendered. As the most involved and therefore the most expensive stage of the employee vetting process, a criminal background history check should only be done once the applicant has passed all other screening and the decision to hire him has been made.

Limitations of the Background Check Process

The process of employee and applicant background checks, no matter how thorough, does not completely protect the employer against employee malfeasance, nor does it completely assure the employer that a candidate’s credentials are indeed genuine. The simple fact is that no one can predict the future, and this is certainly true of human behavior. Not every convicted criminal is a potential criminal; not every potential criminal (which, strictly speaking, probably includes everyone except the Pope) will, in fact, be a criminal. Not everyone with a clean record will stay clean (every criminal had a clean record before he committed his first crime), and not everyone who is qualified will, in fact, do his job well. Background checks can only tell you what occurred in the past, which as anyone knows, is an imperfect predictor of the future.

For example, you may recall that the term, “going postal” refers to the workplace shooting that occurred in Edmond, Oklahoma in a U.S. Post Office in 1986. Fourteen people were killed. Since that date, over fifty people have been killed in specifically Post Office workplace shootings, not to mention numerous other mass shootings in other workplaces. In the vast majority of cases, the shooter not only had no criminal record but no outward manifestations of instability up to that point. No background checks would have revealed the potential for these people to go berserk; again, as above, the past is a very imperfect predictor of future behavior.

 Background checks cannot tell you about events in progress. For instance, if a person has been indicted for fraud, the time space between indictment and conviction (or other resolution) could be years. If a person has recent negative credit or employment history, that may not even show up on a background check report. And of course, a person having been fired from a job often doesn’t show up at all, and an applicant can usually fudge the missing time by attributing it to a sabbatical, illness, family matters, etc.

Also, background check information has to be weighed in context. Say a person has an arrest record but was not convicted of any crime as a result. Is the arrest record truly a negative in and of itself? After all, American jurisprudence as well as American social mores says that a person is innocent until proven guilty. To deny a job application based solely on an arrest record may both be unfair and run afoul of Title VII.

Finding a Good Background Check Provider

With everything conceivable being offered for sale on the Internet, it’s inevitable that there are varying degrees of quality for every product offered. This is certainly true of background check sites. Many promise to tell you everything about a person from the time of his birth, up to and including what he had for lunch every day, all for $20. Others purport to provide a complete background check of all criminal history databases for some equally low figure. Yet others charge a hefty sum but provide incomplete and/or inaccurate information.

In many ways, an incomplete or inaccurate background check report is far worse than never having one done at all. Consider the consequences for the small businessman who uses a cut-rate background check service that delivers an inaccurate or incomplete report:

1. The applicant has a major disqualification that is not shown on the report, and as a result, is hired   for a job he should never have been offered.

1. 2. The applicant is disqualified for one reason or another, but the information is incorrect, and a qualified applicant is rejected (and perhaps one less suitable is hired instead).
3. 3. The applicant is disqualified as a result of inaccurate information, and sues the employer for discrimination.
5. 4. The information is incomplete, and information which might have mitigated or balanced negative information is not noted; thus, the applicant is rejected.
7. 5. The information is incomplete, and information which might have disqualified the applicant is not noted; thus, the applicant who should have been rejected is not—thus complicating the hiring process as an unqualified candidate is not winnowed out.

6. The applicant lacks the credentials, licensing, etc. for the job in question and if hired, thus exposes the employer to significant civil and possibly even criminal liability.

The solution is to use a reputable background check provider that does thorough background checks. This will help the small business owner to feel confident that his hiring decisions are made using complete information. As employees are an absolutely vital part of most small businesses, the trend toward background checks has been growing; unfortunately, that has also led to the proliferation of many so-called background check providers offering shoddy service and an inferior product.