Over the course of my 20 years defending and developing business models for clients who utilize independent contractors, I have seen State Departments of Labor ignore background check requirements and I have seen them hang their hat on it. So, what is the standard on background checks for contractors?
Each state has its own take on whether a background check is an indicator of employment. For the most part, it is not written into labor law, but rather relied on through case law. For example, in NY, such a requirement that is written, implied, or practiced can doom your case if a contractor’s status is questioned. In other states, it is never questioned.
So, what is the answer if your client requires a background check, or the type of product being delivered dictates that necessity? Well, there is no concrete answer but there are ways to approach it that will mitigate your exposure. One approach is obtaining a Written Consent by the contractor explaining why it is necessary (E.g., delivering pharmaceuticals or hazmat materials). You may also want to provide a clear Disclosure allowing a prospective contractor to dispute any inaccuracies in the report. (There is also an Adverse Action Notice, but this would only pertain to background checks performed while a contractor is currently under contract and accepting work).
While the argument typically revolves around a Legitimate Business Need or a “Smart Business Decision,” it is most important to get ahead of any such scenario where the need for a background check is challenged as being part of the direction and control of a contractor.
Is your business prepared for such a scenario?