Caveat emptor? Employers beware!

7 mins

Posted on 18 Dec 2013

Most employers nowadays purport to carry out background checks on employees before taking them on, at the very least in the form of references. In the global financial services and other regulated sectors, those checks have to be substantive and thorough; not only references, but credit-worthiness, the lack of criminal convictions and court judgments against them, and the veracity of qualifications all have to be carefully checked in order to minimise the risk of someone not turning out quite as good as they seem to be.

Recently, this was highlighted by the case of Dennis O'Riordan, a barrister who obtained jobs at a number of banks, barristers' chambers and solicitors' firms with a fake CV. The scale and audacity of his lies was quite startling. He claimed to have a first class degree from Oxford, a master's degree from Harvard and a pleasingly impressive list of other qualifications and membership. All of this was revealed to be untrue when he applied for a job at another set of chambers who, it appears, actually looked into his background. These revelations, however, are eclipsed by the allegations of drug use and false expenses claims made while trustee of a charity surround the former chairman of the Cooperative Bank, the Reverend Paul Flowers, leading to very heated questions as to how he ever came to be appointed to that role.

Aargh! So how should employers avoid such embarrassing situations?

A proper vetting process will help enormously. Before starting, however, employers should remind themselves of the effect of the Data Protection Act 1998. They should explain their background checking procedures to applicants as early as possible in the recruitment process, and obtain signed consents if information is to be obtained from third parties, such as former employers (see References below) or academic institutions (see Qualifications below). Part 1 of the Employment Practices Data Protection Code sets out the Information Commissioner's recommendations on how to carry out background checks lawfully.


Recent employment history can be verified by seeking a reference from the employee's current or most recent employer. Generally, employers are not obliged to provide references and in practice, if provided, they may prove to be pretty bland. However, even the most factual of references should reveal whether an employee's claims about the fact of their employment, its length and their role are accurate.

In the financial services sector, Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) authorised firms recruiting approved persons will need to obtain references as part of their due diligence in order to satisfy themselves that the candidate is a fit and proper person, a pre-condition to approval by the FCA or PRA. When assessing honesty, integrity and reputation — key elements of the fit and proper person test — the employer needs to consider whether the employee has ever been dismissed or asked to resign from a previous job, something which it will need to verify by checking with previous employers. In addition, if the individual is to carry out a customer function, the former employer is obliged to provide all relevant information of which it is aware, including details any outstanding or upheld complaint and any outstanding liabilities.


Where a particular professional or academic qualification is considered essential, employers should verify any such qualifications claimed by the applicant, either by asking to see original certificates or by contacting the institution that awarded the qualification. Under the approved persons regime, employers need to be satisfied as to a candidate's competence and capability as part of the fit and proper person test: checking qualifications is a key aspect of this.

Criminal records checks

Employers are entitled to ask candidates whether they have a criminal record if justified for the role, although the general position is that a candidate responding to such a question is not obliged to provide information about spent convictions. For certain jobs and professions, however, spent convictions do have to be disclosed. This is not the case for all roles in the financial services sector, but it does apply to access to professions such as accountants and actuaries, and where a person is seeking approved person status.

Where an employer is recruiting for an approved person position, it should ask applicants to disclose criminal convictions and explain that spent convictions must also be disclosed. The employer is also entitled to check the position by carrying out a criminal records check with the Disclosure and Barring Service (DBS). The information on criminal convictions will help it assess the candidate's honesty, integrity and reputation for the purposes of the fit and proper person test. Although employers are not legally obliged to carry out a DBS check, failure to do so may put a question mark over whether the firm's recruitment procedures and procedures for assessing fitness and propriety are adequate.

Credit checks

The Information Commissioner considers credit checks to be a form of vetting and so they should only be undertaken where they are proportionate for the role applied for. This is unlikely to be the case for many employers, but this requirement is likely to be satisfied where the job involves working for a financial institution, where a bad credit rating could compromise the organisation's integrity. Credit checks will also assist employers recruiting a person seeking approved person status to determine the candidate's financial soundness, another aspect of the fit and proper person test.

Court judgments

The official Register of Judgments, Orders and Fines records details of High Court and County Court judgments and unpaid fines imposed by Magistrates Courts. As with credit checks, a search of the register should only be undertaken where it is proportionate for the particular role and this should not therefore be considered as a standard check. However, employers in the financial services sector may be able to justify such checks on the basis that financial propriety is required for the role in question and when recruiting for approved person roles in particular this is likely to be justified and will help verify the candidate's financial soundness for the purposes of the fit and proper person test.

Online monitoring

More and more employers are turning to social media sites and internet searches to obtain background information on job candidates. Employers need to be aware that data protection laws will apply so that if they consult and record online information about a candidate they will be processing personal data. A person's postings on social media sites or their social media profile may well reveal sensitive personal data about them, such as their sexuality, race or beliefs. However, as these have been made public by the individual, the additional protections which normally apply for sensitive personal data do not apply.

Background checks of this nature will be very difficult to justify. They should only be undertaken where there are particular and significant risks for the employer, where they are justified for the particular role and where there is no less intrusive and reasonably practicable alternative. Further, if the check reveals sensitive personal data, the candidate might have scope to claim unlawful discrimination against a potential employer if they are rejected for the post. Employers should therefore be very cautious about using this method.

Job offers

Job offers should always be made conditional on receipt of satisfactory references and background checks. If these turn out to be unsatisfactory, then the job offer can be withdrawn. Employers are best advised not to allow employees to start work until satisfactory references and background checks have been received, but if they wish to do so then they should make it clear in the contract that if references or background checks prove to be unsatisfactory then this gives grounds for terminating the contract, perhaps with shortened or no notice at all. Job offers for approved person roles should always be made conditional on obtaining approved person status and candidates should not be allowed to start work until this has been obtained.

Closing thoughts

Carrying out background checks can be costly and time-consuming, but they are essential to minimising the risk of embarrassment, and perhaps significant damage, to the organisation, later on. In the end, a "Crystal Methodist" may be a good turn of phrase, but only provided it isn't too close to home.

This article, written by Jessica Corsi, was originally published on Complinet at  © Thomson Reuters  2013

The articles published on this website, current at the date of publication, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your own circumstances should always be sought separately before taking any action.

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