Conducting Background Investigations and Reference Checks



Overview

Background investigations and reference checks are employers' principal means of securing information about potential hires from sources other than the applicants themselves. A background investigation generally involves determining whether an applicant may be unqualified for a position due to a record of criminal conviction, motor vehicle violations, poor credit history, or misrepresentation regarding education or work history. A reference check generally involves contacting applicants' former employers, supervisors, co-workers and educators to verify previous employment and to obtain information about the individual's knowledge, skills, abilities and character.

A survey by SHRM found that 92 percent of surveyed employers conduct employment background screening. The report also showed that while most respondents conducted checks during the hiring process, others did so throughout the employment life cycle (see chart below). 

See Do Organizations Rely on Background Checks Too Much? and Can an employer conduct a background check before extending an offer of employment?

Reasons for Conducting Background Checks

Employers conduct background checks for a variety of reasons with the ultimate goal being to hire the best individual for the job and the organization.

Safety

A major reason to conduct background and reference checks is to avoid harm or legal liability of various types to the employer or to others. This includes harm to:

• Other employees by sexual harassment or workplace violence.
• The organization's customers by, for example, sexual assault on business premises.
• The public by negligent driving.
• The employer's business through financial loss or image and reputational issues.

Defense of legal claims, such as negligent hiring, is a compelling reason to conduct in-depth criminal records searches of job applicants. A multilevel jurisdictional criminal records search can be strong evidence that the employer exercised due care in hiring.

Maximize productivity

Hire the best and reject the rest, the saying goes. Typically, past performance is a strong indicator of future performance and can reveal an individual's professionalism, productivity, job skills and interpersonal communication abilities. A reference check helps distinguish between a true high flier and a mere poser.

Data Verification

Verifying the information provided by the applicant regarding his or her education and credentials, employer history, tenure, and other data will not only confirm required qualifications but can provide some insight into the applicant's reliability and motivation. According to a 2018 HireRight report, 85 percent of employers surveyed uncovered a lie or misrepresentation on a candidate's resume or job application during the screening process—up from 66 percent five years ago. See Verify Degrees and Protect the Company from Resume Fraud.

Legal Challenges in Conducting Background Investigations

Human resource professionals must deal with a variety of legal challenges when conducting background investigations. See Background-Screening Rules Keep Employers on Their Toes.

Federal laws

Several federal laws explicitly or implicitly apply to the practice of background investigations.

Fair Credit Reporting Act (FCRA). The FCRA regulates the use of consumer credit reports and investigative consumer reports and applies when a third party conducts background checks on behalf of an employer. Inquiries about job performance cross into the world of investigative consumer reporting. An investigative consumer report includes character references or personal opinions in addition to verifications of public record sources typically found on a basic consumer report. Proper written disclosure and candidate notification for this type of inquiry, required under the FCRA, should be issued before requesting a credit report.

See:

When do employers need to comply with the Fair Credit Reporting Act?

Checklist: Fair Credit Reporting Act (FCRA) Compliance

FCRA Authorization to Obtain a Consumer Report

Fair Credit Reporting Act Disclosure Statement

Summary of Rights Under the Fair Credit Reporting Act (FCRA)

FCRA Preliminary Notice of Adverse Action

FCRA Final Notice of Adverse Action

Fair and Accurate Credit Transactions Act (FACT Act, or FACTA). Among other things, the FACT Act, which amends the FCRA, governs the secure disposal of consumer credit information. See The Increasing Risks of Background Checks.

Equal employment opportunity (EEO) laws. Employers should take care to ensure that background investigations comply with all applicable EEO laws. A risk is that reliance on background investigations alone may result in adverse impact discrimination. See Background Checks: What Employers Need to Know.

Immigration Reform and Control Act of 1986 (IRCA). IRCA prohibits discrimination based on national origin or citizenship, except for undocumented immigrants, for employers that have four or more employees. The Form I-9 employment verification process stems from IRCA, and while this verification occurs after hire, it's important to understand that applicants' national origin or citizenship cannot be used against them if discovered before hire. See Complying with I-9 and E-Verify Requirements in the United States. 

State laws

Various state laws may overlap with some of the relevant federal laws; moreover, states may have additional requirements with respect to:

• Obtaining a consumer credit report.
• Controlling illegal immigration.
• Safeguarding information.
• Retaining records.
• Checking criminal histories before an offer of employment.

Employers need to check the state laws in which they employ workers for specific compliance details. See Multistate Law Comparison Tool.

Common law

Several common law claims can arise against an organization as a result of a background investigation gone wrong, including:

• Negligent hiring.
• Invasion of privacy.
• Defamation.
• Tortious interference with present employment.
• Tortious interference with future employment.

However, a substantial majority of states now have laws that provide some level of statutory immunity to people providing employment references. Employers should consult with legal counsel for compliance details. See How can employers protect themselves from liability when giving references? and When Giving References, How Truthful Can You Be?

Types of Background/Reference Checks

There are many types of pre-employment background checks being conducted today, with employers using a mix of those that best suit their needs. Some of the more common types are discussed below.

See SHRM: Employers Slow to Pick Up Trend of Continuous Screening.

Employment history

Some people include false employment history on their resumes. Employers frequently discover lies embellishing job responsibilities. Other frequent falsehoods involve skill set, dates of employment, previous employers, and job titles and roles. HR professionals should contact previous employers to verify:

• Dates of employment.
• Job title(s).
• Duties performed.
• Circumstances of separation.

Education history

Listing academic degrees never obtained or educational institutions never attended are also common resume falsehoods. One high-profile case involved the admissions dean for the Massachusetts Institute of Technology, who resigned after it came to light that she had claimed to possess three degrees she had not actually earned. Similarly, a former CEO of RadioShack resigned after executives discovered he had falsely claimed to have two degrees from a college in California. See Why should an employer verify an applicant's education?

Criminal history

Increased use of criminal background checks by employers to prescreen job applicants stems from the growth of claims alleging that an employer was negligent in hiring or retaining an employee who subsequently engaged in workplace violence or some other act that resulted in harm to a person (e.g., sexual assault) or property (e.g., theft). Many organizations also perform criminal background checks on current employees, either as a matter of course or prior to a promotion, transfer, or other change in the terms and conditions of employment.

Companies that use criminal background checks should examine and understand the Equal Employment Opportunity Commission's (EEOC's) related guidance; an evaluation of current practices considering this guidance will help HR professionals assist managers in an individualized assessment of each record. See Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII and Questions and Answers About the EEOC's Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII.

Generally, it is not practical for employers to perform criminal background checks in-house. The result has been the emergence of third-party service providers whose business is to conduct background screening for employers. These providers, as a rule, are better equipped to conduct thorough and accurate background screening, assuming they adhere to certain guidelines and practices.

See Criminal Record Risk Factor Assessment.

Consumer credit reports

Credit reports are frequently sought for candidates applying for positions that involve financial responsibility. Such a report helps an employer ascertain whether the applicant's financial status might pose a risk in a position involving handling money or exercising financial discretion. Credit reports should be used with discretion because many EEOC and state laws prohibit their use when an employer cannot present a compelling business rationale for such reports. Quite simply, they should be reserved for positions meriting credit scrutiny. See Credit Check Policy.

Motor vehicle records

Employers should always check the driving record of any individual who will operate an organization vehicle at any time or who will drive personal or rental vehicles on company business. A motor vehicle record typically lists license status, license class, expiration date, traffic violations, arrests and convictions for driving under the influence, and license suspensions or cancellations. See Sample Motor Vehicle Driving Record Policy.

Specific industry mandates

For some jobs, federal or state law may require a background investigation. These include jobs in health care, child care, education and public transportation, among others. Employers will want to check with legal counsel for compliance requirements in the states in which they have employees.

National security

While employers are not required to check the federal listing of Specially Designated Nationals, they would be required to report any match they do find to the Office of Foreign Assets Control. Employers should work with legal counsel to determine their individual obligations. See Must all employers check applicants against a terrorist list before hiring?

Social media

Some employers use social media to screen job candidates; however, using information gleaned from the Internet is a controversial approach. On the one hand, it would be hard to defend an organization that did not avail itself of free and publicly available information that might have prevented a hiring disaster. On the other hand, employers using such means of background checking must recognize the limitations of the medium. See Screening Candidates' Social Media May Lead to TMI, Discrimination Claims and How to Use Social Media for Applicant Screening.

Personal references

The personal reference check may be one of the most insightful background screens, but it can be one of the most difficult to obtain. Whether done in-house or through an outside vendor, well-organized and well-executed reference-checking practices yield the most valuable information about what to expect from job candidates—that is, much more than just an applicant's "name, rank and serial number."

Trends

A variety of developments and trends in society at large are reflected in trends associated with background screening and reference checks.

Second-chance hiring

Second-chance hiring is the practice of giving individuals with criminal records a fair and equal opportunity at employment. More and more employers are open to the idea of hiring individuals with criminal records, with two-thirds of HR professionals surveyed by SHRM reporting that their companies have hired people with a criminal record. See Getting Talent Back to Work - 2021 Report and SHRM Foundation's Getting Talent Back to Work Initiative.

Automation

In addition to phone-based reference interviews, screening firms and employers are using technology to improve the results of reference checks. Some screening firms offer online solutions that enable a broad set of reference sources to respond quickly and confidentially. Others believe online reference checking does not enable a hiring manager or screening professional to ask probing questions in an interactive fashion. Though this is true, requesters always have the option to call and ask follow-up questions about candidates after reading the initial report. See Background-Check Technology Advances, but Concerns Linger.

Screening of contingent workforce

According to the Bureau of Labor Statistics, nearly 4 out of 5 employers use some form of nontraditional staffing such as hiring freelancers, temporary workers or independent contractors on an as-needed basis. Employers largely have the same liability issues with these workers as with regular employees, and more employers are choosing to screen these workers to protect themselves. See Can background checks be conducted on independent contractors and other contingent workers?

Globalization

Pre-employment screening is becoming more complex as organizations increasingly look to overseas job markets. It is now common for a job applicant to have been raised and educated in and to have worked in several different countries. Employers recognize that candidate screening at all levels is more complex and vital to organizational well-being. Multinational employers must be careful to obey local laws concerning background checks. See Background Checks Are Viewed Skeptically in Some Parts of the World.

Additional Resources

Sample forms

Background Check: Minor Parental Consent

Background Check: Reference Release Authorization—Post Employment

Checklist: Selecting a Reliable Background Checking Company

Sample policies

Background Check: Background Check Policy and Procedure (general)

Background Check: Motor Vehicle Driving Record Policy

Background Check: Credit Check Policy