Many people are familiar with the rules for running background checks on employees in a legally compliant way, including authorizations to obtain, disclosures to make, and notices to provide to job applicants when you’ve decided not to hire them based on their background check results. But what are the rules for running background checks on independent contractors? The short answer is that the rules are not entirely clear, but there are a few things we would generally advise businesses to consider doing when running background checks on independent contractors.
Below are some of the more frequently asked questions about running background checks on independent contractors, along with our responses/thoughts:
1. Can you run background checks on independent contractors?
Yes. As with employees, if an independent contractor gives authorization to do background screening, you can run a background check on the independent contractor. Because background check forms and rules are drafted to apply in the employment context, you’ll want to customize your forms and procedures to ensure that they apply to independent contractors, rather than employees.
2. Can independent contractors use background checks as proof that they are being treated as employees.
It’s possible…it’s a potential risk. The reason is that background checks are more typical of employment relationships. And indeed, the Fair Credit Report Act (the law that authorizes employers to seek background checks in hiring decisions) specifically authorizes background checks “for employment purposes.” So it can be argued that soliciting background checks on independent contractors is tantamount to treating them as employees. Having said that, it is now common practice for businesses to need background checks on anybody they associate with, whether that person is an employee or an independent contractor (e.g. vendor, subcontractor, consultant, gig worker, etc.), so as a practical matter, the practice of seeking a background check should no longer be indicative of employment status. But even if the practice was indicative of employment status, if background checks are important to the business you operate, I’d consider misclassification risks to pale in comparison to the risk to your business and clients/customers of working with independent contractors who have not had background screenings.
3. Are independent contractors entitled to the same background check protections as employees?
As noted above, when background checks are run on employees, the FCRA requires employers to make certain disclosures and obtain prior consent, and to provide employees a summary of their rights if the employer is using a background check to take adverse actions against the employee. The Fair Trade Commission (FTC) has been unequivocal that the FCRA is to be read broadly and that independent contractors enjoy the same protections as employees. And so in its view, employers should also obtain consent from, and make disclosures to, independent contractors, and inform independent contractors if adverse action is being taken against them as a result of the screening. On the other hand, however, there have been a few district court (lower level court) cases that have determined that the FCRA only applies if the background check is being used for the purposes of evaluating “employment”…as an “employee”; and since independent contractors are not employees, they are not entitled to the same background check and other FCRA protections as employees.
Bottomline, where the law is somewhat unsettled, the best approach is to play it safe when seeking background checks on independent contractors. That is, if you do seek background checks, assume that the FCRA protections apply, and create a background check policy that makes the necessary disclosures, obtains prior authorization, and that gives the contractor opportunity to dispute the background check report prior to you taking final action against the contractor.
