Beware of Sinkholes When Running Background Checks on Independent Contractors

Sinkholes are terrifying. One minute you’re slowly and cautiously riding along a city street. Then the road buckles and disappears. I feel bad for this guy in the video!

A similar danger may lurk for businesses who perform background checks on independent contractors. You proceed cautiously, following the various legal requirements, then – BAM! – someone claims that by following those requirements, you’re treating the contractor like an employee. Whaaaaat?

Background check laws are full of technicalities and traps for the unwary. For pre-employment background checks, the federal Fair Credit Reporting Act (FCRA) requires:

  • a stand-alone disclosure form, disclosing that a background check may be run,
  • consent, and
  • pre- and post-adverse action notices (if adverse action may be taken).

Several states and localities impose additional requirements on pre-employment background checks.

Many of the more technical background check requirements, however, apply only to employees. For example, your stand-alone disclosure forms for pre-employment background checks almost certainly disclose that a background check may be performed “for employment purposes.” That language comes from the Act. Check your forms. It’s in there for pre-employment background checks (or it should be).

But what if you give that same form to an independent contractor?

The form says the background check is being performed “for employment purposes.” Is that phrase evidence that your business is treating the worker as an employee?

Not necessarily, but why open yourself up to that argument?

I say, “not necessarily” because the Federal Trade Commission (FTC) has issued guidance saying that the “for employment purposes” language can be applied to independent contractors. See here, page 32. It would probably be reasonable for a business to rely on the FTC guidance. Using the “for employment purposes” forms should not, therefore, be considered evidence that the contractor is being treated like an employee.

But why even open that door? If I’m defending against a claim of independent contractor misclassification, I’d prefer not to have to explain that away.

An alternative approach is to add language to the background check disclosure form being used for independent contractors, indicating that a background check may be run for employment purposes “or for purposes of retention as an independent contractor.” Or use a separate set of forms for independent contractors.

Following the pre-employment background check requirements seems prudent but, like a sinkhole, may cause unexpected troubles. Proceed with caution. And don’t fall off your scooter.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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