Background checks are a great way for companies and staffing agencies to get a fuller picture of the candidates that they are considering hiring, and it can allow an agency to pick out any potential red flags (such as a criminal record) before offering the position, thereby saving the agency from the costs of a bad hire. However, while a background check can be a great time and cost-saving measure in the long-run, a poorly-executed background check could wind up heavily costing a company or employment agency.
Industry experts have found that employment practices liability insurance claims costs are rising, according to a report from Insurance Journal, with illegal background checks being a leading cause (along with unpaid internships, pregnancy and health-related discrimination). An EPLI claim, in addition to having financial penalties, can take up quite a bit of time and even cause reputation damage should the claim be made public. If your agency employs background checks in its hiring process, make sure that you know your rights and know your job-seekers’ rights to avoid costly EPLI claims.
Types of Background Reports
There are two common types of background reports: credit reports and criminal background reports. Neither are illegal for an employer to conduct. However, if a report is done, you must notify the new hire about it and get their permission. Not giving permission could affect the candidate’s position, but they have the right not to consent to a background check. If you run a background report on an applicant without their permission, you could be on the hook for a claim. In addition, many candidates like to receive a copy of their background check if they are not hired, and it is legal for them to do so, according to the EEOC.
Illegal Background Check Lawsuits
Illegal background check lawsuits are far more common these days. The Federal Trade Commission enforces a federal law that regulates background reports for employment and the Equal Employment Opportunity Commission (EEOC) enforces federal laws against employment discrimination. It’s important to know that when a background check is issued, it also must comply with the Fair Credit Reporting Act (FCRA). While it’s not illegal to ask questions about a candidate’s background or require a background check, it’s illegal once if you are inconsistent with your treatment of employees or potential employees. Background checks must be for everyone, not just certain new hires.
Was this article helpful? Take a look at our other blogs on common sources of employment practices liability insurance (EPLI) claims during the hiring process:
Genetic Discrimination in the Hiring Process
Pregnancy in the Workplace: Knowing the Law
About World Wide Specialty Programs
For the last 50 years, World Wide Specialty Programs has dedicated itself to providing the optimal products and solutions for the staffing industry. As the only insurance firm to be an ASA commercial liability partner, we are committed to that partnership and committed to using our knowledge of the industry to provide staffing firms with the best possible coverage. For more information about Staffing Professional Liability Insurance or any other coverage, we have available to protect your staffing business, give us a call at (800) 245-9653 to speak with one of our representatives.