Robert T. Quackenboss is a partner, and Evangeline C. Paschal is counsel with the law firm Hunton.
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 as they use these tools.
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.
Eightfold has moved to dismiss these allegations, arguing it merely sells software to employers and thus is similar to analytics company FICO, which licenses its credit score algorithm to credit bureaus. 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 before the job is filled or explore opportunities with other employers.
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 a way that benefits the applicant, either by providing the employer with contextual information or deciding to pursue other employment opportunities.
This theory draws from a line of cases that allowed unsuccessful applicants to pursue FCRA claims after companies alllegedly failed to provide in a timely manner a required pre-adverse notice, even when the applicant’s background report was accurate. 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. More recently, on June 9, the U.S. Department of Justice issued a Memorandum Opinion finding that EEOC’s traditional guidance for analyzing disparate impact claims was similarly unconstitutional.
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.
Plaintiffs’ class-action attorneys with pending or soon-to-be-filed disparate impact cases now face the potential for disparate-impact theory, a cornerstone of their class-action practice, to be eliminated as a cause of action before those cases run their course. And they can no longer rely on EEOC to investigate their clients’ charges of disparate impact, long relied upon as a no-cost means of testing the viability of their case before committing to expensive federal court litigation.
The plaintiffs’ bar has reacted to these developments by hedging their bets in new pleadings. Background check disparate impact claims now are more frequently backed up by claims of intentional discrimination — disparate treatment — under Title VII, most likely to avoid outright dismissal should disparate impact theory be diminished or dissolved while their case is pending. This presents defendants with additional opportunities to challenge the pleadings and underlying evidence supporting both causes of action.
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. But in the rush to bring identity screening tools to market, vendors and employers can overlook privacy and biometric information laws. See, for example, allegations raised against identity screening tools under Illinois’s Biometric Information Privacy Act in McGowan, et al. v. Veriff Inc., et al. and in Kistler et al. v. Eightfold AI Inc., discussed above.
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 used for these purposes and confirm that all legal exposure and compliance obligations are identified and managed.
