When Can Employers Conduct Credit and Criminal Background Checks?

Although your company may have been performing credit and criminal background checks of applicants regularly for as long as you can remember, due to recent changes in the law companies in Maryland and the District of Columbia performing such checks on a voluntary basis should review their current practices.

Laws Governing Background Checks

There are four key statutes that affect voluntary background checks conducted by Maryland employers:

1) The District of Columbia, Maryland and the Maryland following counties: Prince George’s County, Montgomery County, and Baltimore City have adopted laws restricting an employer’s use of an applicant’s criminal history. These so-called “Ban the Box” laws generally require employers to wait to pull criminal background checks until either after the first interview (Maryland, Montgomery County, Prince George’s County) or after an offer of conditional employment has been made (District of Columbia, Baltimore City). (See: “When Can an Employer Consider an Applicant’s Criminal History?” and “Montgomery County Employers Must Reexamine Use of Criminal Background Checks in Hiring Process.”)

2) Another law with which an employer must comply when doing credit and criminal background checks is the federal Fair Credit Reporting Act (FCRA). FCRA requires an employer to disclose and obtain written authorization when obtaining a credit report and when taking adverse employment actions because of information in the report. While the principal focus of FCRA is regulation of credit checks, staff attorneys of the Federal Trade Commission (FTC) broadly interpret some of the terms used in the statute and have concluded that an employer who obtains and pays for criminal background checks of applicants and employees also must comply with all of FCRA’s obligations. Thus, an employer’s failure to comply with these opinions and positions, if challenged by an applicant or employee, would likely lead to an FTC investigation.

3) In 2011, Maryland enacted the Job Applicant Fairness Act, which prohibits certain employers from using a credit report to determine whether to hire an applicant, terminate an employee, or set the wage rate or other terms and conditions of employment. The only employers exempt from this law are those required by state or federal law to consider an applicant’s credit report or history for the purpose of employment, certain financial institutions, certain credit unions, and employers registered as investment advisors with the U.S. Securities and Exchange Commission.

After an offer of employment has been extended, the Job Applicant Fairness Act allows an employer to obtain a credit report if (1) it will not be used to deny employment, determine compensation, or set the terms and conditions of employment, or (2) the employer has a bona fide purpose for requesting or using the information that is substantially job-related and disclosed in writing to the employee. The law provides the following examples of job positions for which an employer may have a substantially job-related purpose:

• A managerial position that sets the direction and control of a business, department, division, unit, or agency of a business;
• A position with access to personal information of a customer, employee, or employer. Personal information includes an individual’s first name or first initial and last name in combination with a social security number, driver’s license number, financial account number, or individual taxpayer identification number. Personal information does not include information customarily provided in a retail transaction;
• A position involving a fiduciary responsibility to the employer, such as the authority to issue payments, collect debts, transfer money, or enter into contracts;
• A position with an expense account or a corporate debit or credit card;
• A position with access to information, such as formulas, programs, methods, techniques, or processes that derive independent economic value, whether actual or potential, for which the employer maintains confidentiality; or
• A position with access to confidential business information.

4) Finally, the federal Equal Employment Opportunity Commission (EEOC) has taken the position that an employer’s use of an individual’s criminal history in making employment decisions may, in some instances, violate the prohibition against employment discrimination under Title VII of the Civil Rights Act of 1964. Accordingly, it has issued guidance on the use of criminal history information when making employment decisions. This guidance cautions against using arrest records and explains how employers should use evidence of criminal convictions. All employers of 15 or more employees are subject to Title VII.

As a result of this increased regulation, employers should review the reasons why they perform background checks and the methods they use to carry them out. Broadly drafted policies should be re-examined and explanations provided as to why a background check is needed for each position for which it is performed. In all cases, policies should be updated to conform to these ever-evolving statutes.

Julie Reddig is an employment attorney at Lerch, Early & Brewer who represents management in matters and disputes regarding employment and the workplace. For more information on background checks, contact Julie at (301) 961-6099 or [email protected].