The past is never dead. In fact, it's not even past. - William Faulkner
A job applicant in these historic times must heed Faulkner's dictum. Embellished credentials have been the downfall of high profile executives recently in the news. Technology has expanded the availability of personal information. Prospective employers may resort to self-help to draw upon such resources. The supply of professional fact-checkers and investigators also appears to be on the rise to meet the demand for the expanding universe of data. More than ever, personal history is a factor in the job search. This Special Bulletin not only discusses issues that those who are seeking employment (called the "Applicant" in this article) may encounter, but also alerts employers to related hazards in recruitment.
Reference Checks and Verification of Past Employment
In North Carolina, the legal burden on the prospective employer to perform a background check is relatively light. A legal presumption of due care applies in the employer's favor, and generally there is no common law duty to conduct a criminal record check. The prospective employer does have a duty, however, to at least inquire of the immediate past employer, but questions remain: What questions must be asked of the past employer, and what are the chances of getting any information that would make any difference?
Employer Immunity for Providing Employment Information
Background checks should be as easy as picking up the telephone and calling past employers. The law of North Carolina, specifically § 1-539.12 of the North Carolina General Statutes, provides a current or former employer with immunity from civil liability and damages for disclosure of information about a current or former employee's job history or "job performance" to a prospective employer. However, this immunity will not apply if an aggrieved former employee shows by a preponderance of the evidence that the information disclosed was false and the employer who provided the information knew or reasonably should have known that the information was false. Still, good faith error is covered by the immunity.
The definition of "job performance" for purposes of the statutory immunity is limited to the suitability of the Applicant for re-employment; the Applicant's skills, abilities, and traits as they may relate to suitability for future employment; and, in the case of a former employee, the reason for the Applicant's separation. The combination of the relative ease of obtaining a criminal background check online with the immunity given to prior employers should allow the prospective employer to perform a legally-sufficient in-house background check.
In reality, it is not so simple. Notwithstanding § 1-539.12, the prevailing practice of well-counseled businesses is to provide only verification of prior employment and such non-controversial facts as the start and end dates of the Applicant's service. Consequently, employers are increasingly outsourcing the background check, a subject addressed in the next section.
Blacklisting is Prohibited
One cautionary postscript before moving on: An employer who terminates an employee must be aware of the law that prohibits blacklisting. After discharging an employee, the former employer who goes further and tries to prevent the discharged employee from obtaining new employment runs the risk of criminal prosecution under § 14-355 of the North Carolina General Statutes. The "blacklisting" employer will also be subject to "penal" damages in a civil action brought by the "blacklisted" employee. However, § 1-539.12 does allow the former employer to furnish "in writing, upon request, [to] any other person, company or corporation to whom such discharged person or employee has applied for employment, a truthful statement of the reason for such discharge." We supply the emphasis in that quote. Wait to be asked about the reason for the former employee's discharge; do not go on a crusade.
Fair Credit Reporting Act
The stakes are high for prospective employers. They want to hire the superior candidate on the weight of performance-based criteria, and they also want to avoid future liability and other inefficiencies that will come from hiring the wrong person. Due diligence dictates the need for the prospective employer to assess potential safety risks and the Applicant's honesty, reliability, credentials, and other personal traits that are legitimate business concerns. Time and know-how are at a premium.
When Does FCRA Apply to an Employer?
Due to multiple factors, such as the hit-or-miss aspects of doing it yourself, as well as the increasing mobility and anonymity of the modern labor force, prospective employers increasingly feel the need to employ outside agencies to perform background checks. That decision triggers application of the Fair Credit Reporting Act ("FCRA"). Under FCRA, the outside agency is referred to, perhaps somewhat misleadingly in the employment context, as a "consumer reporting agency." In recognition of the misinformation that can come out in the process, as well as in deference to principles of fundamental fairness, FCRA imposes duties on prospective employers and affords corresponding rights to Applicants.
What Does FCRA Require of an Employer?
Employee Notice and Authorization
FCRA requires the prospective employer to disclose to the Applicant that "a consumer report" (an odd term, considering the context) may be requested. Written authorization from the Applicant must be obtained. The disclosure and signed authorization must be separate from the employment application. What may be requested of the Applicant at this point are name, address, social security number, driver's license number and state of issue, and a signature consenting to the investigation.
There are two types of consumer reports that may be obtained. The "regular" consumer report typically consists of information gathered from public records, written documents, and the like. An "investigative consumer report," on the other hand, entails personal interviews with acquaintances and others to obtain personal opinions about the Applicant. If the prospective employer asks for an investigative consumer report, that fact must be disclosed to the Applicant within three days after the employer has asked the consumer reporting agency to conduct the investigation.
The Applicant has the right to ask about the nature and scope of the investigation that is being done, including the kinds of questions that are being asked and the individuals who are being interviewed. Upon request, disclosure must be made in writing to the Applicant and mailed no more than five days after the Applicant asks for it or after the report was first requested by the prospective employer, whichever is later.
Notice of Proposed Adverse Employment Action
If the consumer report or investigative consumer report from the consumer reporting agency contains information that may cause the prospective employer to take adverse action such as a decision not to hire the Applicant, then a pre-adverse action notice must be made to the Applicant by the prospective employer. This notice must let the Applicant know that the prospective employer may reject the application because of information received from the report and must provide a summary of the Applicant's rights under FCRA. A copy of the report containing the adverse information must also be provided to the Applicant.
To facilitate getting the record corrected if need be, the pre-adverse action notice must include the name, address, and telephone number of the consumer reporting agency issuing the report and a statement that the Applicant should contact the agency directly to dispute the report. The prospective employer is required to hold the applicable position open for a reasonable amount of time in order to allow corrections to be made to the report. Conventional wisdom holds that a period of a calendar week or five business days will be sufficient.
FCRA contains extensive provisions allowing the Applicant to challenge the accuracy or completeness of the consumer or investigative consumer report. The burden is on the Applicant to report the inaccuracy to the consumer reporting agency. The consumer reporting agency is then required to investigate the disputed data.
Notice of Adverse Employment Action
If, after all is said and done, the prospective employer decides not to hire the Applicant based on the background information reported by the consumer reporting agency, the Applicant must be sent yet another disclosure, basically a reprise of the pre-adverse action disclosure. The Applicant must be provided the contact information for the consumer reporting agency that performed the background check. The agency's role must be explained - that is, a statement must be included that the consumer reporting agency did not actually make the adverse employment decision. The purpose of this provision is to prevent the disappointed Applicant from calling the consumer reporting agency to find out why the adverse decision was made. Responsibility for that decision remains with the employer.
The post-adverse action notice must also explain that the Applicant has the right to obtain a free copy of the investigative file from the consumer reporting agency by making a request within 60 days. Again, the Applicant has the right to dispute the accuracy or completeness of information in the file with the consumer reporting agency.
Bankruptcy of an Applicant
Can Bankruptcy be Used as a Reason to Deny Employment?
An unfortunate consequence of these extended hard times, often referred to now as the "Great Recession," has been out-of-work individuals filing for bankruptcy. A frequently asked question is whether the United States Bankruptcy Code ("Code") provides any protection to them when they apply for employment. The answer hinges on the slightly different wording of two sections of the Code, 11 U.S.C. §§ 525(a) and 525(b).
Generally, an agency of the government may not deny employment to an Applicant under 11 U.S.C. § 525(a) of the Code "solely" because the Applicant has sought bankruptcy protection. Since there is seldom only one reason for making such an adverse decision, the modifier "solely" provides a very small shield indeed.
However, the very next subsection of the Code, 11 U.S.C. § 525(b), which applies to private employers, has been construed to deny even that small measure of protection to Applicants for employment in the private sector. The majority of courts that have considered the issue have held that the language of 11 U.S.C. § 525(b) provides no protection to an Applicant who has filed for bankruptcy protection. The wording of the two paragraphs is, in fact, sufficiently different to allow such an interpretation. Therefore, the trend appears to be that a private employer can disqualify an Applicant solely because the Applicant has previously sought protection under bankruptcy. This is so even though the same § 525(b) would prohibit the private employer from terminating an incumbent employee based "solely" on a bankruptcy filing.
Applicability of Title VII when Bankruptcy of an Applicant is an Issue
While a private employer may legally refuse to hire an Applicant based on a prior bankruptcy filing, other employment laws still apply. Title VII, the federal law that protects individuals from employment discrimination based on race, sex, national origin, color, and religion, prohibits disparate treatment based on one of the protected traits. Under Title VII, an employer is not allowed to use credit histories in the hiring process to discriminate against Applicants who are members of a minority class. Thus, if bankruptcy does not disqualify a white applicant, it cannot be used to disqualify members of a minority class.
Just such a claim of alleged discrimination has been advanced by the Equal Employment Opportunity Commission ("EEOC") which has the authority to take legal action under Title VII. In a class action lawsuit filed in the United States District Court for the Northern District of Ohio, the EEOC sued the Kaplan Higher Education Corporation, alleging that Kaplan engaged in a nationwide practice of race discrimination against black job applicants based on the results of credit history checks. Although the lawsuit was dismissed earlier this year, the EEOC has filed a Motion for Reconsideration which is now pending. Time will tell if the case establishes any new precedent. In any event, regardless of the outcome in the Kaplan case, a prospective employer applies double standards at its peril.
Criminal Records of an Applicant
Speaking of double standards, the prohibition against employment discrimination applies not only to intentional discrimination, but also to practices that end up causing an unintentional discriminatory effect, referred to in the law as "disparate impact." One such policy, which has been a source of longstanding controversy, is the requirement of a perfectly clean criminal record. Statistics demonstrate that such a requirement has a disparate impact on blacks and Hispanics.
The EEOC has long taken the position that the requirement of a perfectly clean criminal record is prohibited by Title VII. Last year, the EEOC handed down new guidelines ("Guidance") on the subject. The population EEOC seeks to protect with the Guidance is comprised of minority candidates, such as African Americans and Hispanics, who are disproportionately screened out of consideration for employment due to arrest and criminal records. The EEOC cites statistics showing that African Americans and Hispanics are arrested and convicted of crimes at much higher rates than non-minority populations. Thus, the EEOC considers even a facially neutral policy or practice violative of Title VII if it disqualifies a disproportionately number of a protected group and the employer fails to demonstrate that the policy or practice is both job-related for the position in question and consistent with business necessity.
The EEOC has always drawn a sharp distinction between arrest records and convictions. The new Guidance reiterates that an arrest record, standing alone, may not be used to deny an employment opportunity, since the record of an arrest alone does not report the ultimate disposition of a charge, including factual innocence (remember the case of Richard Jewell in the Atlanta Olympics bombing case, or the recent initial arrest in the post-Boston Marathon ricin letters case) or possible expungement and other exculpatory information.
On the other hand, a criminal conviction can be a disqualifying factor if an employer can show that its use is a business necessity. In order to satisfy the EEOC's job-related/business necessity burden, an employer must show that any exclusion based on criminal conduct effectively links specific criminal conduct and its dangers with a risk inherent in the duties of a particular position. For example, a recent conviction for embezzlement may provide the legal basis for summarily rejecting an Applicant for a job that requires the handling of money, and an Applicant with a history of violent crime may be disqualified from a position that involves frequent direct contact with the public. But the embezzlement conviction may not be a permissible disqualifier for a position where no valuable property will be entrusted to the employee. The Guidance encourages prospective employers to undertake a case-by-case analysis that factors in the type of crime that was committed, its recency or remoteness in time, and the nature of the job to be filled. In most cases, a youthful indiscretion at Myrtle Beach in 1967 should not put employment out of reach.
The EEOC has identified ways that employers can satisfy this job-related/business necessity burden. The Guidance expresses strong preference for individualized assessment as the best way for employers to avoid Title VII liability, including the use of dialogue with the Applicant about the Applicant's criminal history. For certain, a knee-jerk rejection of an Applicant based on an arrest record, or even a criminal conviction if the crime may be made irrelevant to the applicable position due to the passage of time or other circumstances, may be sufficient for the EEOC to find reasonable cause to believe that Title VII has been violated.
Health History and Workers' Compensation Claims
There are state and federal laws that prohibit disqualification of an Applicant based on health history or a past worker's compensation claim. The Americans with Disabilities Act ("ADA") generally prohibits inquiries about health history until after the employer has made a "conditional offer of employment." The North Carolina Retaliatory Employment Discrimination Act ("REDA") seconds and supplements that protection by prohibiting employers from discriminating against an Applicant based on a worker's compensation claim made in good faith against a previous employer. These laws do not totally prohibit inquiry about such subjects, but they regulate the timing and other circumstances for taking adverse action such as rejection of an Applicant. The ADA applies to employers who employ 15 or more employees. Thus, there is a built-in small business exception. REDA has no such exception. It prohibits retaliation and discrimination by any employer against any Applicant who has a made a good faith worker's compensation claim.
Use of Health History of Applicants
In pertinent part, the ADA prohibits employers from screening out qualified Applicants who happen to have a disability. Thus, employers are prohibited from asking Applicants about their health and medical condition during the application process. Any technique, question, or test that would eliminate qualified Applicants who have disabilities from consideration is prohibited. Therefore, application forms should not request information that would reveal a disability. A common-sense exception is made for Applicants with obvious disabilities.
However, it is permissible to ask whether the Applicant can perform the essential functions of the job with or without accommodation. If asked, the prospective employer should provide the Applicant with a copy of the job description for the relevant position. An employer may even ask an Applicant with obvious disabilities to describe or demonstrate how the Applicant would perform the relevant job so long as there is reasonable cause for the employer to believe that the disability could interfere with performance. The employer should not rely on stereotypes or presuppositions. Earlier this year, a federal court held that a deaf applicant was not disqualified for a job as a lifeguard.
Reference and background checks for medical information, past workers' compensation claims, and the like are not permitted prior to the employer making a conditional job offer. However, if the Applicant has a known disability and has indicated that a reasonable accommodation will be necessary, the prospective employer can inquire of a previous employer about accommodations that were made by that employer.
After an Applicant has been offered a job, but before the Applicant has actually started to work, medical and other health-related questions may then be asked as long as everyone in the same job category has been and is treated the same. This is the stage of hiring sometimes referred to as the "conditional job offer" or "conditional offer of employment."
May Past Workers' Compensation Claims be Used to Deny Employment?
Like health history, employers may not ask Applicants about their workers' compensation history during the application process. However, after the Applicant has been given a conditional job offer, the employer may then ask about past workplace injuries and workers' compensation claims, again as long as all Applicants for the same job category are asked the same questions. However, it is not the mere fact that an Applicant filed a worker's compensation claim that can be used to withdraw a conditional job offer, but rather, it is information obtained about the claim indicating whether the Applicant can perform the essential duties of the job or whether a medical condition poses a threat to the Applicant's safety or the safety of others that is important and may justify a decision adverse to the Applicant. For example, if the job requires heavy lifting or working at heights, permanent medical restrictions imposed as a result of a prior injury would be relevant to the decision as to whether to withdraw a conditional job offer.
Under North Carolina law, an Applicant who knowingly and willfully makes a false representation as to the Applicant's physical condition may also get disqualified for workers' compensation benefits. The North Carolina Workers' Compensation Act specifically states that no compensation can be allowed for accidental injury or occupational disease if the employee makes such a false representation, the employer relies on it, and there is a causal connection between the false representation and the subsequent injury or occupational disease. N.C. Gen. Stat. § 97-12.1. For example, if the Applicant came to the employment with a bad back resulting in a lifting restriction of no greater than 20 pounds and the Applicant misrepresented that condition to obtain employment that required frequent lifting of greater weight, then if the Applicant suffers a back injury in the course and scope of employment while lifting weight in excess of the restriction, the Applicant would be potentially subject to a total bar to recovery of workers' compensation benefits under the Workers' Compensation Act.
Subject maybe to apocalyptic meltdown, we will never again be liberated from data. Count on recorded past history catching up to each of us sooner or later on the wings of technology. What is done will be discovered; what is said will be double-checked; what is left unsaid will be outed. How prospective employers will deal with this cornucopia of information and how prospective employees will protect themselves from its misuse are likely going to be keeping the EEOC and the courts busy for years to come.
 In this regard, see the article "Employers Beware! Don't Let a Fair Credit Reporting Act Claim Sneak Up on You" by Jeremy R. Sayre and Devon D. Williams, published in our "Legal Currents" newsletter which can be accessed at http://www.wardandsmith.com/articles.
 See the article entitled "Criminal Background Information" by Rendi Mann-Stadt, published in our "Legal Currents" newsletter which can be accessed at http://www.wardandsmith.com/articles.
© 2016 Ward and Smith, P.A. For further information regarding the issues described above, please contact
This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.