Compliance Corner Archives

Can Employers Charge Job Applicants for Their Background Check?

When candidates apply for a job, they expect a thorough screening process: interviews, reference checks, and often a formal background check. But can an employer require a job applicant to pay for their own background check?

The answer is more nuanced than a simple yes or no. It depends on state law, federal wage-and-hour rules, and how the background check is conducted.

Federal Law: No Direct Prohibition, but Important Limits

At the federal level, there is no law that explicitly prohibits an employer from requiring applicants to pay for a background check. The Fair Credit Reporting Act (FCRA) regulates how background checks must be conducted but it does not regulate who must pay for the screening.

However, the federal Fair Labor Standards Act (FLSA) does impose limitations once a person becomes an employee. Employers cannot deduct background check costs if doing so would reduce the individual’s pay below the minimum wage for that workweek. While this usually applies to employees, not applicants, it still influences how some states treat pre‑employment expenses.

State Laws: The Deciding Factor

State legislation determines whether an employer can charge job seekers for the cost of a background check. And many states say no. These include: California, Louisiana, Minnesota and Vermont.

In states without specific prohibitions, employers may legally require applicants to pay for background checks as long as the practice does not violate any other wage, consumer protection, or hiring transparency rules.

Should Employers Charge Applicants?

Even in states where charging applicants is legal, many employers avoid it for several reasons:

Competitive Disadvantage

Requiring applicants to pay, especially lower‑wage candidates, may shrink an employer’s talent pool.

Perception and Candidate Experience

Applicants may view the request as unfair or predatory, damaging employer reputation.

Administrative Burden

Collecting fees, issuing reimbursements, and maintaining compliance increases operational complexity.

Equity Concerns

Cost‑shifting disproportionately impacts economically vulnerable job seekers.

For these reasons, most employers see background check costs as part of doing business.

Disclaimer: This communication is for general informational purposes only and does not constitute legal advice. The summary provided in this alert does not, and cannot, cover in detail what employers need to know about the amendments to the Philadelphia Fair Chance Law or how to incorporate its requirements into their hiring process. No recipient should act or refrain from acting based on any information provided here without advice from a qualified attorney licensed in the applicable jurisdiction.

January 15th, 2026|Compliance Corner, Employment Decisions|

New Year, New Rules: Recap of What’s Coming in 2026 in Employment Screening

2026 marks a series of newly enacted laws taking effect across the country. Employers must adapt quickly to ensure compliance and maintain fair hiring practices. Below are the most significant changes taking effect this year.

District of Columbia: Second Chance Law (Effective January 1, 2026)

Automatic sealing of decriminalized offenses (such as pre-2015 marijuana convictions) and various older convictions.
Petition avenues for sealing additional convictions.
Employers are not permitted to access or act on any records sealed under this new law.

Philadelphia: Criminal Record Screening Amendment (Effective January 6, 2026)

Look-back periods cut; only felonies within the past 7 years and misdemeanors within the last 4 years are eligible for consideration, while minor offenses (summaries/infractions) are entirely excluded.
Requires “pre-adverse action notices” over a ten-day candidate response period, and robust documentation, even extending the 90-day protection against adverse action following protected activity.

New York State: Credit-Check Ban (Effective April 18, 2026)

Employers, including staffing firms, cannot request or use any “consumer credit history” for hiring, promotion, compensation, or other employment decisions, unless a statutory exemption applies.
This statewide ban aligns with New York City’s Stop Credit Discrimination in Employment Act (SCDEA), extending similar protections across the entire state.
The expansive definition of “credit history” covers credit reports, scores, credit accounts, and payment histories and, similar to the SCDEA, it likely prohibits searches of public records for bankruptcies, judgments, and tax liens unless an exemption applies.

Washington State: Fair Chance Enhancements (Effective July 1, 2026)

Employers with 15+ employees must wait until “after extending a conditional job offer” to inquire about criminal history; this rule extends to all employers by January 1, 2027.
Arrests, juvenile convictions, and non-conviction adult records are off-limits in hiring decisions. Only relevant adult convictions may be considered and only with a documented legitimate business justification, accompanied by a written notice and at least two business days for a candidate’s response.

Virginia: Clean Slate Law (Effective July 1, 2026)

Numerous misdemeanors and low-level felonies will be “automatically sealed” disappearing from standard background checks.
Employers and screening vendors are expressly barred from reporting or considering such sealed convictions in hiring decisions

San Francisco: Updated Fair Chance Poster

The City and County of San Francisco issued a revised version of its Fair Chance Ordinance (FCO) notice poster, replacing the prior version released in 2023. The updates include changes to official contact information and a Vietnamese-language translation, in addition to English, Spanish, Chinese, and Tagalog. The updated poster can be found here.

Disclaimer: This communication is for general informational purposes only and does not constitute legal advice. The summary provided in this alert does not, and cannot, cover in detail what employers need to know about the amendments to the Philadelphia Fair Chance Law or how to incorporate its requirements into their hiring process. No recipient should act or refrain from acting based on any information provided here without advice from a qualified attorney licensed in the applicable jurisdiction.

January 13th, 2026|Compliance Corner, Employment Decisions|

New NYS Law Restricts Use of Credit History in Employment Decisions

What is this about:

New York State recently enacted S.3072/A.1316, a law that broadly prohibits employers, staffing agencies, labor unions, and their agents from requesting or using “consumer credit history” in employment decisions, covering hiring, firing, promotions, compensation, and other terms of employment unless a narrow statutory exemption applies.

Effective date:

Signed by Governor Hochul on December 19, 2025, the law takes effect on April 18, 2026.

What this means:

Employers cannot use credit history for hiring, firing, promotions, or compensation decisions unless an exemption applies, e.g., legal requirement, public trust roles, access to sensitive systems, or authority to bind contracts over $10,000. Except for these exemptions, any such use is classified as an “unlawful discriminatory practice” under General Business Law § 380-b.

The definition of “consumer credit history” in the new state law mirrors the definition in the New York City Stop Credit Discrimination in Employment Act (SCDEA), and means an individual’s credit worthiness, credit standing, credit capacity or payment history, as indicated by:

a consumer credit report;
credit score; or
information an employer obtains directly from the individual regarding (i) details about credit accounts, including the individual’s number of credit accounts, late or missed payments, charged-off debts, items in collections, credit limit or prior credit report inquiries, or (ii) bankruptcies, judgments or liens.

As in the SCDEA, a “consumer credit report shall include any written or other communication of any information by a consumer reporting agency that bears on a credit capacity or credit history.”

Unlike the SCDEA, the NYS law does not require a written notice to the candidate specifying the exemption under which credit information is obtained. However, employers should maintain internal documentation to justify the exemption.

Why this matters:

This development aligns New York State with similar protections in NYC (since 2015), and places it among eleven states limiting credit checks in employment. Credit histories are frequently inaccurate and disproportionately affect economically vulnerable and minority applicants—this law helps reduce those biases.

Disclaimer: This communication is for general informational purposes only and does not constitute legal advice. The summary provided in this alert does not, and cannot, cover in detail what employers need to know about the amendments to the Philadelphia Fair Chance Law or how to incorporate its requirements into their hiring process. No recipient should act or refrain from acting based on any information provided here without advice from a qualified attorney licensed in the applicable jurisdiction.

January 6th, 2026|Compliance Corner, Employment Decisions|

QC 1000 and Beyond: Elevating Risk Management Through Background Screening

The PCAOB’s QC 1000 standard, effective December 15, 2026, is redefining audit firm quality control. While QC 1000 does not mandate annual background checks on existing clients, leading firms understand that compliance alone is insufficient. In today’s environment of rapid change–management turnover, regulatory scrutiny, global sanctions–risk resilience demands proactive measures.

QC 1000 at a Glance

QC 1000 requires firms to:

Establish quality objectives and identify quality risks.
Implement responses across eight integrated components:
Risk Assessment, Governance & Leadership, Ethics & Independence, Acceptance & Continuance, Engagement Performance, Resources, Information & Communication, Monitoring & Remediation.
Conduct annual internal evaluations and report results via Form QC to the PCAOB.

This structure creates a natural alignment for event-driven and periodic background screening as part of a firm’s quality management system.

Why Due Diligence Is a Strategic Imperative

Emerging Risk Detection: Leadership changes and adverse media can surface overnight.
Regulatory Alignment: Screening supports independence, AML, and anti-corruption compliance.
Reputation Protection: One high-risk client can jeopardize your brand and credibility.
Global Complexity: Cross-border engagements demand proactive monitoring for sanctions and fraud indicators.

Integrating Screening into QC 1000 Components

Risk Assessment: Include client integrity risks in your risk register; define triggers such as executive changes or enforcement actions.
Governance & Leadership: Assign accountable roles and embed screening KPIs into leadership dashboards.
Ethics & Independence: Use screening to identify conflicts or misconduct that could impair independence.
Acceptance & Continuance: Require screening before engagement acceptance and upon triggering events.
Monitoring & Remediation: Track screening outcomes, escalate issues, and feed lessons learned back into your QC system.

The Bottom Line

QC 1000 is more than a compliance requirement–it’s an opportunity to elevate your firm’s risk management strategy. Contact us today to start building a due diligence process customized to your needs.

Disclaimer: This communication is for general informational purposes only and does not constitute legal advice. The summary provided in this alert does not, and cannot, cover in detail what employers need to know about the amendments to the Philadelphia Fair Chance Law or how to incorporate its requirements into their hiring process. No recipient should act or refrain from acting based on any information provided here without advice from a qualified attorney licensed in the applicable jurisdiction.

January 5th, 2026|Compliance Corner, Employment Decisions, Risk Management|

The FCRA Big Three Lawsuit Triggers

Hiring the right talent is critical but one overlooked detail in your background screening process can cost your company millions. Employers often assume background checks are routine, yet the legal landscape tells a different story. The majority of lawsuits tied to employment screening aren’t about discrimination or bad hires—they’re about technical compliance mistakes under the Fair Credit Reporting Act (FCRA). These errors are easy to make and expensive to fix.

Research shows that approximately 73% of FCRA-related lawsuits against employers stem from these three common mistakes:

Non-compliant disclosure forms
Missing or delayed pre-adverse action notices
Inadequate authorization forms

The consequences can be significant: statutory damages of $100–$1,000 per violation, plus attorney fees, with settlements often reaching mid-six to seven figures.

Emerging Risk: Disparate Impact Discrimination

Background check policies and particularly those applying strict pass/fail criteria based on criminal history can unintentionally violate Title VII if they disproportionately impact protected groups. The EEOC has successfully challenged such blanket policies in litigation.

EEOC guidance emphasizes individualized assessments, considering:

The nature of the offense
Time elapsed since the offense
Relevance to the job

Relying on generalized exclusions without job-specific review creates legal risk. Additionally, many state and local laws impose specific requirements for individualized assessments.

Best Practices to Reduce Lawsuit Risk

To minimize exposure from background screening:

Use standalone, plain-language disclosure forms before any check.
Obtain written authorization in a separate form, not embedded in applications.
Follow the adverse action protocol: provide a pre-adverse notice with a copy of the report and summary of rights, and wait at least five business days before issuing the final notice.
Allow candidates to dispute findings.
Implement individualized assessments, especially for criminal record policies.
Regularly audit processes and train HR staff on evolving regulations.

Disclaimer: This communication is for general informational purposes only and does not constitute legal advice. The summary provided in this alert does not, and cannot, cover in detail what employers need to know about the amendments to the Philadelphia Fair Chance Law or how to incorporate its requirements into their hiring process. No recipient should act or refrain from acting based on any information provided here without advice from a qualified attorney licensed in the applicable jurisdiction.

December 23rd, 2025|Compliance Corner, FCRA|

The Illusion of Instant Criminal Checks: Why a True National Criminal Database Still Doesn’t Exist

If you’ve ever been pitched a “national criminal database,” you’ve probably imagined a single, authoritative system that instantly returns every criminal record across the United States. That database doesn’t exist for non‑law‑enforcement users and relying on anything marketed that way can lead to missed records, inaccurate matches, and regulatory headaches.

What actually exists at the national level?

The FBI operates several national systems—NCIC, III, NGI, N‑DEx, and NICS—to support criminal justice operations. These are law‑enforcement systems, with access tightly constrained by federal law and regulation (including 28 C.F.R. § 20.33). Employers generally cannot query NCIC/III directly unless a statute authorizes fingerprint‑based checks for specific roles (e.g., child care, elder care, or other regulated positions) and the check is routed through the state repository per the Compact Council rules.

Even within law enforcement, these systems are indexes and exchanges that depend on state and local repositories to submit arrests and dispositions; coverage and timeliness vary. The DOJ/BJS surveys and FBI guidance repeatedly emphasize gaps and the critical need to report final court dispositions to keep records accurate.

So what are “national criminal databases” sold by private vendors?

Commercial “national” or multi‑jurisdictional files aggregate data from many sources (state repositories where available, departments of corrections, sex offender registries, selected county uploads, watchlists, etc.). They can be useful as a pointer or discovery tool, but they are not comprehensive and often not current enough to stand alone. Coverage varies by jurisdiction and update cadence; name‑match noise creates false positives/negatives, especially with common names.

Industry resources and compliance guidance are consistent on this point: use multi‑jurisdictional databases to broaden the net, then verify at the originating court or repository before reporting or taking action.

Why “database‑only” screening creates risk

Incomplete coverage: Not all courts or states report; updates lag. Recent charges or local misdemeanors may be absent.
Identity ambiguity: Limited identifiers can mis‑match results; aliases and data entry errors compound the problem.
Stale or missing dispositions: Arrests without case outcomes mislead; expungements or dismissals may remain in bulk feeds.
Fair Credit Reporting Act (FCRA) compliance exposure: The FCRA requires “reasonable procedures to assure maximum possible accuracy” and complete, up‑to‑date public record reporting. Database “hits” must be confirmed at the source, and consumers must be notified appropriately when adverse public records are reported for employment decisions.

Regulators have sharpened expectations. In 2024, the Consumer Financial Protection Bureau (CFPB) reiterated that consumer reporting agencies (CRAs) must prevent reporting of duplicate or expunged/sealed items and include disposition information where available. CRAs also must disclose the source(s), both original and any intermediaries, when consumers request their files.

Why this still matters

Despite modernization, data gaps persist—especially in disposition reporting and identity matching. The newest BJS/SEARCH survey shows continued dependence on state repositories and varying automation/completeness across states, reinforcing why source verification and robust procedures remain critical.

Meanwhile, regulators (CFPB/FTC) are raising the bar on “maximum possible accuracy.” Organizations that rely on “instant database” products without verification risk adverse action mistakes, consumer disputes, and enforcement exposure.

Disclaimer: This communication is for general informational purposes only and does not constitute legal advice. The summary provided in this alert does not, and cannot, cover in detail what employers need to know about the amendments to the Philadelphia Fair Chance Law or how to incorporate its requirements into their hiring process. No recipient should act or refrain from acting based on any information provided here without advice from a qualified attorney licensed in the applicable jurisdiction.

December 12th, 2025|Compliance Corner, FCRA|

Independent Contractors, Misclassification, and the FCRA: Lessons from Joel Galarza’s Eleventh Circuit Case

The Eleventh Circuit’s recent decision in Galarza v. One Call Claims, LLC sent ripples through compliance and risk management circles. At its core, the case addressed whether three insurance adjusters labeled as independent contractors were actually employees under the Fair Labor Standards Act (FLSA). The court applied the economic realities test and concluded that a jury could reasonably find these workers were employees, reversing the district court’s summary judgment in favor of the companies. Five of six factors favored employee status, including:

Control over work: The companies dictated schedules, monitored performance, and approved overtime.
Economic dependence: Adjusters worked exclusively for the companies for nearly two years.
Integral role: Their work was central to the companies’ operations.
Permanency: Long-term, exclusive engagements suggested employment rather than independent contracting.

Why This Matters for Employment Background Screening

While the Galarza case was decided under the FLSA, it raises a critical question for compliance professionals: Should independent contractors be treated as employees for purposes of the Fair Credit Reporting Act (FCRA)?

Under the FCRA, requirements such as stand-alone disclosures, written authorization, and pre-adverse action notices apply when a consumer report is obtained for “employment purposes.” The statute defines this as evaluating a consumer for employment, promotion, reassignment, or retention as an employee. Although Federal Trade Commission (FTC) staff reports have suggested that the FCRA’s “employment purpose” provision may extend to certain independent contractors, courts have generally taken a narrower view. For example, in Smith v. Mutual of Omaha (S.D. Iowa), the court held that background screening for contractor roles did not trigger the FCRA’s employment-related protections.

However, the Galarza decision underscores a practical risk: labels don’t control legal outcomes. If a contractor is later deemed an employee under an “economic realities” or similar test, a company could face exposure—not just under wage laws, but potentially under FCRA if the screening process didn’t meet employment-purpose requirements.

Compliance Takeaways

Don’t Rely on Labels Alone
Contracts calling someone an “independent contractor” won’t shield you if the working relationship looks like employment. Courts focus on substance over form.
Assess Classification Before Screening
If the role involves long-term, exclusive work under significant control, treat the individual as an employee for FCRA compliance. This means providing proper disclosures, obtaining written consent, and following adverse action procedures.
Update Policies and Vendor Agreements
Ensure your background screening policies clearly address contractor roles and include contingency plans if classification changes.
Monitor Legal Trends
The Eleventh Circuit’s ruling aligns with broader enforcement trends emphasizing misclassification risks. Expect more scrutiny in wage-and-hour and consumer reporting contexts.

Bottom Line

The Galarza case is a wake-up call: misclassification isn’t just a wage-and-hour issue—it’s a compliance risk that touches background screening and FCRA obligations. When in doubt, err on the side of treating high-control, long-term contractors as employees for screening purposes. It’s a small step that can prevent big liability

Disclaimer: This communication is for general informational purposes only and does not constitute legal advice. The summary provided in this alert does not, and cannot, cover in detail what employers need to know about the amendments to the Philadelphia Fair Chance Law or how to incorporate its requirements into their hiring process. No recipient should act or refrain from acting based on any information provided here without advice from a qualified attorney licensed in the applicable jurisdiction.

November 11th, 2025|Compliance Corner, FCRA|

A Unified Credit Reporting System: CFPB Clarifies Federal Preemption Under the FCRA

On October 28, 2025, in a significant move toward regulatory clarity, the Consumer Financial Protection Bureau (CFPB) issued a new interpretive rule reaffirming the broad preemptive scope of the Fair Credit Reporting Act (FCRA) over state laws. This rule replaces the narrower interpretation issued in July 2022, which the CFPB formally withdrew in May 2025.

Why This Matters

The FCRA, enacted in 1970 and amended multiple times since, governs the creation and use of consumer reports. It has always included a preemption clause, but the scope of that clause has evolved. In 1996, Congress expanded FCRA’s preemption to cover specific subject matters, aiming to prevent a fragmented regulatory landscape. This expansion was made permanent in 2003 to support a unified national credit reporting system.

The CFPB’s latest interpretive rule confirms that the FCRA broadly preempts state laws that touch on the subject matter regulated by the federal statute. This clarification is intended to promote consistency across the credit reporting industry and ensure that consumers and businesses operate under a single, coherent set of standards.

The Shift from 2022

The 2022 interpretive rule argued for a narrow reading of FCRA’s preemption clause, suggesting that states could regulate areas like medical debt, rental information, and arrest records unless those regulations directly conflicted with specific FCRA provisions. The CFPB now asserts that this interpretation was flawed, both legally and practically.

According to the Bureau, the language of the FCRA—particularly section 1681t(b)(1)—uses broad terms like “no requirement or prohibition” and “with respect to any subject matter regulated under,” which indicate Congress’s intent to occupy the field of consumer reporting. The phrase “relating to” further expands the scope, encompassing any state law connected to the topics covered by the FCRA.

Legal and Legislative Support

The CFPB’s position is supported by legislative history and judicial precedent. Congress explicitly aimed to create national standards to avoid a “patchwork system of conflicting regulations.” Courts have consistently interpreted the FCRA’s preemption clause broadly, finding that state laws addressing the same subject matter as federal provisions are preempted even if they don’t mirror the exact language of the FCRA.

Implications on Compliance

While the CFPB’s interpretive rule provides helpful guidance, it is important to note that interpretive rules are not binding on any court. Courts may choose not to adopt the CFPB’s interpretation, and legal challenges could arise depending on jurisdiction and context.

Disclaimer: This communication is for general informational purposes only and does not constitute legal advice. The summary provided in this alert does not, and cannot, cover in detail what employers need to know about the amendments to the Philadelphia Fair Chance Law or how to incorporate its requirements into their hiring process. No recipient should act or refrain from acting based on any information provided here without advice from a qualified attorney licensed in the applicable jurisdiction.

October 31st, 2025|Compliance Corner, FCRA|

California Consumer Privacy Act (CCPA) and Employment Background Screening

Key Points:

Limited Applicability Due to AB 25

Initially, the CCPA broadly defined “consumer” to include job applicants and employees. However, Assembly Bill 25 (AB 25) amended the CCPA to temporarily exclude personal information collected from job applicants, employees, and independent contractors from most CCPA provisions.

This exclusion was in effect until January 1, 2023, after which some CCPA rights were extended to employees and job applicants. As of now, employers must comply with the following CCPA provisions when using background screening services:

Notice at collection–employers must inform applicants about:
What personal data is being collected (e.g., criminal history, credit data, identifiers)
The purpose of data collection (e.g., hiring decisions)

Data security obligations:
Employers must implement reasonable security measures to protect personal data. If a breach occurs due to negligence, affected individuals may sue for statutory damages.

Overlap with Other Laws

Employers in California must also comply with:

Fair Credit Reporting Act (FCRA)
Investigative Consumer Reporting Agencies Act (ICRAA)
Consumer Credit Reporting Agencies Act (CCRAA)

These laws govern how background checks are conducted, what disclosures are required, and how adverse actions must be handled.

Disclaimer: This communication is for general informational purposes only and does not constitute legal advice. The summary provided in this alert does not, and cannot, cover in detail what employers need to know about the amendments to the Philadelphia Fair Chance Law or how to incorporate its requirements into their hiring process. No recipient should act or refrain from acting based on any information provided here without advice from a qualified attorney licensed in the applicable jurisdiction.

October 27th, 2025|Compliance Corner, Employment Decisions|

Takeaways for Employers from the Grijalva v. ADP Screening Decision

The Ninth Circuit’s August 2025 ruling in Grijalva v. ADP Screening clarified how exclusions from federally funded healthcare programs and similar long-term listings, such as sex offender registries, can be reported under the Fair Credit Reporting Act (FCRA).

Key Implications for Employers:

Ongoing exclusions are reportable. Even if the exclusion began over seven years ago, it’s considered a current status and can appear in a background report.
The reason for the exclusion may not be reportable. If the underlying cause (e.g., an administrative action) occurred more than seven years ago and isn’t a criminal conviction, Consumer Reporting Agencies (CRAs) generally cannot report it unless the candidate is expected to earn $75,000 or more annually.
Employers can ask candidates directly. If you need context behind an exclusion or listing, you’re free to ask the candidate. CRAs may be restricted from providing that information due to FCRA limitations.
Convictions are treated differently. Criminal convictions are reportable regardless of age under the FCRA, but several states impose their own time-based restrictions.

Disclaimer: This communication is for general informational purposes only and does not constitute legal advice. The summary provided in this alert does not, and cannot, cover in detail what employers need to know about the amendments to the Philadelphia Fair Chance Law or how to incorporate its requirements into their hiring process. No recipient should act or refrain from acting based on any information provided here without advice from a qualified attorney licensed in the applicable jurisdiction.

October 24th, 2025|Compliance Corner, Employment Decisions|