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Running background checks on independent contractors vs. employees

August 11, 2019

By Michael Burns, courtesy SBAM Approved Partner ASE

It makes sense to check on the qualifications of an independent contractor just as you would an employee, right? After all, you are letting a new individual enter your workplace.  It would seem prudent to make sure they can do the job and check for any security concerns. Should an employment background check be run?

This is not a prospective employee. As stated above this is an independent contractor. From an employment background check standpoint, a company using a third-party investigation service is probably not contracted properly to do a check on non-employees.

Todd Lebowitz who writes the blog, Who Is My Employee?, comments on some important differences between background checks on non-employees. Noting that we are talking about 1099 contractors and not employees from staffing agencies, he states that although the employment background check process can be followed for independent contractors (IC’s), you must make sure your contract with any third party background checking services is not limited to employees only. 

Mr. Lebowitz notes that many background checking service contracts are run “for employment purposes.”  If you use the background checking service for an IC background check, make sure your background check form meets the criteria of being requested for “another permissible purpose” under the Fair Credit Reporting Act (FCRA).

Lebowitz states under the FCRA two alternatives for third party background checking would apply:

“In accordance with the written instructions of the consumer”
If you have “a legitimate business need for the information in connection with a business transaction that is initiated by the consumer.” Here, the “consumer” would be the individual contractor.

Before you request a background check on an IC, Lebowitz advises to review your contract with the background check company and discuss modifications if it only speaks to employment background checks. The FCRA allows for the use of the term “employee” for broader engagement purposes; however, this may create a situation where the background checking form is used to open up other legal liabilities.

Lebowitz also recommends checking the federal forms you provide the IC for their background check authorization. The forms used by the vendor company (that is the company the IC will being doing work for as an IC, and not as an employee) should not state the background check is being conducted “for employment purposes.” A business legitimately engaging an IC does not want to find themselves arguing that in reality this was an employment relationship, because that is what the background check form stated.

Along the same lines certain states require their own separate background check authorization forms. These states are currently California, Minnesota, New Jersey, New York, Oklahoma, and Washington State. Note, Michigan does not have its own form so the FCRA federal form would apply here. These state notice form rules apply only to employment background checks and using them on an IC would also put the company in a position of unintentionally, but formally, stating the IC was an employee.

If you are doing background checks on independent contractors, be sure to get the proper authorization in order to avoid inadvertently creating a situation whereby the IC can argue they were in fact employed and acquired employee rights. It is prudent to run properly authorized background checks since the IC’s have access to the company facilities, employees, and information.

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