Background Screening for Independent Contractors 6 Apr 2017


Definition of Background Screening for Independent Contractors: Background screening is the process of looking up and compiling criminal, commercial or financial records of an applicant. This is an important process because it’s much harder to terminate an employee than stop the hiring process.

Estimates are that over 85% of businesses in the United States are running background checks on their employees. Yet, most companies still don’t conduct background screening for independent contractors.

One reason for that may be that figuring out the compliance issues involved is just too confusing.

Background Screening for Independent Contractors Vary on The Law

Background Screening for Independent Contractors Vary on The Law

It’s true that every singe company has its own rules and policies. Therefore, interpretations of background screening for independent contractors greatly vary depending on the law. In 2012, a Wisconsin federal court judge held that the disclosure obligations of the FCRA do not apply to independent contractor relationships. The case involved a sales rep who sued EMS Energy Marketing Service after he was terminated. The plaintiff claimed that the company failed to provide him with either the written notice of his rights or a copy of the report as required by the statute.

Finally, the employer won a summary judgment. The court ruled that Lamson was hired as an independent contractor, not an employee. Therefore, the FCRA did not apply in that particular case. The language of the statute refers only to employees. This means that if a worker is not an employee “it necessarily follows that he or she is not covered by the FCRA.” At least, that’s what the court wrote in Lamson v. EMS Energy Marketing Service.

But in two advisory opinions issued back in 1998, the Federal Trade Commission stated its broadly constructed view.

It claimed that “employment relationship” still exists if background checks for independent contractors are a condition of hiring. Therefore, it triggers the protections of the FCRA.

If You’re Not Sure – Use Some Basic Logic

So there you have it. An inconsistency of interpretation leaves employers scratching their heads and wondering how to comply with an unclear federal policy. It is clear that hiring and screening contingent workers causes a lot of trouble for employers.

The safest thing is to back up and look at the overall intent of the underlying law. Then try to keep within its spirit until things spell out.

To the extent that these laws do apply, they generally require some rules and procedures. When making hiring decisions, employers must demonstrate that their employment decisions are related to job for the position in question and consistent with business necessity.

It’s Not Just Policymakers – Experts Disagree Too

Experts are of mixed opinion when it comes to the procedures to follow on background screening for independent contractors.

Many say that companies which do conduct background checks should make sure that their policy or process is consistent. This should be the rule regardless of whether the screening is for full or part time regular employees, candidates for employment, independent contractors, consultants, or any other contingent workers.

However, some who aren’t in the screening business and who follow other aspects of employment law disagree.

If you use the same process for both, you could run head-on into the issue of employee/contractor misclassification.

Treating an independent contractor in the same fashion as an employee is basically the same as admitting the IC isn’t an IC, but rather an employee.

Be Especially Careful With Written Policies

Richard Watkins of Kelly Services writes: “Requiring, mandating, instructing, or directing ICs to have background checks just ‘like employees’ implies guilt by association.”

Using phrases in your policy manual that says that treating contractors is same as treating “like other employees” is tricky. It calls into question whether they actually are employees, entitled to the same employer contributions and benefits normally accorded to permanent staff.

If you don’t carefully delineate and put into practice your independent contractor policies, you could encounter some problems. One of them is bringing the US Department of Labor into the mix. This will later cause expensive enforcement actions for employee misclassification under DOL rules.

How To Stay Legal AND Manage Risk with Appropriate Background Screening

background screening for independent contractors

Still, there are a few ways for businesses to protect their best interests. This also applies to situations when ICs will be working on-site and have access to their systems or network.

Watkins suggested a couple of possible options. One option would be to establish a policy for vendors that is distinct from their process for employees. In case of two differing policies in place where each policy works in specific situation, there can be no confusion as to how to treat workers. They are either screened per the policy for employees, or screened per the separate policy as contingent workers.

Or, you might require that contractor/vendors secure their own background checks as a contract condition.

Background checks for independent contractors can be managed by vendors such as Trusted Employees. They will help you create customized background screening tools and hosted solutions designed according to your specifications and branding. This assures a separate process and keeps you in the Safe Zone.