Independent contractors can pose safety and security risks as much as employees. Some go into customer homes. Others have access to personally identifiable information and proprietary business information. Some independent contractors drive trucks making deliveries for companies identified by logos on the vehicles. So, businesses should be able to lawfully obtain criminal background checks on these types of independent contractors, right? Not so fast.

Under federal law, the Fair Credit Reporting Act (FCRA) establishes permissible purposes for obtaining consumer credit reports including criminal background checks from credit reporting agencies. The permissible purpose with which most companies are familiar is when an employee seeks employment.[1] But can a business use the employment permissible use if the persons on which they are doing background checks are independent contractors?

This is an undeveloped area of the law that poses substantial risks for companies using independent contractors. While there is some legal authority that the employment purpose can be used for independent contractors, including one or more opinion letters from the Federal Trade Commission (the agency that once had exclusive authority to enforce the FCRA), there has been a dearth of case law addressing this issue.

One of the few cases addressing this issue was a federal district court decision that deviated from such opinion letters and concluded that a company could not use the employment purpose to procure background checks on individuals the company regarded as independent contractors.[2] In that case, the court held that, by procuring a criminal background check on an independent contractor, the company engaged in a willful violation of FCRA, thereby exposing it to actual, statutory, and punitive damages. This court ruling is inconsistent with one or more of the few other cases addressing FCRA and independent contractors. More importantly, no federal appellate court has yet to rule on this issue.[3]

So, what should a prudent business do where the law is inconclusive yet there is a compelling business reason to seek a criminal background check on workers regarded as independent contractors? Fortunately, there are state-of-the-art ways to minimize or eliminate the potential of a willful violation of the FCRA when conducting criminal background checks on independent contractors. This is one part of a focused process by which companies can enhance their compliance with an array of federal and state laws governing independent contractors. One such process is IC Diagnostics (TM), where businesses can structure, document, and implement their IC relationships in a customized and sustainable manner to minimize independent contractor misclasification exposure while maximizing compliance with laws such as FCRA.[4]

Is compliance with FCRA sufficient to protect companies that procure criminal background checks on independent contractors? Not really. Many states and municipalities have laws governing the acquisition and use of criminal background information, and a number of those laws differ from FCRA in key respects. Indeed, unlike FCRA, which does not dictate the manner by which a company may use criminal conviction information, a number of state and local laws require companies to balance the worker’s rights with the interests of customer safety and the protection of property including sensitive financial and health information. While compliance can be even more challenging in those jurisdictions covered by multiple criminal background laws, there are nonetheless a number of effective ways to navigate these laws and minimize legal exposure, especially for companies that deploy independent contractors on a nationwide basis and those that use the services of independent contractors remotely.

[1] Congress included in this permissible purpose the requirement that employers provide to prospective employees a clear and conspicuous disclosure form in a document consisting solely of the disclosure that a consumer credit report is beong procured and obtain a written authorization from the individual. FCRA Sec. 604(b)(2)(A)(i) and (ii), 15 U.S.C. § 1681b(b)(2)(A)(i) and (ii). Further, if a company is provided with criminal conviction information on a credit reporting agency report on which it intends to base an adverse employment decision such as rejecting the applicant, the employer must first give a pre-adverse action notice to the applicant providing the applicant with a copy of the report, a summary of rights, and a reasonable period of time to dispute the accuracy of the information or explain its findings. FCRA Sec. 604(b)(3)(A), 15 U.S.C. § 1681b(b)(3)(A). The summary of rights has been updated from the summary last published in October 2018 and the updated version must be used by March 20, 2024. The Spanish-language version can be found here.

[2] Monfort v. CKGG Health Services, No. 1:19-cv-00354-MLB, 2020 WL 9599752 (N.D. Ga. Sept. 12, 2020). That decision was not appealed and the case thereafter settled following mediation.

[3] One circuit court nearly 50 years ago addressed a closely related issue in connection with a lawsuit against a credit reporting agency that allegedly failed to follow reasonable procedures to assure maximum possible accuracy of the information in a consumer report. The lawsuit, though, was not against the organization that requested the background check. See Hoke v. Retail Credit Corp., 521 F.2d 1079 (5th Cir. 1975).

[4] One of the risks to be minimized is that plaintiffs’ class action lawyers in an independent contractor misclasification lawsuit may try to use a company’s background check under the employment sections of FCRA as evidence that the business legally regarded the independent contractors as employees.