Recently two federal agencies, the Equal Employment Opportunity Commission (EEOC) and Federal Trade Commission (FTC), issued joint guidance on job applicant and employee background checks and "What Employers Need to Know." The joint guidance reminds Dealers that, while background checks can be an important resource in making personnel decisions, there are certain legal restrictions and obligations that must be observed under federal, state and in some cases, local law.

First, there is the basic principle of equal, non-discriminatory treatment; specifically, that background checks cannot be used or applied differently to individuals or to groups of people based on membership in a legally-protected class (e.g., race, color, age, religion, sex, national origin, disability, genetic information). This means that Dealers should periodically audit their background check policy or practice to ensure that it does not have the effect of disproportionately screening out or significantly disadvantaging members of such classes, such as members of certain ethnic groups.

Second, Dealers who wish to conduct background checks on job applicants or their employees must be aware of potential obligations under the federal Fair Credit Reporting Act (FCRA). Under the FCRA, Dealers who pay a third party to conduct a background check must follow certain procedures. The Dealer must obtain prior written authorization from applicants and employees. Also, the Dealer must also notify them that a background check will be conducted, describe the scope of the background check, and inform them that information received from the background check may result in adverse employment action. This notice and authorization should be on a separate page from the job application itself. The Dealer also can plainly notify the applicant or employee that a refusal to authorize the background check may result in adverse employment action, such as rejection of the application or termination of employment. If a Dealer intends to take adverse employment action based in any part on the results of the background check, the Dealer must give the applicant or employee written notice at least seven days in advance, and provide them with a copy of the background check and the FTC’s summary of rights under the FCRA. After the adverse action is taken based on a background check report, the Dealer must issue the applicant or employee a second notice, advising them that they were not hired (or were discharged or disciplined) because of information in the report, providing the name and contact information of the company that provided the report, and providing certain additional information, including the individual’s right to dispute the accuracy of the report and to obtain a free report from the report provider within sixty days.

Pennsylvania Dealers also should be aware that the Pennsylvania Criminal History Records Information Act further limits an employer’s use of background checks – but only as to job applicants, not to current employees. The Pennsylvania law is more protective than the FCRA in that it permits consideration only of felony and misdemeanor convictions that reflect upon the applicant’s suitability for the specific job for which he or she is applying. If a Pennsylvania Dealer bases its hiring decision, even in part, on an applicant’s criminal conviction history, the Dealer must give the applicant written notice of that fact. Dealers also should be aware of any local laws or ordinances governing the use of background checks for purposes of employment. For example, a Philadelphia ordinance prohibits Philadelphia Dealers from asking about an individual’s criminal history on a job application or until after the applicant has completed a first interview. As a result of the various legal requirements that apply to background checks of applicants and employees, Pennsylvania Dealers who pay a third party to conduct background checks on job applicants must be sure that they are complying with the requirements of both state and federal law and where applicable, local laws or ordinances.

Finally, as a practical note, Dealers must retain and preserve records for at least one year after the date on which the record was obtained or the adverse action was made, whichever is later. The retention period is extended for two years for certain categories of employers, including those that are federal contractors. When the retention period has expired, the law also requires employers to dispose of background check reports securely – which can include burning, pulverizing or shredding paper documents, and disposing of electronic information in such a way that it cannot be read or reconstructed.

Background checks can be a very useful tool for Dealers to employ. What Dealer wants to inadvertently hire an applicant who is dishonest or intent upon performing criminal acts upon the Dealer or its customers, particularly in this age of identity theft and fraudulent use of customer credit information? While there is of course a financial cost to background checks, the potential cost to the Dealer of not performing the background check could be much higher! We therefore encourage Dealers to perform background checks, but to do so only with a firm understanding of the requisite legal parameters.