Scherzer Blog

In‑House Background Screening: A Closer Look at the Tradeoffs

There is no law or regulation that prohibits employers from conducting their own background screening. In fact, many organizations, especially smaller companies or those hiring infrequently, assume that doing it themselves will be faster, cheaper, or more flexible. But while in‑house screening is legally permitted, it comes with both benefits and meaningful tradeoffs that employers should understand before choosing that path.

The Pros

One advantage of employer‑led screening is control. Employers can decide exactly what to look for, how deep to go, and how the information is weighed in hiring decisions.

Cost is another perceived benefit. By avoiding third‑party screening vendors, employers may reduce direct expenses, at least on the surface. For organizations with limited hiring volume, internal screening can seem economically efficient.

Finally, some employers value the speed and informality of conducting their own research, especially when reviewing publicly available information or calling references directly. When done carefully, this can support timely decision‑making.

The Cons

The biggest downside is increased legal and compliance risk. While laws like the Fair Credit Reporting Act (FCRA) primarily apply when third‑party screening companies are used, employers conducting their own checks are still subject to anti‑discrimination laws, state and local fair‑chance rules, privacy considerations, and consistency requirements. Without structured processes, it’s easy for internal screening to become uneven, undocumented, or vulnerable to unconscious bias.

Accuracy is another concern. Public records are often incomplete, outdated, or misleading when viewed without proper context. Employers relying on surface‑level searches may unintentionally base decisions on incorrect or mismatched information, creating both legal exposure and reputational harm.

There’s also the issue of internal capacity and expertise. Effective background screening isn’t just about finding information; it’s about interpreting it. Understanding how to assess relevance, and apply findings consistently requires experience. Many employers underestimate the level of expertise required.

Finally, in‑house screening can blur accountability. When adverse decisions are challenged, employers must be able to show how information was obtained, evaluated, and applied fairly. Without third‑party documentation or standardized workflows, that defense becomes harder.

The Bottom Line

Employers can conduct their own employment background screening, but permission does not equal protection. Whether screening is handled internally or with external support, the process must be lawful, consistent, accurate, and grounded in sound judgment. Cutting corners on screening may save time upfront but it often costs more later.

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.

April 21st, 2026|Categories: Compliance Corner for Employment Decisions|Tags: Background Reports, Employment Decisions, FCRA|

California AB 2095: Refining the “Fair Chance” Process

California’s hiring landscape is known for its complexity, and Assembly Bill 2095 (AB 2095) looks to add another layer of precision. As a proposed update to the state’s existing Fair Chance Act, this bill aims to tighten the “ban-the-box” rules, ensuring that criminal history is only considered when it is directly relevant to the position.

What AB 2095 Would Change

While current laws already restrict when employers can ask about criminal history, AB 2095 focuses on the how. The goal is to eliminate indirect pressure on applicants to disclose their past before a formal assessment is made.

Under the bill, covered employers would be prohibited from:

Requesting consent for a conviction history background check before providing applicants with a written description of the specific job duties for which a conviction could be disqualifying.
Initiating a conviction history check before that job‑duty information is provided.
Requiring applicants to pay for any conviction history background check.
Requiring applicants, before or after a conditional offer, to disclose convictions or provide documentation related to convictions or rehabilitation.

Compliance Steps

If passed, AB 2095 would require employers to be more deliberate and transparent before any criminal history screening occurs. This includes:

Updating offer letters, disclosures, and authorization forms to ensure proper sequencing and content;
Confirming that job‑specific risk and duty information is clearly documented and provided to applicants before requesting screening consent; and
Coordinating closely with background screening vendors, particularly where vendors host or manage employer forms.

Failure to align hiring practices with AB 2095 requirements could increase exposure to discrimination claims under California’s civil rights laws.

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.

April 14th, 2026|Categories: Compliance Corner for Employment Decisions|Tags: Background Reports, California, Employment Decisions, Fair Chance|

Does the Fair Credit Reporting Act (FCRA) Apply to Background Checks of Law Partners?

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.

April 13th, 2026|Categories: Compliance Corner for Employment Decisions|Tags: Background Reports, Employment Decisions, FCRA, FTC|

Bust Out Fraud: When a Legitimate Business Is Turned Into a Weapon

Bust‑out fraud is one of the most damaging forms of business fraud. Unlike schemes that rely on fictitious companies or obviously forged documentation, bust‑out fraud exploits real businesses with real credit histories, turning legitimacy itself into the fraudster’s most powerful tool.

We recently found records involving a bust‑out scheme while performing research in connection with a commercial lending transaction. While the specific circumstances are confidential, the pattern was familiar and increasingly common across industries.

What Is Bust‑Out Fraud?

Bust‑out fraud occurs when an individual or group gains control of an existing business, builds or exploits its creditworthiness, and then rapidly incurs debt with no intent to repay. Once the credit is exhausted, the perpetrators disappear, leaving lenders, vendors, and partners with the losses.

What makes bust‑out fraud especially dangerous is that it often looks like normal business activity, until it’s too late.

How Bust‑Out Fraud Typically Works

A classic bust‑out scheme unfolds in recognizable stages:

Acquisition or Control
The fraudster purchases a business, installs themselves as an officer, or otherwise gains operational control, sometimes through seemingly legitimate mergers, management changes, or filings.
Quiet Period / Credit Grooming
For months (or longer), the company operates normally. Bills are paid on time. Credit limits may even be modestly increased. The goal is to reinforce trust.
Rapid Credit Expansion
Once confidence is established, the business applies for additional loans, vendor credit, leases, or financing, often simultaneously and across jurisdictions.
Cash‑Out Phase
Assets, inventory, or loan proceeds are diverted. Payments suddenly stop. Executives resign or become unreachable.
Collapse
The company folds, files for bankruptcy, or simply goes dark, leaving creditors scrambling to unwind what happened.

Real‑World Examples of Bust‑Out Fraud

While every scheme differs in execution, the following examples illustrate common variants.

Example 1: The “Too Smooth” Acquisition

A mid‑sized services firm is acquired by a new holding company. The new leadership existing staff and contracts in place, pays vendors promptly, and even invests modestly in marketing. Within a year, the company secures multiple six‑figure credit lines, followed by a sudden wave of equipment purchases and short‑term loans. Three months later, the business defaults across the board and leadership vanishes.

Example 2: Vendor Credit Exploitation

A long‑standing distributor with excellent payment history begins placing unusually large orders with multiple suppliers at once, negotiating extended terms. The inventory is resold quickly, often below market, to generate immediate cash. Vendors discover the fraud only after invoices go unpaid and bankruptcy filings appear.

Example 3: Identity Leverage Across Borders

A legitimate company with international operations is acquired by new principals. Corporate records are updated in multiple jurisdictions. The firm then secures financing in countries where credit checks rely heavily on corporate registration rather than beneficial ownership. The debt accumulates rapidly and enforcement becomes complicated once the entity dissolves.

Why Bust‑Out Fraud Is Hard to Detect

Bust‑out fraud often evades traditional fraud controls because:

The business already exists
Credit histories appear legitimate
Documentation is often technically correct
Early behavior reinforces trust rather than raising alarms

In many cases, the change in intent, not the change in structure, is what transforms a normal business into a fraud vehicle.

Final Thoughts

Bust‑out fraud exploits legitimate businesses and may remain concealed without thorough due diligence. In this instance, background screening identified prior involvement by the loan applicants in a bust‑out scheme, underscoring the value of a risk‑based review in identifying fraud risks before material exposure occurs.

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.

April 6th, 2026|Categories: Commercial Transactions Due Diligence|Tags: Fraud, Risk Management, Security|

The Quiet Risk in Background Screening: How Compliance Drift Takes Hold

Compliance failures aren’t usually the result of one big mistake. Instead, they happen through a compliance drift–the slow, quiet decoupling of your written policies from the ever-changing laws and daily operations. In background screening, “standing still” is the fastest way to fall out of compliance.

Why Programs Drift

Your policy might be static, but the world around it isn’t. Drift happens because:

Regulations move faster than handbooks: state and local Ban-the-Box, credit check, or salary history laws sometimes change quarterly, or even monthly, not annually.
Operational shortcuts become the norm: recruiters under pressure to hire may skip steps or run screens early, creating “shadow processes” that bypass legal safeguards.
Tech updates rewrite your rules: vendors update platforms and data sources; if you haven’t reviewed your settings lately, your software might be making decisions your policy doesn’t authorize.
Growth outpaces governance: M&A activity and remote hiring across new borders often introduce legacy risks that never get fully integrated or vetted.

The Warning Signs

Is your program drifting? Watch for these red flags:

“That’s how we’ve always done it”: the most dangerous phrase in compliance.
Policy ghosting: your manual references vendors or tools you no longer use.
Inconsistency: similar roles are being screened using different packages or criteria.
The “exception” rule: you have more undocumented “rush” hires than standard ones.

How to Anchor Your Program

To stop the drift, move from passive administration to active governance.

Assign an Owner: Compliance shouldn’t be “implied.” One person must own the bridge between Legal, HR, and the Vendor.
Audit the Workflow, Not Just the Paper: Don’t just read the policy; watch a recruiter or HR actually initiate a screen. Gaps often hide in the clicks, not the text.
Sync with Your Vendor: Regular check-ins and platform reviews are essential to ensure that the search strategies, screening packages, configurations, data sources, and decision tools still align with your policy and risk tolerance.

The Bottom Line: Compliance drift is silent until it’s deafening. If you aren’t actively managing the gap between what your policy says and what your business does, you’re already behind.

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.

March 27th, 2026|Categories: Compliance Corner for Employment Decisions|Tags: Compliance, Employment Decisions|

Applicant Data Poisoning: Can You Trust What You See?

For years, employers relied on a candidate’s digital footprint as an honest record. Resumé databases and automated “scrapers” created a convenient digital paper trail that made hiring fast.

That era is over. A trend called Data Poisoning is allowing job seekers to manipulate or completely manufacture their professional identities using AI. When a past can be rewritten with a single prompt, automated screening tools lose their footing.

The result? A hiring ecosystem where digital signals can no longer be taken at face value.

The Anatomy of a Digital Lie

AI has turned the professional past into a sandbox. Data poisoning typically falls into three categories:

Scrubbing the Past: AI “cleanup” tools erase years of unprofessional content or rewrite profiles in seconds to fit a new narrative.
Fabricating Histories: Generative AI creates flawless resumés, invented career trajectories, and portfolios for companies that never existed.
Forging Identities: Sophisticated “synthetic” personas now use deepfake selfies and manipulated IDs to bypass basic automated verification.

The Cure: Traditional Direct-Source Verification

Direct-source verification, which is the hallmark of a traditional, rigorous background check bypasses manipulated digital footprints by going straight to the origin.

Employment: Verify titles, dates, and details directly with HR or the payroll department, and not LinkedIn or through contact information supplied by the applicant.
Education: Confirm degrees and attendance with the registrar of the issuing institution, and check to ensure that the school is accredited.
Licenses: Validate credentials through real-time checks with official licensing boards.

Spotting the “Too Perfect” Candidate

AI-generated profiles often lack the “messy” markers of a real career. The red flags typically include social profiles with no organic history or recent bulk edits, and overly generic, AI-polished language that lacks specific local or industry context.

The Bottom Line: Don’t Just Scan–Verify

Data poisoning isn’t a theoretical risk; it is an active strategy used to bypass automated filters. In an era where anyone can rewrite their digital past, the strongest hiring decisions don’t come from a faster algorithm–they come from confirming what is real at the source.

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.

March 19th, 2026|Categories: Compliance Corner for Employment Decisions|Tags: Employment Decisions, Resume|

The Hiring Line: Work Authorization, Sponsorship, and E-Verify

You have 10 open roles and 100 applicants, and you want to know now who can actually work. But in the eyes of the law, curiosity can look a lot like discrimination. To protect your company, you need to know exactly where the “No-Go” zone begins.

The Pre-Offer “No-Go” Zone

Until you’ve extended a formal offer, your curiosity is legally capped. Federal guidance (under the INA) is a “two-question only” territory.

You CAN ask:

“Are you legally authorized to work in the United States?”
“Will you now or in the future require sponsorship for employment visa status?”

You CANNOT ask:

“Are you a U.S. citizen?”
“What is your visa type?” (H-1B, L-1, etc.)
“Can I see your Green Card or Passport?”
“Where were you born?”

Digging into citizenship or requesting documents too early is considered a discriminatory hurdle. Unless you fall under a narrow exception, it’s a fast track to a DOJ audit.

The Narrow Exception

There are limited situations when you can ask about citizenship upfront. This only applies if a law, executive order, or government contract requires it. Examples include:

Federal jobs: specific roles requiring U.S. citizenship.
Export controls: positions dealing with ITAR/EAR (defense and high-tech) where access is restricted by nationality.
Security clearances: roles that require a “Secret” or “Top Secret” stamp from the government.

E-Verify is for Post-Offer Only

E-Verify is a web-based system operated by the USCIS that electronically compares a new hire’s Form I-9 information with DHS and SSA records to confirm work authorization. It’s free and voluntary for most employers, although mandatory for certain federal contractors and by some states as a condition of business licensing or employment practices. Employers must create an account and sign a Memorandum of Understanding (MOU) with DHS and SSA before using E Verify.

Here’s the E-Verify flow:

Employee accepts an offer
Employee completes Form I-9
Employer enters I-9 data into E Verify
System checks the data against SSA and DHS records
Employer receives results

What Can Background Screening Companies Do?

Background screening companies must follow the same pre‑offer rules as employers, meaning they cannot check, request, or verify citizenship, visa type, or immigration status.

After a conditional offer, they can help verify work authorization only by reviewing the documents the employee provides for Form I‑9 and running E‑Verify, providing they are registered as an E‑Verify Employer Agent and the employer is enrolled. (Employers must still sign the MOU with the DHS and remain legally liable for any compliance slip-ups.) ‑

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.

March 10th, 2026|Categories: Compliance Corner for Employment Decisions|Tags: e-Verify, Employment Decisions|

Politics in Employment Screening

As political expression becomes increasingly visible online, employers face a difficult question: Does political activism have a place in personnel decisions? While much of this information is publicly accessible, its use in hiring is governed by a complex web of federal, state, and local laws. Employers must carefully distinguish between protected political expression, criminal conduct, and in limited circumstances where political contributions may create regulatory compliance obligations.

Screening for Cultural Fit Based on Politics

Using political views or lawful participation to assess a cultural fit is a risky strategy. While federal law does not explicitly protect political affiliation for private-sector employees, many states (such as California, New York, and Colorado) and local jurisdictions do. Even in “at-will” states without specific political protections, using political beliefs as a filter can inadvertently create a discrimination claim. This occurs if political views correlate with protected characteristics like race, religion, or national origin.

Lawful Political Activity vs. Criminal Conduct

Peaceful rallies, advocacy, volunteering, and public expression are generally protected by state-level “off-duty conduct” laws. If an individual engages in rioting, vandalism, assault, or trespassing for example, an employer may consider the criminal offense. The focus must remain on the illegal act, regardless of whether it was motivated by a political cause. When evaluating such criminal history, employers must still adhere to “Fair Chance” or “Ban-the-Box” laws, which dictate when and how employers can ask about a candidate’s record.

When Political Donations Matter

In the financial sector, political screening is not just a choice—it is often a regulatory requirement. Under SEC Rule 206(4)-5, certain political contributions by “covered associates” can trigger a two-year ban on the firm receiving compensation from government clients. To remain compliant, firms may conduct political contribution reviews for relevant roles. These reviews typically cover the previous two years (or six months for certain new associates). This screening must be used strictly for regulatory compliance, not to vet a candidate’s personal ideology.

Bottom Line

Political screening can be a legal minefield. When handled with precision, background screening supports regulatory obligations; when handled poorly, it invites discrimination lawsuits.

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.

March 5th, 2026|Categories: Compliance Corner for Employment Decisions|Tags: Employment Decisions, Google|

Googling Job Applicants: Legal? Yes. Risky? Yes.

In today’s hiring landscape, it’s almost second nature for employers to type an applicant’s name into Google or check out their social media. If the information is public, it must be fair game, right?

Not exactly. While you can look, doing so without a structured process can expose your organization to significant legal and compliance risks.

Public Information Is Accessible But Comes With Hidden Liability

Employers may view publicly available online content without obtaining specific authorization. However, a simple search can unintentionally reveal protected characteristics such as age, race, religion, disability status, or pregnancy. Once discovered, this information could fuel discrimination claims if the applicant later challenges a hiring decision. The principle is simple: what’s seen can’t be unseen, and that creates risk.

Private Accounts Are Off-Limits

No employer should ever:

Request social media passwords
Ask applicants to access private accounts
Send “friend” requests to gain entry
Ask for screenshots of private content

In California, these actions are illegal under Labor Code § 980. Many other states have enacted similar protections.

FCRA Applies If Using An Outside Service

If an employer hires any third-party service to review an applicant’s online presence, the process becomes a consumer report under the Fair Credit Reporting Act (FCRA).That means employers must:

Provide a standalone written disclosure
Obtain written authorization
Follow pre-adverse and adverse action procedures before rejecting based on the report

Ignoring FCRA obligations is one of the most common and expensive hiring pitfalls.

Best Practices To Reduce Risk

To protect your organization and ensure a fair, compliant hiring process:

Create a structured, consistent process for any online screening.
Use a “firewall” between the person viewing online content and the final decision-maker.
Limit reviews to public, job-related information only.
Document your screening approach and maintain it across roles.
Apply the same process to all candidates to avoid disparate treatment.

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.

February 24th, 2026|Categories: Compliance Corner for Employment Decisions|Tags: Employment Decisions, Social Media|

Your Next Hire Is Online. Here’s How to Screen Them Legally.

Social media screening is legal, but only if done right. Here are the essentials.

Federal nondiscrimination laws still apply.
Anything that reveals protected characteristics (race, religion, disability, age, pregnancy, etc.) cannot influence a hiring decision.

Using a third‑party screener? That triggers the FCRA.
Employers must provide a standalone disclosure, get written authorization, and follow pre‑adverse and adverse‑action steps. Accuracy rules also apply and the CFPB is enforcing them more aggressively.

28 states restrict employer access to personal social media.
Most ban requesting login credentials, requiring applicants to log in on the spot and demanding they add HR as a “friend.” In some states, even asking for a username may create risk.

Public vs. private content matters.
Employers may review public posts but accessing private content without permission can violate the federal Stored Communications Act.

NLRA protections apply online.
Employees’ posts about wages or working conditions may be protected concerted activity. Don’t treat them as negative findings.

California adds extra compliance layers.
ICRAA and CCRAA impose stricter disclosures when using third‑party screeners.

Best Practices

Use a consistent, documented process focused ONLY on job‑related behaviors (e.g., threats, fraud, harassment). Keep decision makers away from protected information. Never request access credentials. Stick to public content. And follow the FCRA if a third-party is involved.

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.

February 5th, 2026|Categories: Compliance Corner for Employment Decisions|Tags: California, Employment Decisions, FCRA, NLRA|