On January 19, 2011, the U.S. Supreme Court issued its decision in National Aeronautics and Space Administration (“NASA”) v. Nelson, holding that, even if government contractors have a constitutional “right to informational privacy,” that right does not prevent the government from asking reasonable questions in employee background and reference checks subject to safeguards against public disclosure.

Factual Background

The plaintiffs in NASA were contract employees who worked at NASA’s Jet Propulsion Laboratory, operated by the California Institute of Technology. When hired, the plaintiffs were not subject to government background checks. However, during their tenure, the President followed the 9/11 Commission’s recommendation and issued an order requiring uniform identification standards for federal employees, including contract employees. This resulted in the Department of Commerce mandating that contract employees with long-term access to federal facilities, such as the plaintiffs, complete a standard background check.

The plaintiffs objected to the background check process and filed suit, claiming that it violated their constitutional “right to informational privacy.” The plaintiffs challenged two particular aspects of the background check: (1) the requirement that they answer a question contained in the standard form concerning whether the employee had any involvement with illegal drugs in the last year and, if yes, whether the employee had received any treatment or counseling relating to such use; and (2) the requirement that they sign a release authorizing the government to send questionnaires to former employers, schools, landlords and designated references that contained open-ended questions about the employees’ “honesty or trustworthiness” and whether the references had “adverse information” related to various other matters concerning the employees’ suitability for federal government employment.

The Court’s Decision

In a unanimous decision, the Supreme Court held that the background checks were reasonable “in light of the government interests at stake.” The majority opinion assumed, without actually finding, that a constitutional “right to informational privacy” exists. Nevertheless, persuaded in part by the fact that the inquiries at issue were “part of a standard employment background check of the sort used by millions of private employers,” the Court upheld the background checks as a reasonable exercise of the government’s right to “reasonably investigate applicants and employees to aid in ensuring the security of its facilities and in employing a competent, reliable work force.” The Court further held that, when seeking job-related personal information in an employment background check, the government does not have a constitutional burden to demonstrate that its questions are either “necessary” or the least restrictive means of furthering its interests. Finally, the Court noted that information gathered during the background checks was protected from public disclosure by federal privacy law and regulations, and that the “mere possibility that security measures will fail provides no ‘proper ground’ for a broad-based attack on government information-collecting practices.”

Other Important Considerations While the Supreme Court’s decision is a welcome affirmation of the lawfulness of reasonable background checks with respect to federal constitutional concerns (which would be of primary concern to public employers or employers with federal contracts), other laws may limit or influence the manner in which an employer conducts background checks. Listed below are some additional possible restrictions on the collection and use of information via background checks.

The Fair Credit Reporting Act (FCRA), a federal law, regulates the use of “consumer reports,” defined as reports about an individual’s character, personal and credit characteristics, general reputation, and lifestyle. If the employer conducts its own background check, the FCRA does not apply, but if the employer uses an outside agency or investigating service, the law does apply. The FCRA requires that: (1) the applicant or employee be notified that a background check is being conducted; (2) the applicant or employee consent in writing to the background check; (3) the applicant or employee be given a copy of the report if the report is used to deny the individual a job; and (4) if the employer makes a negative decision, it must notify the applicant or employee in writing and provide that individual with the contact information for the entity that conducted the background check.

Background checks involving personal information from non-US sources may be subject to data privacy laws, such as those in European Union member countries. These laws require detailed and specific waivers from the applicant or employee in order to lawfully conduct the background check.

Federal and state nondiscrimination laws have been interpreted to limit an employer’s ability to use an individual’s criminal record to make decisions about an applicant or a current employee. Because racial differences exist in arrest and conviction rates, employers face potential claims of disparate impact discrimination if they exclude applicants or employees on the basis of criminal records.

Although the laws of many states require that criminal record information be considered for certain categories of jobs (teachers, health care workers, public safety workers), some states forbid the blanket rejection of an applicant or employee solely on the basis of a criminal record without consideration of the relevance of the crime to the employee’s position, the amount of time since the crime was committed, and other factors. Many states prohibit the use of sealed or expunged criminal records to make employment decisions. Employers should check the law of each state in which they have an office to ascertain what information may be collected and used to make hiring or other employment decisions.

The Americans with Disabilities Act and similar state laws prohibit employers from asking applicants about treatment for alcohol or drug use until after a conditional job offer has been extended, and then only if these inquiries are job-related.

Defamation or invasion of privacy claims may also be brought by the subject of a background check if negative information is shared beyond those with a legitimate business need for the information. Employers should protect information elicited through a background check the same way they protect an employee’s confidential medical information.

The Court’s opinion in NASA confirms that legitimate background checks are a prudent strategy to minimize risk and protect a company’s employees, customers, and assets. At the same time, it serves as a reminder that employers must carefully evaluate the methods by which they obtain and store background information. Given the numerous potential pitfalls to be considered when conducting background checks, it is essential that employers train employees conducting background checks to evaluate appropriately the information they request and receive, and to ensure that it is protected from disclosure.