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The Trouble With Background Checks

Theodore Pendergrass was shocked in November, 2006, when the Walgreens pharmacy chain rejected his application for a store supervisor job. The company told him a background-screening firm called ChoicePoint reported that a past employer had accused him of cash register fraud and theft of merchandise.

The $4 billion business of background screening is booming. Companies large and small are sorting mostly mid- and lower-level job applicants based on information compiled by ChoicePoint, its major rivals, and hundreds of smaller competitors. Some employers have grown more vigilant about hiring since the September 11 terrorist attacks.

Others like the efficiency of outsourcing tasks once handled by in-house human resources departments or bosses who simply picked up the phone themselves. Whatever their motives, employers are becoming more dependent on mass-produced background reports that rely heavily on anonymous, and sometimes inaccurate or unfair, sources.

Pendergrass difficulties stemmed from a previous job at Rite Aid (RAD). By late 2005, when he was 25 years old, he had reached the first rung of management as a shift supervisor in a Rite Aid store in Philadelphia. His bosses trusted him to oversee cashiers, bank deposits, and merchandise deliveries.

Then, in January, 2006, a store official accused him of stealing goods and underpaying for DVDs. He denied the accusations, but the official said police were waiting outside to arrest him if he did not confess. Pendergrass wrote a statement but wouldnt admit to theft. He was soon fired anyway.

Later, at a hearing for unemployment compensation, Pendergrass was vindicated. A state labor referee ruled that Rite Aid had not proved its allegations and awarded him nearly $1,000 in benefits. But Rite Aid had already submitted its theft report to a database used by more than 70 retailers and run by ChoicePoint, the largest screening firm for corporate employers in the U.S.

Based in a leafy Atlanta suburb, ChoicePoint says it checks applicants for more than half of the countrys 100 biggest companies, including Bank of America, UnitedHealth Group, and United Parcel Service. Because of Pendergrass tainted ChoicePoint file, retailers CVS Caremark and Target also rejected him for jobs.

Pendergrass, now 27, makes lattes at a Starbucks in Philadelphia. The coffee chain doesnt use a screening firm for entry-level hires. Pendergrass earns $17,000 a year, or 30% less than he did at Rite Aid, and fears his career has been derailed. I worked hard in that store, and none of this stuff was true, he says. I would be locked up somewhere if I stole $7,000.

Background screening has become a highly profitable corner of the HR world. At the screening division of First Advantage, based in Poway, profits soared 47% last year, to $29 million; revenue grew 20%, to $233 million. HireRight, based in Irvine, reported that earnings jumped 44%, to $9 million, last year on revenues of $69 million. To grab a piece of this growing market, Reed Elsevier Group, the Anglo-Dutch information provider, agreed to acquire ChoicePoint for $4.

Industry surveys show why Reed Elsevier was eager to expand its screening business. In a 2004 study by the Society for Human Resource Management, 96% of personnel executives said their companies conduct background checks on job candidates, up from 51% in 1996. Two-thirds of larger companies say they outsource screening, and many now vet current employees in addition to applicants.

Screening often goes far beyond the familiar checking of public criminal records. For $60 to $80 per applicant, ChoicePoint and its rivals assemble digital dossiers of educational degrees and credit histories as well as interviews with friends, past bosses, and colleagues.

Call-center workers wearing headsets inquire about work habits, personal character, and drug or alcohol problems. Just by dint of their heft and permanence, the proprietary data caches they compile can seem authoritative, even though the information sometimes contains errors, innuendos, or outright falsehoods.

You wont believe what people tell you, says Mary Beth Gotshall, who has done interviews since 1999 at Employment Background Investigations, a midsize firm in Owings Mills. She and colleagues have collected comments from a father who said he would never rehire his son because he had missed so much work at a family business.

Another former boss accused an applicant of stealing and demanded Employment Background help find him. (The firm declined.) We put everything in there, Gotshall says while juggling employment checks for retailer Ikea, a Pittsburgh medical clinic, and a Texas engineering firm. Her boss, Richard Kurland, chief executive of Employment Background, says the company goes to great lengths to be accurate. We have a huge responsibility to mankind, he adds.

But Lester Rosen, a veteran in the industry and president of Employment Screening Resources in Novato, Calif., says: Essentially, its the Wild, Wild West. Its an unregulated industry with easy money and not a huge emphasis on compliance or on hiring quality people to do the screening.

Theron Carter, a 61-year-old unemployed truck driver in Middleville, Mich., is waiting for his name to be cleared in a database used widely in the transportation business. In May, 2006, a U.S. Labor Dept. administrative law judge ruled that Carter was wrongly terminated by Marten Transport for making legitimate complaints about the safety of his 18-wheel truck.

He had hauled loads for the Mondovi company for only two weeks before being fired in June, 2005. The judge awarded him more than $31,000 in damages and back pay and ordered Marten Transport to delete any unfavorable work record information in a report compiled by USIS, a large screening company in Falls Church, Va. Once an arm of the federal Office of Personnel Management, USIS was privatized in 1996. It still screens government workers and runs an employment-history database used by 2,500 transport companies called Drive-A-Check, or DAC.

Despite his legal victory, Carters DAC report still says Marten Transport dismissed him for excessive complaints and a company policy violation. No one will hire me, says Carter, who withdrew $50,000 from retirement savings to support his wife and himself. Trucking company J.B. Hunt Transport Services (JBHT) told me I had excessive complaints and wouldnt hire me. I told them I won my case. Hunt declines to comment.

Marten Transport has appealed the Labor Dept. ruling. A company attorney, Stephen DiTullio, says it would be fraudulent for the carrier to remove the reference to excessive grievances from Carters DAC file. That was an accurate portrayal of what led to his termination, DiTullio says. Marten Transport has addressed Carters safety concerns, he adds.

John Griffith, 47, won a similar Labor Dept. ruling in October, 2003, against his former employer, Atlantic Inland Carrier.

The administrative law judge ruled that the company wrongly fired Griffith in December, 2001, for complaining about the safety of his truck and ordered Atlantic Inland to remove unfavorable information from his DAC record.

Someone at Atlantic Inland its not clear who had told DAC that Griffith was terminated and not eligible to be rehired because of his grievances. The company eventually deleted that information in January, 2004 more than two years after it was posted. During that time, Griffith says, it was hard to find trucking work.

The Aiken (S.C.) resident turned to lower-paying odd jobs, although he recently got back behind the wheel making deliveries for a nursery. Truck drivers live and die by DAC, he says. They can ruin a drivers career with a few clicks of their mouse.

USIS declines to comment on any specific cases. Gripes about its database have made DAC a popular verb in the industry, with drivers lamenting they have been DAC-ed. Responding to the anxiety surrounding the database, USIS officials have defended their methods on radio interview shows aimed at truckers. They argue that screening is legally required, generally accurate, and keeps bad drivers off the road.

But Kristen Turley, director of market development and communications at USIS commercial-services unit in Tulsa, concedes that no system is immune to mistakes and misuse. There is a chance somebody who holds a grudge will put negative information in the database, she says.

We are not trying to blackball drivers or ruin their chance to get a job. When a driver disputes a background report, USIS asks its sources for proof supporting negative comments, she says. USIS doesnt seek such evidence up front. Ideally that would be a good solution, Turley says, but it could dissuade past employers from submitting information in the first place.

The federal Fair Credit Reporting Act covers background screeners, but it hasnt been aggressively enforced. The law says screeners must use reasonable procedures to ensure maximum possible accuracy. It also requires employers to give a copy of background reports to rejected applicants.

An applicant can dispute the information, but the Federal Trade Commission has said employers must wait only five business days before hiring someone else, meaning that objections frequently become moot. Lately the agency has focused more on identity theft than on screening, Rebecca Kuehn, assistant director for privacy and identity protection, says.

ChoicePoint has run into trouble because of how it has disseminated personal data. A 1997 spin-off from credit bureau Equifax (EFX), the company stumbled in 2004, when it offered a $40 software package at Sams Club (WMT) stores that allowed small businesses to obtain personal information on applicants. The company dropped the product after privacy advocates pointed out that it wasnt verifying whether users had a business license and a legitimate purpose for searching, as opposed to snooping on a neighbor or old boyfriend.

Then, in 2005, it came to light that ChoicePoint had given identity thieves pretending to be small business clients seeking background checks access to peoples addresses, Social Security numbers, and dates of birth. ChoicePoint agreed in 2006 to pay a $10 million civil penalty to the FTC and $5 million more to compensate 160,000 consumers whose information had been compromised.

Today, ChoicePoint bills itself as the gold standard in screening. The big issue for us is making sure were doing things as accurately as possible, says Bill Whitford, a senior vice-president. The company conducts 10 million background checks annually and estimates it has about 20% of the U.S. market.

The number of complaints vs. transactions is very low, says Katherine Bryant, vice-president for consumer advocacy. The FTC has logged 695 complaints against ChoicePoint since 2005, some of which related to the identity-theft episode.

ChoicePoint now is trying to draw consumers as clients. It sells a preemployment self-check to people who want a preview of what an employer would learn about them. These reports cost from $24.95 to as much as $75, depending on how customized they are.