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At a Glance: Hiring Employees in USA

By: Morgan, Lewis & Bockius LLP, Lexology, April 13 2022

Conducting Background checks

Federal law does not generally restrict background checks of applicants and employees as long as the employer conducts the check directly rather than through a third party. When an employer uses a third-party vendor to conduct the background check, however, the process is governed by the Fair Credit Reporting Act (FCRA). The FCRA does not prohibit an employer from hiring a vendor to conduct background checks or from taking employment action based upon the results of such investigations, but it does require the employer to first provide notice and obtain permission from the applicant or employee. The FCRA also requires that notice be provided to applicants and employees before any adverse employment action can be taken based upon background check information, and it requires that applicants or employees be allowed to correct or explain any negative information. The FCRA further requires employers to maintain the confidentiality of background check information and places some limits on how this information can be used. It is also important to note that several states, including California and New York, have their own laws governing the use of background checks and impose additional requirements and restrictions on an employer’s ability to obtain and use this information.

Effective from 20 December 2021, the federal Fair Chance Act generally prohibits federal contractors from asking applicants applying to work in connection with federal contracts about their criminal histories until after the contractor extends a conditional job offer. The Act also prohibits employers from seeking an applicant’s criminal history from other sources. The Act provides exceptions for criminal background checks that are otherwise required by law or for other specific job positions.

In April 2012, the Equal Employment Opportunity Commission (EEOC) issued guidance regarding when it is appropriate for an employer to use background check information relating to an applicant’s criminal history. The EEOC’s guidelines state that employers should exercise caution before excluding individuals from employment based on criminal history, and asks employers to avoid blanket exclusions unless there is a close link between the requirements of the job and the type of crime committed. Similarly, certain states and municipalities across the country have enacted legislation limiting the ability to inquire as to a criminal record and the use of this information during the application process and in other employment decisions.

Medical examinations

The Americans with Disabilities Act (ADA) prohibits employers from conducting medical examinations or making pre-employment inquiries to determine whether an applicant has a disability or the nature or severity of the disability. Under ADA, however, employers may require applicants to submit to post-offer medical examinations, which may be administered after the applicant has received a conditional offer of employment but before the applicant has commenced employment. Moreover, employers may condition offers of employment on the results of the post-offer medical examination if the following conditions are met:

1. all entering employees in the same position are subjected to such examinations whether or not they have a disability;
2. information obtained regarding an employee’s medical condition or history is collected and maintained on separate forms and in separate medical files that are treated as confidential medical records; and
3. the results of the examinations are used only under the provisions of ADA, and if people with disabilities are excluded from the position based on the examination, the examination must be job-related and consistent with business necessity.

Employers must ensure that medical examinations do not result in a violation of the Genetic Information Nondiscrimination Act, which prohibits employers from using genetic information for decisions on hiring, firing, promotions or job assignments.

State laws may also provide restrictions on pre-employment medical and physical examinations of applicants.

Drug and Alcohol Testing

Generally, pre-employment drug and alcohol testing is lawful under federal and state law where:

1. the testing is required by law (eg, US Department of Transportation drug and alcohol testing requirements) or is part of a lawful pre-employment medical examination required of every applicant for the same position;
2. an applicant has notice of and consents to the testing requirement;
3. the testing is conducted under conditions designed to minimize the intrusiveness of the procedure (e.g., an applicant is not observed while furnishing the sample); and
4. no specific medical information is reported to the employer; rather, the employer is only informed of a pass or no-pass result.

Drug and alcohol testing of applicants and employees is predominantly a subject of state law, which can vary widely from state to state.

Hiring Preference and Discrimination

There is no legal requirement to give preference in hiring particular people or groups of people. Various anti-discrimination laws prohibit discrimination against job applicants who are in protected categories.

There is no requirement to have a written employment contract?

Fixed-term Employment Contracts

State, not federal, law would govern the maximum duration of any fixed-term employment contract. Although generally there is no limitation on the duration of a fixed-term employment contract, such contracts in the United States are typically for a term of one to three years.

Probationary Period

There is no federal law that requires any probationary period at the beginning of the employment relationship. Unless the employer agrees to a probationary period – with an individual employee or with a representative of employees, such as a union – it would be the employer’s choice whether to establish a probationary period and, if so, whether such probationary period would be extended in the employer’s discretion or only under certain circumstances. States and US territories, except Montana and Puerto Rico, do not require a probationary period.

Independent Contractor Vs Employee

Control, dependence and risk of loss are among the primary factors used to distinguish between an independent contractor and an employee. An employee is generally an individual whose time, place and manner of providing services or results are controlled by, or subject to, the control of the employer. Generally, the employer provides the employee with the tools and means necessary for the work to be performed, the employee is economically dependent upon the employer and the employer bears the risk of loss if the work performed or results achieved by the employee are not satisfactory to the employer (e.g., the employer must still pay the employee and can only discipline or terminate the employee if the work or result is not satisfactory).

By contrast, an independent contractor is an individual or business entity that is generally retained to deliver a specific result and, except for deadline and security of intellectual property reasons, has the right to control the time, place and manner of performing the work necessary to provide the agreed-upon result. Independent contractors often market their services to more than one entity, provide the tools and other means necessary to produce the result, and bear some risk of loss in the event they fail to deliver the result promptly or deliver results that are unsatisfactory in quality or quantity to the contracting business (e.g., the contractor will not be paid).

This area of US law has undergone substantial change and continues to evolve very quickly on both the federal and state level in the current regulatory and enforcement environment. Several states have adopted an onerous ‘ABC Test’ that significantly limits contractor classification. Exposure for contractor misclassification can be significant (including exposure based on tax liabilities, failure to provide benefits, failure to reimburse for expenses, wage and hour claims, and associated penalties and derivative claims).