The hiring process can be long and expensive for many businesses -- even up to or over $4,000 depending on the position. Because this process is such a significant investment, it can be frustrating when a candidate fails their background check. However, because background checks are so diverse -- and industry standards vary widely -- it is important to understand why someone failed a background check and if that specific reason disqualifies the applicant for a given role. 

Background check practices should be clearly enshrined in company policy to protect businesses. The Society of Human Resource Management advises that businesses should create procedures to suit unique needs for an Adverse Action Process. There are many factors to consider when an applicant fails a background check, and taking key steps will help a company determine whether adverse action is needed. 

Consider These Factors When Someone Fails Their Background Check

Criminal History: 

If a candidate fails a criminal history background check, it may or may not disqualify them, depending on the circumstances. According to the National Conference of State Legislators, 77 million Americans have a criminal conviction, or 1 in 3 adults, which means the company needs to dig into the context of who the candidate is, whether the record relates to the role, and the context of the crime. All companies should take these steps before revoking an employment offer based on a prospect’s legal  record.

Education or Employment Discrepancies: 

A recent hiring survey found that candidates commonly misrepresent their qualifications: “ 85 percent of employers surveyed uncovered a lie or misrepresentation on a candidate's resume or job application during the screening process.” If an education verification process or employment verification demonstrates that a prospect has not been 100% accurate, the hiring team or background check company should discuss the discrepancy with the candidate. The decision to revoke an offer should depend on how egregious the discrepancy and the discussion with the candidate: Did they outright lie about receiving a degree? Was there any context offered about the discrepancies? Did they simply get the dates of attendance or prior employment wrong?

Bad Credit: 

Companies that consider poor credit scores when making a hire should consider the position the candidate is applying for and the frequency or severity of the credit history.  A higher level management or financial position will require different analysis than seasonal hiring: does debt or financial delinquency have any relevant application to the position?  If not, a poor credit history should not automatically disqualify a candidate. 

 Social Media: 

For companies, the rules around social media checks are strict, but they can allow an employer to understand more about applicants -- possibly their history of violence, prejudiced or sexist rhetoric, substance abuse, or more insight into a candidate’s cultural fit within a company.  Business News Daily suggests defining red flags and outliers to be considered a “fail”  in social media and to notify candidates that the company is searching social media pages.  Being upfront about the process ahead of time protects both the company and the applicant.     

Proceed with Caution: Taking Adverse Action Steps

The EEOC dictates that when using a background check, all applicants must be treated fairly. The same standards must be applied to all candidates, and companies must:

“Take special care when basing employment decisions on background problems that may be more common among people of a certain race, color, national origin, sex, or religion; among people who have a disability; or among people age 40 or older. 

For example, employers should not use a policy or practice that excludes people with certain criminal records if the policy or practice significantly disadvantages individuals of a particular race, national origin, or another protected characteristic, and does not accurately predict who will be a responsible, reliable, or safe employee. In legal terms, the policy or practice has a "disparate impact" and is not "job related and consistent with business necessity." 

Companies must remain careful and thoughtful about taking steps to revoke an offer or take adverse action based on a failed background check. 

Step 1: Confirm the Accuracy of the Failed Background Check

(Note, eKnowID can help with this step!)

Background check processes vary from highly personal, complex verifications to low cost, fast tracked screenings. Some types of background checks can be highly inaccurate.  Companies should ensure each background check has the correct information for the candidate, and there is no case of mistaken identity. A company should not take adverse action steps if they do not have the correct information for the candidate in question.

Step 2: Consult Company Policy

Businesses should maintain an updated company policy to guide them through next steps if they do have accurate information for a prospective employee.  Applying the policy to specific situations will protect the company from discrimination claims and ensure adherence to the Fair Credit Reporting Act and EEOC mandates. This policy should include “if, then” scenarios with different steps depending on the circumstance; these help guide when a business should continue with a hire or when to reject a candidate.

Step 3: Notify the Applicant with a "Pre-Adverse Action" Notice

Applicants must be notified with a written “pre-adverse action” notice or letter. According to the Federal Trade Commission (FTC), the written notification must include: 

• A summary of the candidate’s rights under the FCRA.  
• A copy of the report that flagged the discrepancy, on which the company is basing its pre-adverse notice.
• Name and contact information of the background check company that conducted the screening.

Companies must also outline next steps for the candidate to dispute the claim. 

Step 4: Allow the Candidate to Respond

Applicants may be unaware of their own records, especially with various types of identity and cyber fraud on the rise. A background check may be inaccurate, so companies must allow time for a full explanation from the candidate. This will better inform the company of the context and background, the severity or validity of disqualifying results, and protect the company from unfair assumptions or implicit biases. A candidate’s explanation can change a hiring team’s decision whether or not to move forward. Legally, candidates have the right to dispute a claim, and ethically it is in the best interest of the business to invite a more personal conversation about the circumstances.

Step 5: Decide Whether or Not to Move Forward

Hiring teams must refer back to company policy and account for the total context to decide next steps.  Consulting additional resources may be helpful, such as legal counsel or even specific industry and state standards. For example, companies could consult bodies like the Financial Industry Regulatory Authority (FINRA).  If a business still decides to hire a prospect after a failed background check, the employment process would continues as normal.  However, if the decision is made to take adverse action, or rescind a hiring offer, companies must take another step. 

Step 6: Send Adverse Action Notice

Similarly to sending a pre-adverse action notice, employers are also required to send a notice of adverse action. This letter should explain that the applicant’s hire offer is rescinded due to their background check.  The notice must also include: 

• The name and contact information of the background check company that conducted the background check on which the adverse decision was based.  
• A statement advising the individual that the consumer reporting agency did not make the adverse employment decision and therefore cannot provide any reasons why the adverse action was taken.
• Notification that the applicant or employee is entitled to receive a free copy of the background check or consumer report on which the adverse action was based within a 60-day period.
  
  

When making an adverse action decision, the key is to remain transparent and consistent with all applicants. Well crafted policies and expertly executed background checks can help ensure applicants are notified fairly along each step of the hiring process and that the process is applied to everyone indiscriminately.