A criminal background check only needs minutes to ruin a life. That's how long it takes for prospective employers, in some instances, to get a background check report on a job candidate. But mistakes that incorrectly identify an applicant as a thief or sex offender happen more often than many expect. The effect can be emotionally and financially devastating, and HR managers make it worse by often dropping their job candidate before a correction is issued.
The demand for background checks by employers has increased since 9/11, according to the U.S. Consumer Financial Protection Bureau, and industry estimates say the vast majority of employers use them in hiring. Two of the largest background check firms went public this year. But the background check data many HR providers rely on can be flawed, and the errors can damage lives and hopes.
Some of the errors detailed in lawsuits against background check firms are inexplicable and show a lack of basic attention to detail. Common mistakes include mismatched names and addresses. One background check lawsuit alleged that the first name of Ashley was misidentified as Alysha. In another case, two people with the same first and last name were mixed up despite their distinct middle names: Magdalena and Elena. In another lawsuit, an applicant with a middle name of Scot (one T) was confused with someone whose middle name was Scott (two T's). A background check firm told one job applicant that his Social Security number was in the government's "Death Master File."
"Typically, dead people don't apply for employment," wrote the plaintiff's attorney in the lawsuit against Checkr Inc., a San Francisco-based firm that recently raised $250 million in a funding round and put its valuation at $4.6 billion.
Asked about the lawsuit, Checkr said it couldn't comment on the litigation, but in an email noted that "there have been no legal determinations that allegations are true or that Checkr has violated laws."
But this story isn't about any single lawsuit or background check firm. SearchHRSoftware looked at more than 75 of these lawsuits filed over the last several years against a range of firms, as well as at industry practices. The court records and complaints by regulators point to a broad problem -- and HR is part of it.
Many of the lawsuits filed due to errors in criminal background checks are for hourly wage jobs, such as truck drivers and warehouse workers, as well as those in retail and at staffing agencies.
Plaintiffs have often received salary offers and expected start dates, all conditional on a successful background check. If the background check is in error, the candidate may protest. But by then, HR has likely dropped the candidate in an effort to fill an open position.
Take Donald's case. (Editor's note: Although the lawsuits are public record, SearchHRSoftware did not use full names to protect those affected by an imperfect system.)
In August of this year, Donald applied for a job at Lowe's. "Lowe's essentially offered plaintiff the position on the spot and even indicated that Lowe's may be interested in hiring him for a more prestigious position if he was open to the opportunity," according to his lawsuit filed in October in a U.S. District Court in Florida.
But the lawsuit against a First Advantage Corp. subsidiary alleged that it incorrectly mixed Donald up with someone with a criminal record. Donald has no criminal convictions; the "corrected report came weeks after plaintiff had already lost his Lowe's job offer," the suit stated. The case is in settlement discussions, according to court records.
Daniel CohenPartner, Consumer Attorneys PLLC
Donald's attorney, Daniel Cohen, a founding partner at Consumer Attorneys PLLC in New York, said if reporting errors are corrected right off the bat, there is a greater chance the employer will not deny the employment application. Cohen noted his comment pertains to the industry as a whole, not Donald's case specifically.
However, in many instances, Cohen noted, "an employer is quick to deny the application, especially where the inaccurately reported information is particularly egregious," meaning a severe crime. It is also common that an employer will not consider an applicant even once the reporting is corrected, he said.
"As the saying goes, first impressions are everything," Cohen said.
The 'Great Resignation' drives demand
Demand for employee background checks is growing because of record-high levels of job turnover and increasing use of gig and contingent workers. It's boom time for this industry.
Two of the largest employment background check firms, First Advantage and Sterling Check Corp., went public this year in June and September, respectively. Their IPOs cited some of the trends that are driving their businesses, including a generational shift in attitudes about work.
"Millennials represented over one-third of the U.S. workforce in 2020 and are three times as likely to change jobs as other generations in pursuit of earning higher wages, faster career development, and better workplace culture fit," First Advantage said in its IPO.
The growing demand for background checks has federal regulators on alert and worried that more people will be hurt by errors.
Regulators are worried
Citing the pandemic-related churn in housing and employment, the U.S. Consumer Financial Protection Bureau (CFPB) issued an advisory in November complaining about "shoddy name matching procedures" used to link people with criminal and other records. The bureau is threatening enforcement actions in concert with the U.S. Federal Trade Commission and Dept. of Justice.
"In many cases, firms will need to employ significantly more rigorous procedures, including individualized reviews of files, to assure maximum possible accuracy," said Rohit Chopra, CFPB director, in an advisory.
"Even ostensibly low error rates can harm significant numbers of consumers," the CFPB said in its advisory.
More than 90% of employers use background check data as part of the hiring process, according to the CFPB. The background check industry is also expanding what it offers, with one growth area known as "continuous" background checks for existing employers, according to IPO filings. Background checks are also expanding in scope to include social media.
More data means a greater possibility for errors, and just one mistake can cause significant harm.
Shock and anger
Another man who filed a lawsuit, Eric, obtained a job as a driver with a trucking firm that operates as an Amazon subcontractor. He was offered a job as delivery associate "pending a successful background check." The background check reported no criminal record, according to his lawsuit filed in a U.S. District Court in California. But the background check firm reported that he was a registered sex offender, the lawsuit alleged.
The trucking contractor dropped the employment offer. The lawsuit argued that the lack of a criminal record should have been a red flag about the sex offender finding and cause for further checking, according to his 2020 lawsuit against Accurate Background LLC, in Irvine, Calif.
How the mistake happened wasn't explained in the lawsuit, but it stated no sex offender in the national registry matched Eric's middle name, date of birth or city of residence.
Eric was "shocked and angry"; he was "now unemployed and with a family to support" and could not "believe that he had to explain to his wife and family that he could not start work because his background report showed that he was a sex offender," the lawsuit stated. Accurate Background denied the claims in a court filing, but the case settled in August, according to court records.
In reporting this story, SearchHRSoftware reached out to background check firms that have lawsuits filed against them. Most did not respond to questions. Some referred us to the two major industry groups, the Consumer Data Industry Association and the Professional Background Screening Association. Both industry groups, which trumpet the pursuit of excellence in the field on their websites, declined to comment.
InfoMart Inc., a background check firm in Marietta, Ga., cites 99.97% accuracy, and Accurate Background reports 99.99% accuracy on its website. But background check firms have no legal requirement to make error rate data publicly available.
The lack of transparency about how firms arrive at their accuracy rates makes it difficult to quantify the percentage of errors in employment background checks, said Ariel Nelson, a staff attorney at the Boston-based National Consumer Law Center.
"We're taking the industry's numbers, based on whatever way they used to calculate them, which we don't have a great way of fully assessing," Nelson said.
How many errors?
According to government labor data, U.S. workers are quitting at a record rate. More than 34 million people quit their jobs between January and September this year. Most are likely applying for new positions and getting background checks in the process. If the above-cited 99.97% and 99.99% accuracy rates are taken as industry standard and applied to the number of quits in 2021, some 3,400 to 10,200 applicants may have had errors in the records generated.
But the overall number of people who see errors is likely much higher. The number of people quitting jobs is only a subset of potential job seekers. Other groups include:
- involuntary separations
- gig, contingent and part-time workers
- graduating college students
Court lawsuits provide some other clues about accuracy rates. In one court case, First Advantage reported that from 2010 to 2013, it prepared about 3.5 million reports and made 13,392 corrections due to customers successfully disputing records. The error rate was 0.38%, according to court records.
"Errors occur because, throughout the entire process -- from the initial booking event to the disposition of the court case, from the initial public record search to the HR director reviewing the consumer report -- there are humans involved," Tim Gordon, chief compliance officer at InfoMart, said in a written response to questions from SearchHRSoftware.
InfoMart's 99.97% accuracy rate "is lowered by situations outside of our control, where a court's documentation is incorrect or where a state agency has attributed a court record to the wrong individual," Gordon said.
The Fair Credit Reporting Act (FCRA), which governs background check agencies, anticipated errors, "so they built in a process to dispute the results of a consumer report and have it corrected," Gordon said.
"Our responsibility is to limit those errors as much as possible," he said.
InfoMart said its average turnaround time is about four days for a report that required a correction or update.
"These dispute resolutions aren't just correcting data entry errors, but assisting consumers in correcting mistakes at the court, updating results where a pending case has been resolved, and giving them instructions on how to protect themselves against identity theft, to name a few," Gordon said.
The source of errors
A background check needs at least three things: name, date of birth and current address, said Mike Coffey, president of Imperative Information Group, Inc., in Fort Worth, Texas, a background check screening firm. But the gold standard is to also have the government-issued Social Security number or a driver's license number, he said.
A best practice in the industry is not to rely on a court database alone without verifying every detail of it, Coffey said. Criminal records are held in some 13,000 state courts, which follow inconsistent record keeping methods, according to the CFBP. Federal criminal court databases are also a source of criminal records.
Coffey is skeptical that technology, alone, can address the accuracy problems in court data. Background check lawsuits typically result from using databases alone, he said.
Coffey said his firm has contractors in every state it can use to check court records. It's a process that takes time and adds to the cost of a background check but is the only way to ensure accuracy.
"A lot of these companies are just trying to throw technology at a problem that's really just a human problem," he said.
Background check screening processes are increasing the use of automation. They also tout integrations with HCM systems.
Sterling Check Corp. said in its IPO that it relies on AI and robotic process automation (RPA) to generate its background check reports. "This enables 90% of U.S. criminal searches to be automated and allows us to complete 70% of U.S. criminal searches within the first hour and 90% within the first day," the IPO stated.
First Advantage's IPO also talked about its automation capabilities. "Our investments in RPA, including 2,200 bots currently deployed, enable our rapid turnaround times," it stated in its IPO.
But the IPOs don't explain what type of AI their systems will use, other than machine learning. First Advantage said the technology allows it to "deliver superior risk management solutions with exceptional speed [and] accuracy." RPA is generally scripted systems programmed to take over rote tasks otherwise done by humans, such as completing reports.
The background check industry's AI use draws some of the same concerns heard elsewhere in the HR industry, namely a lack of transparency into how the algorithms operate. There are broad concerns that these systems are black boxes with no way of knowing how they process data.
The National Consumer Law Center's Nelson said none of these automated programs are public. Even if discussed in a lawsuit, they are "typically redacted, even from the court's opinion" for intellectual property reasons.
"It's really difficult to know exactly what their algorithms look like or what their matching practices look like because they don't share it and they refuse to," Nelson said.
Lawsuits are the enforcers
Lawsuits are the enforcement mechanism in the background check industry, said Michael Kind, a Las Vegas-based consumer attorney who represents plaintiffs in disputes with consumer reporting agencies (CRAs), which includes background check firms.
"The law provides for individuals to sue for damages if their rights are violated," Kind said. "The overall goal is to keep the CRAs in check. Otherwise, the government would have to set aside vast resources to police the industry."
Despite the ability to sue, Kind said the effects of inaccurate background checks can be "life-changing," causing plaintiffs to be denied employment, housing and credit and pay higher interest rates. Regardless of the case, Kind said nearly every plaintiff will have suffered emotional distress by the time they turn to an attorney for help.
"It can be very hurtful to find negative information reported about you that isn't true, especially when that information implies that you aren't financially responsible," he said. "It is so much worse when you've tried hard to have that information corrected, but it's still being reported."
Along with individual court cases, the industry also experiences class-action lawsuits from private individuals and the Consumer Financial Protection Bureau, which can include pools of thousands. In 2019, the bureau resolved a complaint against Sterling, one of two background check firms to file an IPO in 2021, over its lawsuit for failing "to ensure the maximum possible accuracy" of information. It required the firm to pay $6 million to 7,100 people who disputed their records between 2012 and 2016. Plaintiff attorneys also said that many people aren't aware of their ability to sue for mistakes.
Settlements are the cost of doing business, said Imperative's Coffey. Even if the background check firm believes it is in the right, the insurance company may want to settle because of the cost of the defense, he said.
The Starbucks approach
If the candidate disputes a finding, it's usually up to that person to contact the background check company. Under current FCRA law, the background check firm has up to 30 days to investigate and employers are asked to provide a reasonable amount of time for the dispute to play out.
But employers don't have to wait 30 days before they can move on to the next candidate. Instead, based on a prior Federal Trade Commission opinion, "reasonable time" is usually interpreted as five days.
Not all employers are quick to drop a candidate. Starbucks Corp. filed testimony in one case about its internal vetting process.
The Starbucks testimony was part of a case accusing the coffee company of not following all of the legally required background check notification rules for job applicants. Two cases, filed in 2016 and 2017, made similar claims against Starbucks. The job applicants were misidentified as having a criminal record and were denied jobs. The lawsuits also alleged that Starbucks withdrew the job offers before the applicants received a copy of their background check reports, violating one of the FCRA's notification rules, a claim made in the class action.
In its testimony, a Starbucks background check manager told the court that if "a candidate successfully disputes the background check results, they are eligible for hiring." Applicants receive "a full and fair opportunity" to dispute the report. If that happens within 30 days, the applicant is "immediately eligible" to proceed with the hiring process.
If the investigation into the dispute takes longer than 30 days, job candidates need to update their employment application. About 70 Starbucks job seekers have successfully disputed their background check reports over four years, according to Starbuck's testimony.
Starbucks denied the charges but settled, and the class action settlement provided insight into otherwise confidential agreements.
The estimated size of the class was 8,000, with settlements ranging from a $125 Starbucks gift card to an additional $750. The largest amount went to people who could confirm they lost a Starbucks job offer because of inaccurate information in their background check and "were unable to get any job or a similar job for at least 30 days."
About $1.3 million of the settlement went to various attorneys involved in the case. The two Starbucks job applicants who filed lawsuits that led to the class action received $10,000 each. According to a court filing in July, some 8,000 gift cards were distributed, and 28 people were eligible for the largest payout.
It happens over and over
Plaintiff attorneys say some job applicants face persistent errors. Errors that affect employment can also show up in background checks used by landlords, leading to housing and job problems.
"There are so many background check companies, and none of them talk to each other and share information," said Craig Marchiando, a consumer litigation attorney at Consumer Litigation Associates PC, in Newport News, Va.
In a 2019 report, the CFPB said there were nearly 2,000 background check firms, with $3.2 billion in revenue.
"If you straighten it out with one, it could very well appear on the very next report from a different company," Marchiando said.
An inaccurate report can get corrected, "but it doesn't help you for the 60 days it goes uncorrected," he said. "It doesn't get you a place to live; it doesn't feed you; it doesn't help you support your family."
Robert Sola, an attorney in Portland, Ore., is representing a woman who has been the victim of repeated errors.
"She is never confident, whenever she applies for anything, that the report will be correct," Sola said.
Workarounds have problems
Employers must adhere to the FCRA, which requires job applicants to approve a background check. But many states have gone beyond federal law.
For example, California's Fair Chance Act, which went into effect in 2018, is a criminal background check law that prohibits employers with five or more employees from asking potential job candidates for their criminal conviction history before making a job offer.
Laws like this are called "ban the box" laws, referring to job applications that ask, "Have you ever been convicted of a crime?" with a "yes or no" check box for the answer. At least 37 states and multiple cities and counties have adopted a ban the box law.
However, ban the box laws remain controversial, according to Johanna Lacoe, a policy scholar at the California Policy Lab research institute.
The intent of ban the box policies is to provide candidates with criminal records a better chance at getting hired, but a debate among researchers questions their effectiveness. Lacoe said researchers have evidence of statistical discrimination even when ban the box policies are in place.
"When you can't ask specifically about folks having a criminal record, employers make assumptions about whole groups of people as being more likely to have a criminal record and hiring them less," she said. "There can be some unintended consequences of policies like that, which can be pretty severe."
California makes background checks difficult
Meanwhile, California went beyond the Fair Chance Act by adopting a new restriction this year on criminal background checks.
California businesses can no longer use an individual's date of birth or driver's license number to search the electronic criminal case index, according to the court of appeal's opinion in a case brought by All of Us or None, a civil rights organization advocating for formerly and currently incarcerated individuals. The lawsuit challenged the procedures used by the Superior Court of California, County of Riverside.
All of Us or None is trying to make it easier for people with records to have greater access to employment, housing and educational opportunities.
The new restrictions will hinder criminal background checks on employees conducted by employers and background check companies.
"The problem is not going to be easy to overcome," wrote the law firm Littler Mendelson P.C., in an analysis of a ruling. "As a practical matter, without access to date of birth information, background check companies may not be able to complete some criminal record searches at all."
Michael, an Arizona man, was accepted for a job at health insurer Humana in June, before the background check, which was taking a long time to complete, was provided to the insurance company.
When the report was issued, Michael's background check included a "patently inaccurate" criminal conviction for theft of services, the lawsuit said. The background check firm misidentified him as someone else, leading Humana to put him on a "no work status," according to the lawsuit.
Michael disputed the report's findings. He provided the background check firm, Sterling, with supporting documents that the conviction was erroneous, but too much time had passed. After 30 days, he "received two UPS boxes from Humana for him to return their work-at-home remote equipment," The lawsuit stated. He lost his job, and the case was settled.
Michael's attorney, David Chami of the Consumer Justice law firm in Scottsdale, Ariz., said large employers, such as Humana, have standard protocols.
"A lot of people get lost in the bureaucracy in these large corporations that have these automated systems," he said.
Patrick Thibodeau covers HCM and ERP technologies for TechTarget. He's worked for more than two decades as an enterprise IT reporter.
Makenzie Holland is a news writer covering big tech and federal regulation. Prior to joining TechTarget, she was a general reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.