This morning, with Justice Samuel Alito writing an opinion supported by eight justices, the U.S. Supreme Court held that the federal government’s inquiries on two forms used to conduct background investigations on federal contractors do not violate a constitutional right to informational privacy. According to the Court, the inquiries were reasonable in light of the government’s interest in identifying capable employees to faithfully conduct its business and the collected information was protected by the Privacy Act’s nondisclosure requirements. National Aeronautics and Space Administration v. Nelson, No. 09–530, U.S. Supreme Court (January 19, 2011).

Factual Background

The Jet Propulsion Laboratory (JPL) in Pasadena, California is a facility owned by the National Aeronautics and Space Administration (NASA) and staffed entirely by contract employees. As a result of a 2004 recommendation by the 9/11 Commission, President George W. Bush ordered new identification standards for federal (including contractor) employees. Subsequently, contract employees with long-term access to federal facilities were required to complete a background check, typically the National Agency Check with Inquiries (NACI). To adhere to the new requirement, JPL notified its employees that failure to complete the NACI process by October of 2007 would result in denied access to JPL and termination.

The NACI process, which is the standard background investigation for civil servants, requires certain employees to complete Standard Form 85 (SF–85). Among basic biographical inquiries, SF–85 asks whether the employee has “used, possessed, supplied or manufactured illegal drugs” in the last year. If yes, the employee must provide details, including information about “any treatment or counseling received.” Employees also must sign a release authorizing the government to obtain personal information from schools, employers and others during its investigation. Pursuant to this release, Form 42, the Investigative Request for Personal Information, is sent to employees’ former landlords and references. This form asks if the reference has “any reason to question” the employee’s “honesty or trustworthiness” and if the reference knows of any “adverse information” concerning the employee’s “violations of the law,” “financial integrity,” “abuse of alcohol and/or drugs,” “mental or emotional stability” and “general behavior or conduct.”

Two months before the October deadline, 28 JPL employees, none of whom had been subjected to a background investigation when hired (when such checks were only standard for civil servants) filed suit arguing that SF-85 and Form 42 violate their “right to informational privacy.” The district court denied the employees’ motion for a preliminary injunction, but the U.S. Court of Appeals for the Ninth Circuit reversed the order, holding that portions of both forms are likely unconstitutional. The case eventually reached the U.S. Supreme Court.

Legal Analysis

The Court started by assuming that the two forms’ inquiries implicate a privacy interest of constitutional significance. However, the Court concluded that this interest “does not prevent the government from asking reasonable questions of the sort included on SF–85 and Form 42 in an employment background investigation that is subject to the Privacy Act’s safeguards against public disclosure.”

In arriving at this conclusion, the Court first ruled that the government has an interest in conducting basic employment background checks on applicants and employees. According to the Court, both challenged forms consist of reasonable, employment-related inquiries that further the government’s interests in managing its internal operations. “Like any employer, the Government is entitled to have its projects staffed by reliable, law-abiding persons who will ‘efficiently and effectively’ discharge their duties,” the Court found and “[q]uestions about illegal-drug use are a useful way of figuring out which persons have these characteristics.”

In so ruling, the Court rejected the JPL employees’ argument that the government’s authority in managing its affairs should be limited when applied to contractors rather than civil servants. According to the Court, there are no relevant distinctions between NASA’s civil-service and contractor workforce.

The Court also rejected the employees’ argument that the government has a constitutional burden to demonstrate that its questions are “necessary” or the least restrictive means of furthering its interests.

Finally, the Court noted that SF–85 and Form 42 are subject to substantial protections against disclosure to the public. All responses to SF–85 and Form 42 are subject to the protections of the Privacy Act, which authorizes the government to keep records pertaining to an individual only when they are “relevant and necessary” to an end “required to be accomplished” by law. Moreover, subject to certain exceptions, the government may not disclose these records without the individual’s written consent. The protections against disclosure of personal information offered by the Privacy Act, the Court ruled, “‘evidence a proper concern’ for individual privacy.” Thus, the Supreme Court reversed the judgment of the Ninth Circuit.

Practical Impact

According to Andrew Jaramillo, a shareholder in Ogletree Deakins’ Orange County office, “The Court’s decision will be welcome news to employers who contract with the federal government, but its practical application to other private employers may be more limited because it was based not only on the government’s interests as an employer in managing its internal operations but also on the fact that information collected would be protected from disclosure by the Privacy Act of 1974, which applies only to federal agencies like NASA. One must question whether the Court’s analysis would have been different if the information collected on employees did not enjoy this protection.

Nevertheless, the Court’s decision does contain some key points upon which private employers may rely. In this case, of course, the Court found that the government, in its role as an employer, had a ‘strong interest in conducting basic background checks into the contract employees minding the store at JPL’.  Indeed, the Court noted that ‘the questions challenged by respondents are part of a standard employment background check of the sort used by millions of private employers’. The Court found that the open-ended questions asked of the employees’ references were entirely reasonable, as ‘an appropriate tool for separating strong candidates from weak ones’. That’s good news for all employers, governmental and private sector alike, since the Court seems to suggest that they usually will have a compelling interest in conducting background checks that include meaningful follow-up with employee references.”

A shareholder in Ogletree Deakins’ Portland office, noted, however, that “the Supreme Court left open the possibility that a right of informational privacy may prevent background checks and inquiries under circumstances different from those presented in Nelson. Consequently, without regard to the industry or position at issue, all employers must ensure that background questions are reasonable in light of the job applied for and that protections are in place to protect against inadvertent or inappropriate dissemination of information learned pursuant to such background checks. In addition, private employers must remain mindful that state laws and regulations may impose more stringent privacy protections on background checks.

Employers that find themselves on the receiving end of reference questionnaires that inquire into a former employee’s background and other personal information should approach and respond to such inquiries with caution. The Supreme Court’s interpretation of the Privacy Act signals that public employees will have the right to access any information provided during the background check process, which may increase exposure for defamation and other similar claims arising from former employers’ responses to referral questionnaires.

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