It depends on who you ask. The Federal Trade Commission (FTC) has long taken the position that the FCRA should be interpreted broadly, and in its guidance, treats “employment purpose” as covering not only traditional employees, but also non‑traditional workers such as independent contractors, freelancers, temporary workers, and volunteers.  However, in recent years, a few federal district courts have issued opinions that don’t align with the FTC’s guidance and instead use a strict common-law definition of the employer-employee relationship.

Because there’s no clear answer and the FCRA does not account for modern law firm partnership tiers, a hybrid compliance approach may be the best practice for avoiding FCRA liability.

Background Checks are Consumer Reports When Used for an Employment Purpose

The FCRA regulates information contained in consumer reports in order to protect the consumer’s privacy, promote fairness, and to guarantee the data reported is as accurate as possible. When a background check is used for employment purposes, it is considered a consumer report, and the requirements of the FCRA apply, including disclosure, authorization, and adverse action, as well as applicable state and local laws and regulations.

The FCRA defines the term “employment purposes” as evaluating a consumer for “employment, promotion, reassignment or retention as an employee.” It is important to note that the FTC interprets the ending phrase “as an employee” in the definition of “employment purposes” as modifying only “retention,” and not the words “employment, promotion, reassignment” preceding it.

Equity v. Non-Equity Partners and the FCRA 

Equity partners typically share profits and losses, contribute capital, and participate in governance. Non‑equity partners, by contrast, often receive fixed compensation, do not bear profit‑and‑loss risk, and remain subject to the firm’s control. In practice, non‑equity partners frequently resemble senior employees. Distinctions can also be made between candidates for partner who are recruited from outside the firm and associates being evaluated for promotion to partner.

Law firms should consider a hybrid compliance model that establishes separate screening policies for partner candidates recruited from outside the firm, for existing equity partners, and for candidates with an existing employment relationship with the firm, such as associates or non-equity partners. Background checks for associates and non‑equity partners should generally be treated as subject to the FCRA’s employment‑purpose requirements.

For outside partner candidates and equity partners, firms may instead rely on a non‑employment permissible purpose under the FCRA: “the written instructions of the consumer.”

Key Takeaways

  • Titles do not control—structure and control do
  • Default to FCRA employment purpose compliance for non‑equity partners
  • Apply FCRA employment purpose rules to internal promotions
  • Ensure screening vendors and internal teams align on the permissible purpose

 

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.