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Performing a background check as part of the hiring process, promotion, or retention in today’s world is essential. Stakeholders expect it. Regulators mandate it.

In a turbulent economy, the pool of job candidates is greater than ever and misrepresentations abound. For many firms, once an offer of employment has been extended, it is common practice to check the candidate’s background. Depending on the risk level of the position and its requirements, background checks can run the gamut from reference calls done internally, to using a consumer reporting agency to perform comprehensive searches to determine the existence of potentially negative information, such as criminal matters, civil litigation, bankruptcy filings, tax liens, judgments, regulatory actions, driving violations, and adverse media publicity, and to verify academic, licensing, employment and other professional qualifications and claims.

The law is clear–an employer who hires or retains a dangerous or incompetent employee can be held liable for that employee’s wrongful acts, if committed in the course and scope of his or her employment. The theories of negligent hiring and retention go even further–someone who is injured by an employee can sue the employer even if the employee’s conduct is outside of the employer’s control. For instance, one court found the owner of an apartment complex liable for a handyman’s assault of a tenant after working hours. The liability existed because the owner failed to screen the handyman’s background, which included a long list of violent crimes.

Underpinning the negligent hiring and retention theories is the negligence of the employer—that is, the employer knew or should have known the employee was unfit for the job, posed an unreasonable risk of harm to others, and did nothing about it. Virtually every state recognizes these theories as causes of action, or if not, has a similar legal theory. One of the best ways to reduce the risk of negligent hiring and retention liability is to perform adequate background checks as part of the hiring process and in connection with promotions or retention.

A well-designed background screening program that is compliant with applicable laws and regulations makes good business sense, as an individual’s prior history is often a predictor of future performance, workplace behavior and cultural fit. Various studies have shown that the cost of a bad hire is one to five times the salary of the job in question, considering the direct and indirect cost involved in recruiting, hiring, training, development, administration, management, and potential litigation, as well as the wasted wages and benefits. Comprehensive background screening can help identify individuals who may have a propensity for violence, theft, fraud, dishonesty, substance abuse, absenteeism, and other misconduct, and at the same time, find the candidates that can make the employer more successful.

Many employers are also required by government regulation, their insurance carriers, and/or their clients to conduct background checks. A comprehensive background check is clearly worth the investment. Employers never want to say “we should have known,” as an uninformed employment decision can result in significant financial losses and quickly tarnish an employer’s reputation.