Can Employers Do Background Checks on Independent Contractors?

Can Employers Do Background Checks on Independent Contractors?

Background CheckThe “gig economy” is rapidly changing the world of work. The number of workers who aren’t traditional employees is rising fast.

One question that we’ve been asked several times by our clients is whether an employer can conduct a background check on an independent contractor. Turns out this is an interesting, and not so simple, question!

Statistics about independent contractors:

The US Department of Labor recently announced that it will be working with the Census Bureau to determine just how many people are “contingent workers,” but it is estimated to be as many as a third of the workforce!

Our employment laws were written for a more traditional workforce, and pondering their application to a contingent workforce can be a head scratcher.

The rules about background checks on independent contractors… for now:

The Equal Employment Opportunity Commission has, up to this point, allowed employers to conduct background checks on their contingent workers, which includes their independent contractors.

The key to doing this without running afoul of the EEOC is to follow their guidelines. A background check must be:

  • Specific to the job
  • Necessary to the business
  • Consistently applied

The FTC’s interpretation of the rules:

The Federal Trade Commission, which enforces and interprets the Fair Credit Reporting Act (FCRA), uses a very liberal definition of employment for the purposes of the FCRA.

For only purposes of obtaining a background check, it broadly defines employment to include independent contractors–but, again, only for this purpose.

The letter is an informal staff opinion and is not binding on the Commission, but stands as guidance nonetheless.

When employers must conduct background checks on contingent workers:

It’s easy to conceive of situations in which a business would feel it’s necessary to conduct a background check on a contingent worker. And there are definitely employers required to do so by federal, state and local laws, as well as those in certain industries dealing with security, and others with vulnerable populations.

  • The independent contractor must sign specific release forms in order for the background check to be conducted.
  • If their services are not used based on the outcome of the background check, all of the provisions of notification under the FCRA would apply.

Making assumptions about independent contractors is dangerous:

The definition of an independent contractor is very prescribed federally and by the state, versus the definition of an employee. One part of that definition is that an independent contractor may hire another individual to perform the actual work.

When employers make an assumption that the independent contractor they hired is the person doing the work, they may open themselves up to charges of misclassification. Independent contractors, by definition, are not individual employees, but rather businesses, and should be treated as such.

A better option, when possible, is for the independent contractor to conduct their own background check on the individual who will be performing the work. By doing so, they have truly acted as a business and not as an employee, keeping the lines from blurring.

Lawsuits because of employee misclassification:

Lawsuits over employee misclassification are on the rise. This should give employers pause for concern before moving forward.

Google the term “worker misclassification” to see the financial consequences to businesses for crossing these lines. Just last month, Lyft paid $12.25 million to settle a California worker misclassification lawsuit.

The wrap-up:

This is one of those areas where government regulations are murky, laws aren’t keeping up with changing trends, agencies contradict each other, and lawsuits abound.

Meeting your business’s legal obligations, avoiding lawsuits, while hiring the best service providers to meet your needs can be a challenging adventure in this ever changing and confusing world of the gig economy.