What is Compliance and Why Does it Matter

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5 September 2023

What is Compliance and Why Does it Matter

Compliance means your company is meeting the requirements of any applicable legislation. In the case of background checks, this entails complying with a myriad of state and local laws as well as the Fair Credit Reporting Act (FCRA) and the Equal Employment Opportunity Commission (EEOC). Of course, it makes sense that you want to know as much as you can about a potential employee before you invest in hiring them. A bad hire can be costly.

So, however, can a poorly executed, non-compliant background check. In fact, lawsuits under the Fair Credit Reporting Act (FCRA), which offers consumer protection with respect to criminal and credit background checks, have risen steadily since 2011. As of February 2018, lawsuits were up 36% over the previous month and over 56% for the year.

The High Cost of Non-Compliance

Settlements of these lawsuits can run into the millions of dollars, particularly for class action lawsuits which, according to WebRecon, are what a growing number of plaintiffs are filing. And then, of course, there are the penalties and fines that can be assessed by FCRA. An employer can be held liable for either willful non-compliance or negligent non-compliance, which essentially means that not knowing or not understanding the law won’t save you. These fines can amount to up to $1,000 per violation or in the case of negligent non-compliance, the courts will allow for actual damages, attorney’s fees and court costs. Some courts have ruled that claims do not just apply to every person hired by your company but to every person who has ever applied.

In addition to the compliance requirements of the FCRA, your company is also subject to anti-discrimination and fair hiring statutes under the Equal Employment Opportunity Commission (EEOC) and state laws including the “Ban the Box” statutes. (Learn more in 8 Best Practices for Background Screening).

Ban the Box

This legal statute has been adopted by an increasing number of counties, cities, and states and is aimed at ensuring that employers do not discriminate against candidates with criminal records. “Ban the Box” legislation essentially forces employers to remove a typical pre-employment job application question that asks a candidate to check a box if they have ever been convicted of a crime. Some versions of this legislation can also often prevent employers from asking about arrests, dismissed history, sealed records, or history in a diversion program.

Most do not prevent employers from running background checks, but they may require a delay in requesting the criminal records of a potential employee until after the first interview is complete, for example.


The EEOC recently endorsed “Ban the Box” statutes by recommending that all employers remove the criminal records question from their applications and delay conducting criminal record background checks until after initial interviews are conducted. While some of the statutes apply strictly to government agencies, others apply to both the public and private sectors. Finally, you need to be aware that some “Ban the Box” statutes require employers to consider criminal histories on a case by case basis rather than by simply refusing to hire anyone who admits to criminal history.

The mandate of the EEOC is to ensure that everyone is treated equally. To this end, EEOC legislation makes it illegal to check the background of applicants and employees when that decision is based on a person's race, national origin, color, sex, religion, disability, genetic information or age (40 or older). You are also prohibited from asking about medical history prior to a conditional job offer being made or asking about the medical history of existing employees unless there is clear evidence that a medical condition may be impacting their performance.

Compliance is Key

Obviously, compliance with these laws is critical to your company, but it isn’t easy when you are dealing with so many different and frequently changing regulations. There are, however, a few things you can do to ensure you remain compliant.

Use Release Forms

The FCRA has very strict rules regarding the release forms you are able to use when conducting a background check on job applicants. These rules even include the font you are allowed to use. The form must be clear and conspicuous and must inform applicants that background and credit history will be taken into consideration in hiring. It must be a standalone document and must be signed by the candidate. It’s also a good idea to keep these signed forms for a minimum of two years.

Be Consistent

You cannot simply run background checks on select candidates. If you conduct a background check, it must be done for all applicants. In other words, be fair. You must also take care that the background check information that you request does not unfairly impact a specific race or ethnic group. (Learn more in 7 Good Reasons To Conduct Employee Background Checks).

Make it Relevant

The background check information you request must also be related to the position. Do not request, or do not apply, information that is potentially irrelevant. For example, a criminal records check that reveals a history of sexual offenses should impact whether or not you hire someone for a job in education. A series of unpaid parking tickets should have no impact on that potential hire.

Inform Applicants of Adverse Actions

By law, you must provide an applicant with a background report five business days before you decide to reject them. Essentially, this allows the candidate the chance to dispute incorrect information. If you do decide to reject a candidate based on a background report, you must provide them with written notification that includes:

  • A statement that the rejection was based on the background check
  • Contact information for the background check company that created the report
  • A statement that the applicant has 60 days to dispute the information in the background check, contact the background check company or request a copy of the background check

Create a Company Screening Policy

A comprehensive company pre-employment screening policy is the best way to ensure compliance. It should include information about the screening company you contract with as well as details about the types of screening that are relevant to each position with your firm and what information could lead to a refusal to hire a candidate. There should also be information included for how long records are to be kept and the procedures for adverse action notifications along with copies of your disclosure and authorization forms.

Review your Procedures

Legislation changes frequently. To ensure you remain compliant, your company policy and your procedures for conducting background checks should be reviewed yearly.