By Fay Hansen
Oct. 20, 2009
Explosive growth in the background screening industry during the past decade has generated near-universal adoption of criminal checks and a steady rise in credit checks for all U.S. job candidates.
In some industries, recruiters are using criminal and credit screening as a quick and easy method for culling the ever-larger pile of applications. But this growing reliance on screening is on a collision course with new legislative restrictions, legal challenges and mounting evidence that such results are poor predictors of behavior and performance.
Even employers that limit the types of screening results that will lead to adverse hiring decisions may violate federal law. On October 1, the Equal Employment Opportunity Commission filed a discrimination lawsuit against Freeman Cos., a nationwide convention and corporate events marketing company.
Since at least 2001, Freeman has rejected job applicants based on their credit history and if they have had various types of criminal charges or convictions, the suit claims. The EEOC says these exclusionary practices are not job-related or justified by business necessity.
In March, the EEOC settled a lawsuit against Franke Foodservice Systems, which refused to hire a black applicant who disclosed a felony conviction on his application even though the company hired a white applicant a year earlier who made a similar disclosure. A spate of EEOC and private lawsuits are pending against other companies for unlawfully denying employment to people with criminal records or bad credit histories.
EEOC hearings on screening practices in November 2008 included expert testimony that the results are not good predictors of employee behavior or performance. In addition to greater EEOC scrutiny of criminal record screening practices, a growing number of states now prohibit or limit pre-employment arrest inquiries.
One in five U.S. adults now have a criminal record that would show up on a routine pre-employment background check, according to estimates based on Bureau of Justice data.
“Everyone checks for criminality for all jobs,” says Robert Pickell, vice president for customer solutions at HireRight, a background screening provider based in Irvine, California.
HireRight’s 2009 survey results confirm this, with 93 percent of employers reporting that they run criminality checks, up from 85 percent in 2008.
“Criminality usually leads to adverse actions,” Pickell notes.
HireRight surveyed 1,411 employers of all sizes from more than 15 industries. The survey found that 84 percent of employers conduct comprehensive screening before the first day of work; 8 percent screen immediately after the start.
The HireRight survey found that 42 percent of employers check credit histories, up from 36 percent in 2008, but legislators are increasingly challenging the use of credit checks in pre-employment screening. In the second quarter of 2009, U.S. consumer loan and credit card delinquencies rose to their highest level in 35 years, according to American Bankers Association.
Congress is considering a bill that would prevent employers from using credit reports in their hiring or promotion decisions. In June, Hawaii joined Washington state in limiting the use of credit checks in pre-employment screening; bans or restrictions also are under consideration in Michigan, Ohio, Connecticut, Missouri, New York and Texas. A California bill that restricts credit checks in pre-employment screening cleared the state Legislature in 2008 and 2009, only to be vetoed twice by Gov. Arnold Schwarzenegger.
For 53 percent of employers, screening results adversely affect the hiring decision in 4 percent or less of the cases, according to the HireRight survey. Ten percent of employers report that adverse actions occur in 10 to 15 percent of the screens.
“This is often around issues in the verification area, plus criminality,” Pickell reports.
At the other end of the adverse-action spectrum, 10 percent of employers report that screening adversely affects the hiring decision in a staggering 50 percent or more of the cases.
“The 50 percent-or-more adverse-action group is probably in industries where you have low-skilled hourly workers and low job requirements,” Pickell says. “Employers are interested in quickly filling positions and conduct screening across a broad population.”
In these industries, he notes, recruiters may put large numbers of candidates though a less stringent recruiting process with minimal criteria and then use screening to narrow the group. In addition, adverse selection may be at work.
“People with problems in their background will go to the jobs and industries where they think employers will be less stringent—for example, retail employers, staffing companies and small employers,” Pickell says.
Legal challenges to screening practices may increase as more employers extend screening to their existing employees. The HireRight survey found that 16 percent of employers now screen their existing employees on an ongoing basis, up from 12 percent in 2008.
“The number of employers screening existing employees is absolutely increasing,” Pickell says. “Previously, it occurred only in specific industries, but now it is definitely becoming more broad-based across all industries.”
Pickell reports a wide variety of practices for screening existing employees, but generally sees employers using a set period of two to three years after the start date, or every three years across the employee base. Ongoing screening for existing employees commonly includes criminality checks and drug testing, but omits education and past employment verifications that were completed at the time of hiring.
Among all employers surveyed by HireRight, 71 percent report that their organization conducts screening to “reduce risk to the organization”; 68 percent say the purpose is to “ensure a safer workplace.” Pickell believes that the risk reduction motivation stems less from the fear of negligent hiring lawsuits and more from direct business concerns.
“The industry talks about negligent hiring because of large-dollar lawsuits, but a far bigger factor for employers is loss prevention, preventing fraud and productivity issues,” he notes.
Scrutiny of screening practices may also grow as new technologies make screening more pervasive and intrusive. A new free iPhone application allows users to conduct background screening on any person if the user inputs basic personal information. New technologies imported from anti-terrorism and police interrogation programs are now available to private-sector employers.
Suspect Detection Systems Ltd., an Israeli security company, is now marketing its Cogito “hostile intent” detection technology to employers.
“Any company that is already using polygraph tests can use this technology,” says CEO Shabtai Shoval. He believes that critical infrastructure and finance companies may adopt the biometric screening technology.
“It’s a new concept and instrument, so the legalities are still unclear,” he says.
What is clear is a growing legislative and regulatory backlash against screening practices that are not tied to demonstrable risk and business necessity. Recruiters who indiscriminately use criminal and credit screenings to cut applicants fuel the increasingly widespread calls for greater regulation and leave their employers open to costly legal challenges.
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