Excerpted from an HR Dive Blog by Robert T. Quackenboss and Evangeline C. Paschal
Recent changes in both law and technology are altering how employers should consider the use of background screens in the hiring process. New developments and theories under the Fair Credit Reporting Act, Title VII of the Civil Rights Act of 1964 and more are affecting employers’ practices and risks in this area.
Below are four questions employers should be asking.
1. Are candidate profiles “consumer reports”?
One relatively new theory under the FCRA is that artificial intelligence hiring tools such as resume sorters produce “consumer reports,” making the vendor that designed it a “consumer reporting agency.”
This assertion is made in Kistler v. Eightfold AI Inc., a recent lawsuit in which the plaintiff alleged that Eightfold AI’s popular software assembles and evaluates a wide array of information about job candidates, including information gleaned from third-party sources. It then generates a “talent profile” that assigns a score to candidates and ranks them. The plaintiff argued that because of these features, Eightfold’s profiles qualify as consumer reports under FCRA.
Employers should note that if the plaintiff’s characterization prevails, using AI software that gathers and analyzes applicant data from third-party sources, such as LinkedIn and job boards, may trigger FCRA’s disclosure and notification requirements.
2. When must applicants learn their background reports caused an adverse action?
Another recent novel argument under the FCRA concerns the timing of an employer’s issuance of the pre-adverse action notification. While the text of the law requires only that an employer issue a pre-adverse action notice at some point “before taking any adverse action based in whole or in part” on a background report, some plaintiffs have argued recently that applicants have a right to be notified immediately once an employer receives a report that causes concern. Depriving an applicant of that immediate knowledge, according to plaintiffs, constitutes a “concrete injury” because it prevents the applicant from acting promptly to correct the record.
But there are practical reasons why employers do not send out the pre-adverse action notice immediately. For example, some may choose to conduct an individualized assessment before alerting the applicant that an adverse employment decision may be taken. That practice should comply with the language of the act, but it has recently drawn unconventional claims that FCRA includes an implied right to immediate pre-adverse action notification so that an applicant can respond.
In light of this new theory, employers may avoid attracting claims by sending the pre-adverse action notice promptly upon receiving a background check report, even when they require further review and investigation before employers arrive at a hiring decision.
3. Is disparate impact theory on its way out?
For decades, one of the primary legal challenges to employer criminal background check programs has been that a program has an adverse “disparate impact” on racial and ethnic minorities and therefore violates Title VII. A “disparate impact” occurs when a neutrally-worded policy disproportionately affects people with different protected characteristics, such as race or ethnicity, even without evidence of intent to discriminate. Disparate-impact theory has long been embraced by the U.S. Equal Employment Opportunity Commission and plaintiffs’ class-action counsel in pursuit of multimillion-dollar judgments against employers.
In April of 2025, however, President Donald Trump issued Executive Order 14281, which declared that the theory of disparate-impact liability violates the U.S. Constitution because, among other things, it “undermines civil-rights laws by mandating discrimination to achieve predetermined, race-oriented outcomes.” The order directed federal agencies, including EEOC, to de-prioritize legal challenges that use disparate-impact theory.
These developments do not eliminate disparate impact as a viable theory in private litigation. However, they augur a growing coordinated strategy to do so, likely by advancing these arguments, now backed and articulated by DOJ and EEOC, in federal cases that could eventually lead to U.S. Supreme Court review.
4. Do identity-screening tools violate biometric laws?
The growing use in hiring of identity screening — confirming that the applicant being considered is, in fact, who he or she purports to be — is creating new risk as well. With the increased availability of AI tools, employers nationwide have seen a significant rise in cases of identity fraud and misrepresentation among job applicants. Employers have turned to a growing community of identity screening vendors to confirm applicant identities, including through the use of biometric tools.
Employers face mounting challenges in screening for identity confirmation and criminal background information as part of the hiring process. They should consult with legal counsel regarding their current tools, vendors and processes.
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