Check, Please: The Importance of Background Checks To Avoid Negligent Hiring

TASA ID: 1343

Employee background checks have become increasingly popular with business owners and HR professionals, and with good reason. 

Employers need to exercise due diligence in hiring new employees. The courts now increasingly recognize the concept of 'negligent hiring' liability. In the absence of meaningful references, employee background checks can be a cost-effective tool for addressing such liability.

If a firm hires a courier who wrecks a company vehicle, causing injury, and it is discovered this person has a history of DUI's, do you think that the company has a liability problem? The average negligent hiring award now exceeds $1 million.

Is this a rare circumstance? Sadly, no. Research shows some startling data. One employee background screening company did more than 1.1 million checks and discovered the following:

-10% had a criminal record in the past 7 years.

-10% had previous Worker's Compensation claims.

-15% misrepresented their employment record.

-12% had 4 or more driving violations, a DUI, or a suspended license.

-25% had credit flags-i.e. a lien, judgment or bankruptcy.

-27% had driving accidents or moving violations.

-29% misrepresented their education, credentials, or employment records!

Dishonesty costs employers an estimated 1-2% of gross sales ($60 billion or so) annually, according to one study, and accounts for 30% of all business failures.

The most commonly requested items checked are criminal record, identity verification (usually address, phone and social security number), driving record, credit history, verification of education and/or licenses and Worker's Compensation history, where available.

How does an employer do background checks effectively and avoid legal pitfalls? First, a proper authorization form needs to be signed by the applicant, by federal law. Second, deal only with reputable firms who spell out FCRA (Fair Credit Reporting Rights) and require a signed authorization (be careful on the Internet). Third, check only items that are job-related to avoid discrimination claims.

As an HR colleague said, "If your competitors are doing background checks and you aren't, guess who you get?" 

This article discusses issues of general interest and does not give any specific legal or business advice pertaining to any specific circumstances.  Before acting upon any of its information, you should obtain appropriate advice from a lawyer or other qualified professional. 

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