Good (and Bad) Background Checks

More organizations use background checks to investigate criminal histories and to make hiring and firing decisions. It's up to CSOs to make sure this powerful but flawed weapon doesn't backfire.

Industry has responded. Where once there were dozens of companies offering background checks, there are now hundreds of vendors in this $2 billion industry. The top five playersU.S. Investigations, First Advantage, ChoicePoint, Kroll and ADPaccount for about $900 million in annual revenue, according to KPMG, and are rapidly growing.

For CSOs and HR managers evaluating the services in this expanding marketplace, it's buyer beware. "If it sounds too good to be true, it probably is," says Kevin Lampeter, senior vice president and director of corporate security at State Street. Lampeter chooses to keep his screening operations largely in-house.

The Learning Annex in New York City offers a class titled: "How to Start Your Own Background Check Business." It promises students: "Make six figures working from your home!" The class lasts less than three hours. It's no wonder, then, that good practices for conducting and using background checks are failing to keep up with common practices.A Legal QuagmireStrangely enough, the main federal regulation that governs how employers use background reports is not employment law but the Fair Credit Reporting Act (FCRA). That's because, any time a company turns to a third party to obtain background information about an individual, that record is then considered a consumer report.

The gist of the FCRA, which is enforced by the Federal Trade Commission (FTC), is simple enough: Companies need to have written permission to access an individual's consumer report. They need to warn that person if they are taking an "adverse action" based on this information. And they need to give him or her a chance to see the report and correct any mistakes. (Because of concerns about these reports falling into the wrong hands, the FTC is considering an amendment to the FCRA that would create strict guidelines for the disposal of these reports.) In reality, of course, the situation is much more complex, primarily because of differences in how the states allow companies to use the information obtained.

Some states, for instance, don't allow employers to look at misdemeanors. Others don't allow them to consider arrests without convictions. Sometimes juvenile records are sealed; other times they aren't. Typically, a hiring manager can look back seven years, but sometimes it's only five; unless, of course, it's deemed necessary to look back even further.

"It's tricky for the screening agencies because they operate in many states, so they need to know what information they can provide," says Oscar Marquis, an attorney with Oldaker, Biden & Belair in Washington, D.C., who is considered a leading expert on the matter. "They may have different information depending on the state. If a potential employee applies for a job in Arizona, the arrest record may show up; if they move to California, it may not."