Screening Workers for Startups and Small Business Owners

January 20, 2014

Last week, we discussed several alleged criminal situations involving drivers for California ride-sharing companies, Uber and Lyft, and how the misclassification of workers as independent contractors when they really perform as employees can result in significant legal trouble for your startup or small business. As promised, this week we will discuss what your startup or small business should know about screening applicants and current employees. This is important because, just as the misclassification of workers can result in headaches for your business, so too can bad hiring decisions. As mentioned in last week's article, one of the Uber drivers who allegedly assaulted a passenger was a convicted felon, but that information never came up during a background search.

Negligent hiring lawsuits are on the rise. If an employee's actions hurt another, the employer may be liable. Bad hiring decisions can also result in internal issues such as embezzlement or workplace violence against other employees. Thus, it is important for startups and small businesses to be cautious, and background checks are one way to gain some peace of mind. Background checks vary widely in quality, scope, and validity. The Federal Fair Credit Reporting Act (FCRA) sets the national standard for employment background checks. A background check under the FCRA is referred to as "investigative consumer report" and it is limited to personal interviews with friend, neighbors, and business associates. The FCRA applies only to background checks performed by outside companies. If you are a California employer, you are also governed by the Investigative Consumer Reporting Agencies Act (ICRAA), which is broader in scope than the FCRA, as it covers third-party employment screeners as well as employers conducting internal or in-house screenings. Under the ICRAA, the appropriate term for a background check is an "investigative consumer report." An investigative consumer report includes information about a person's character, general reputation, and personal characteristics, but does not include credit report information; in California, credit report information can only be requested for certain positions. California employers can delve into an applicant's criminal history, but may only report criminal convictions dating back seven years, unless another law requires the employer to look further into an applicant's background. This will depend upon the position.

Pursuant to the ICRAA, California employers must provide notice to individuals undergoing background checks, and the individuals must provide authorization before the employer conducts a screening. California employers must also provide to screened applicants copies of any public records gathered in the process of a background check. Note that the notice requirement under the ICRAA is greater than that required by the FCRA. Additionally, note that last March, a California court found the ICRAA unconstitutionally vague. An appeal of that case is pending, which could alter employer duties/requirements. We will update if necessary.

We have only touched upon the requirements of performing a proper and legal background check on current or potential employees. There is much more information, so please seek legal assistance before undertaking screenings/checks. The Law Office of Kristina M. Reed is committed to helping startups and all small businesses achieve their dreams by providing the foundation needed for success. Our goal is to help you grow into a successful business. We are highly experienced in all phases of business law, from startup to profitability, and we can help guide your young company through all phases of its growth and success. If you need assistance complying with the FCRA and/or ICRAA or if you have questions about whether and what kind of background screening your company should perform, please contact us. We are here to help.