2023 Brings New Challenges to Employment Screening Compliance

​Background screening may become more difficult for employers this year as they try to comply with new laws restricting access to candidates' information.

Legal developments include the heightened federal and state oversight of the use of artificial intelligence (AI) and automation in screening technology; the growing momentum behind "clean slate" and privacy laws that limit access to public records; and the ongoing challenge of balancing drug testing with expanded marijuana legalization.

"Background screening deals with employment, which is so fundamental to people's lives, so anything that impacts employment gets looked at closely by policymakers," said Les Rosen, an attorney in the San Francisco area and founder of Employment Screening Resources, recently acquired by ClearStar.  

[SHRM resource hub page: Background Checks]

Federal Agencies Respond to Emerging Tech

Employers conducting background checks for employment purposes are used to complying with federal laws, regulations and guidance enforced by the Equal Employment Opportunity Commission (EEOC), the Federal Trade Commission (FTC) and, since 2011, the Consumer Financial Protection Bureau (CFPB).

These agencies are sharpening their focus on new automated systems used in the hiring process, including screening and selection technologies.

"The CFPB continues to push employment background screeners to take basic steps to [ensure] the information reported about job applicants is accurate," said Scott Paler, an attorney in the Madison, Wis., office of DeWitt LLP and chair of the firm's background-screening practice group.

The bureau has issued advisory opinions warning about the harm caused by erroneous identity matching, in which an applicant is disqualified from a job due to being matched with another person's negative record. It has also taken enforcement action against screeners and is considering proposing a rule to amend the Fair Credit Reporting Act (FCRA) to improve compliance.  

"The CFPB continues to express some skepticism about automated processes that, from their point of view, may result in less accuracy," Paler said.  

The EEOC has also expressed concerns about the rising adoption of HR technology that uses automated processes in hiring and selection. The agency has included "the use of automated systems, including artificial intelligence or machine learning" and "screening tools that disproportionately impact workers based on their protected status, including those facilitated by artificial intelligence or other automated systems, pre-employment tests, and background checks," as priorities in its latest strategic enforcement plan.  

"While the use of AI can be helpful in the evaluation of prospective employees and their resumes or applications, it also presents challenges with regard to the potential for discrimination," said Christine Cunneen, president of Hire Image, a background-screening firm in Providence, R.I. "With lawsuits being brought against employers, the EEOC took a stance on the issue with a technical assistance document last year."

Paler said the increased focus is an indication that more action is coming on this issue.

"Some areas to be concerned about include systems that use key words to screen people out or people being screened out too early in the process due to criminal records," he said. "The EEOC is pushing for case-by-case assessments of individual circumstances, and that may run counter to employers' efforts to use automated systems that produce consistency and efficiency." 

Paler expects the EEOC to bring a handful of enforcement actions against employers this year to show it's taking the issue seriously.

The White House also weighed in on the topic last year, and New York City's law requiring bias audits of automated employment decision tools garnered a lot of attention. That law goes into effect in April.

"The challenge with the New York City law and others being considered in this area is how AI is defined and exactly what types of tools are covered," said Angela Preston, senior vice president and counsel, corporate ethics and compliance at Sterling, a global background-screening company. "It's not entirely clear which tools are covered and subject to bias testing, and that's a problem."

Rosen said that as long as employers use a reasonable procedure based upon legally obtained information, do not make arbitrary employment decisions, and do make a good-faith attempt to be consistent, it is hard to argue that their decision is not defensible.  

Patchwork of State and Local Laws Grows

Over the last 10-plus years, numerous cities, counties and states have passed "fair chance" hiring laws that limit an employer's use and consideration of a job applicant's criminal history in making employment decisions. Now employers should be aware of "clean slate" and privacy laws popping up in different jurisdictions across the country.

Clean slate laws—meant to help people with criminal records access better jobs through the automatic expungement or sealing of criminal records after a certain amount of time has passed—are poised to spread to more states this year. To date, 10 states have passed such laws, and there are active campaigns in many more.

"Both California's and Connecticut's clean slate laws went into effect on Jan. 1, while Michigan's new law is set to take effect on July 1 of this year," Cunneen said. "These laws severely limit the amount of information a prospective employer can consider upon hire—and these are just a few of many new laws limiting access to information across the country."

Rosen said that clean slate laws will spread like the "ban-the-box" movement did in recent years. "Having defended thousands of people in criminal cases, I know firsthand that people going through the criminal justice system are not always clear on the process for expunging records," he said. "The clean slate laws, which make it automatic that eligible records get expunged, make sense and will have a positive impact in getting more people back to work."

For employers, the trend means good and bad news, Paler said: "The good news is that many employers are struggling with making case-by-case assessments of candidates with criminal records. Some employers will be more than happy to avoid having to make those judgment calls."

It's also beneficial from a negligent-hiring perspective, he said. "If an employer is not allowed to review criminal records, then no one can say that they should have not hired someone who then went on to do something grievous."

However, Paler and Preston said employers will need to be aware that they will lose access to some information, and it can be a challenge to keep up with the patchwork of different laws across states and localities. "Employers should also understand that clean slate laws can cover a broad range of actions, from allowing people to apply for record clearing to an automatic wiping of records. They run the gamut," she said.

Differences include which crimes are eligible to be wiped out. "Many people think these laws focus only on low-level crimes like drug possession, but the clean slate movement is looking to also wipe some serious misdemeanors and even Class D and E felonies," Paler said. "Clean slate laws may go farther than some employers are comfortable with."

Background screening will also increasingly be impacted by privacy laws this year. "With no comprehensive federal privacy law, states are taking privacy into their own hands," Cunneen said.

She added that courts in California and Michigan have removed date of birth as a personal identifier from public records, restricting access to information typically used by screeners when conducting a background check.

"It's impacting the entire background-screening process by eliminating the personally identifiable information used to determine if the record even belongs to the applicant," Cunneen said. "This makes it extremely difficult, if not impossible, for background-screening companies to quickly and efficiently provide complete, accurate and thorough reports."

It's an example of the rule of unintended consequences, Rosen said. "The idea of removing identifiers like date of birth was to help people with records get jobs, but employers will still do due diligence," he said. "So that means that checks will take longer, negatively affecting candidates, especially if the person has a common name."

Paler said this type of situation puts employers in the difficult position of deciding whether to bring someone on and wait for background-check results to come through later, or put a hold on the position until the complete report comes in.

One possible solution is to have a carveout for employment screening. "Background checks are already highly regulated, and I think we want background-screening firms to be able to do their job well," Paler said.  

Preston concurred. "In order to have accurate screening, screeners need access to public records," she said. She explained that the Professional Background Screening Association was successful in reaching a solution in Michigan, where screeners have been given permission through a registration process to get access to unredacted records. The association also worked with state legislators in California to pass a bill that would ensure date-of-birth access, but Gov. Gavin Newsom vetoed it out of privacy concerns.

Cunneen said that reconciling various state laws with employment policies and procedures is becoming increasingly challenging for employers. "What applies to one state doesn't necessarily apply to another in more ways than one, including the availability of personal identifying information, the accessibility of criminal information, and the legality of marijuana," she said.

Marijuana Legalization Spreads

Marijuana possession remains illegal under federal law, but most states have legalized the substance for medical and/or recreational purposes, pushing many employers to consider removing marijuana from their pre-employment drug-testing panels.

"Marijuana was front and center at the midterm elections last November, as several states included recreational marijuana on their ballots," Cunneen said. She added that ballot initiatives in Arkansas, North Dakota and South Dakota failed, but legalization efforts in Maryland and Missouri passed. Missouri's law went into effect in December, and Maryland's law will take effect July 1.

"Under both laws, adults aged 21 and over are legally permitted to possess marijuana," she said. "Both also include processes for expunging certain marijuana convictions. How these laws will impact employers and testing for marijuana, including accommodations for marijuana use, drug-free workplaces, and laws against testing for marijuana is still being worked through."

But while marijuana use is increasingly legal, state laws tend not to protect impairment at work, and employers generally do not have to allow employees who are under the influence to work, Paler said.

Employers in states with legalized marijuana use will have to rethink their testing policies, including consideration of a fair way to treat employees who can legally use the drug, Preston said.

"One of the challenges with marijuana is that there isn't a sound way to test for a legal standard of impairment," she said. "But there is innovation happening in testing technology to give employers more tools to check if someone is causing a safety risk at the workplace."

In addition, the use of therapeutic psychedelics, such as psilocybin, is also becoming more accepted. Two states have legalized their use while some cities have decriminalized them, and more states may adopt laws legalizing these drugs in the future.

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