How Do I Run a Background Check on an Independent Contractor?

How do i run a background check on an independent contractorAfter the events of this past weekend, I don’t have to say anything about the risks involved in allowing dangerous people onto your premises. Before retaining an independent contractor who will have access to your business’s facilities, people, or information, it makes sense to know who you are inviting into your house.

An employment-style background check is often appropriate, but there are a few important differences between background checks being run before hiring an employee and before engaging a non-employee contractor.  [We’re talking here about 1099 contractors, not staffing agency employees.]

If the background check is being run by a third party, then the federal Fair Credit Reporting Act (FCRA) is likely to apply. But the rules are different for pre-employment background checks and non-employment background checks.

For pre-employment background checks, certain disclosures must be made before the background check is obtained, and additional disclosures have to be made before you take an “adverse action” based on the result of the background check, such as revoking a conditional offer or not hiring someone. These additional requirements apply only for background checks being run “for employment purposes.”

Ok, Todd. These don’t sound too burdensome. Can’t I just follow the more burdensome pre-employment rules just to be safe?

Yes, sort of. But a few words of caution are in order.

First, your User Agreement with the background check company requires you to certify to the background check company the purposes for which you will be requesting background checks. Review your agreement to see whether you certified that you would only run background checks “for employment purposes.” 

Since this is not a background check being run “for employment purposes,” you need to have another permissible purpose under the FCRA. The law lists several alternatives. Two are likely to apply:  You may obtain a background check (1) “in accordance with the written instructions of the consumer” or (2) if you have “a legitimate business need for the information in connection with a business transaction that is initiated by the consumer.” Here, the “consumer” would be the individual contractor.

You may need to amend your agreement with the background check company before  you run any background checks on potential independent contractors. You never want independent contractors to be considered your employees.

Second, check the federal forms you give to the individual before you run the background check. You do not want to give an independent contractor a Disclosure form or an Authorization form that says your company will run a background check “for employment purposes.” Many generic forms include that phrase because it’s a term of art used in the FCRA. For background checks being run on independent contractors, you don’t want to have the contractor sign a document that can be used to argue you were creating an employment relationship, rather than an independent contractor relationship.

Finally, check the state law forms you are using. If your background check company supplied you with a suite of forms, those forms likely include various disclosures required under state laws. States with additional pre-employment background check requirements include California, Minnesota, New Jersey, New York, Oklahoma, and Washington State, among others. Almost all of the required state law disclosures, however, apply only to background checks being run “for employment purposes.” Be careful not to use forms with language that could be used to argue you were creating an employment relationship, rather than a contractor relationship.

Final thoughts:  Running a background check on an independent contractor can be a good idea and can bring you and your business some piece of mind. Be careful, though, that you don’t solve one problem by inadvertently creating another.

Background check pitfalls can be prevented if you use the correct forms and documents ahead of time. It’s not that hard to do this correctly, but it requires a some extra attention and care.

If you’d like more information, you can review two earlier blog posts I’ve written on this topic, here and here. Or feel free to contact me directly at tlebowitz@bakerlaw.com.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

Need training on avoiding independent contractor misclassification claims? Hey, I do that!  

Enter your email address to follow this blog and receive notifications of new posts by email.

2018_Web100Badge

 

Do Pre-Employment Laws Apply When Running Background Checks on Independent Contractors? (Tip: Instead, Just Ask Edward)

Time traveller independent contractor background check requirements

A time traveler named “Edward” claims to have photographic proof that he is visiting from 5,000 years in the future. According to Metro UK, he described his experience as “unbelievable.” Ponder that.

One of the benefits of time travel is that you’d know if your workers are going commit crimes in the future that could jeopardize your company. With people like Edward in short supply, we are instead forced to try to predict future behavior through more widely accepted methods, like reading tarot cards or performing background checks. (Free tip: pick the latter.)

There are federal and state laws that strictly regulate the processes and procedures for running pre-employment background checks. A Ninth Circuit Court of Appeals decision last week highlights the importance of following all technical requirements, including that employers provide a “clear and conspicuous disclosure” that they may run a background check and that the disclosure is “in a document that consists solely of the disclosure.” In that decision, the court ruled that it’s illegal to provide a disclosure that includes state law disclosures on the same page as the federal disclosure. It is common for employers to combine these disclosures on the same form, so check your forms! I blogged about the ruling here, on BakerHostetler’s Employment Class Action blog.

In contrast, the rules for running background checks on independent contractors are not as strict. The federal law requiring a stand alone disclosure applies only to reports being run “for employment purposes.” Same thing for the pre-adverse action notification requirement. It applies only to reports that are run “for employment purposes.”

Interpreting the “for employment purposes” language, at least three federal courts have ruled that a report on a prospective independent contractor is not being run “for employment purposes” and, therefore, these requirements do not apply to reports being run on independent contractors. (The FTC has issued guidance that the “for employment purposes” requirements do apply to independent contractors, but the courts have so far rejected this guidance as being inconsistent with the language of the statute.)

Some of the requirements in the Fair Credit Reporting Act (FCRA) may still apply, depending on the purpose of the report, but the bottom line is that the rules are different for background checks being run on employees and independent contractors. The FCRA is somewhat complicated, and don’t forget the patchwork of state laws.

There’s also the risk of misclassification — that the independent contractor could be deemed an employee — in which case the FCRA and state law requirements for pre-employment background checks would need to be followed, and the failure to follow them can be costly. The FCRA allows for statutory damages of $100 to $1,000 per violation, plus attorneys’ fees.

So if you’re afraid of a misclassification claim should you just follow the “for employment purposes” requirements anyway? Not necessarily. Though it can be prudent to follow some of the technical disclosure and pre-adverse action requirements that apply to pre-employment checks, be careful about using any forms with independent contractors that say the background check is being run “for employment purposes.” In other words, the forms you are using for pre-employment background checks might not be suitable for use with independent contractors.

This earlier blog post discusses more of the issues (and potential risks) related to running background checks on independent contractors.

There are plenty of good reasons to run background checks on some types of contractors, particularly those who will be entering customers’ homes. The goal, of course, is to try to predict the risk of future wrongdoing. Background checks can be useful for that purpose.

But the only surefire way to know what is going to happen in the future is to ask Edward.

For more information on joint employment, gig economy issues, and other labor and employment developments to watch in 2019, join me in Philadelphia on Feb. 26 or Chicago on Mar. 21 for the 2019 BakerHostetler Master Class on Labor Relations and Employment Law: Meeting Today’s Challenges. Advance registration is required. Please email me if you plan to attend, tlebowitz@bakerlaw.com. If you list my name in your RSVP, I will have your registration fee waived.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

Enter your email address to follow this blog and receive notifications of new posts by email.

2018_Web100Badge