The result is that people are denied employment or run into a host of other problems, including finding housing or travelling across the border, according to the Canadian Civil Liberties Association.
At issue is the disclosure of "non-conviction" records — information about an investigation, arrest or charge that did not lead to a conviction.
Disclosure of such sensitive information — where no conviction has occurred — may undermine the presumption of innocence, the association said in a new report.
"There's a real stigma attached to the very mention of an interaction with the police," said Nathalie Des Rosiers, the association's general counsel.
"The presumption of innocence must mean something."
In its report "Presumption of Guilt," the association notes police background checks — done by the hundreds of thousands each year across the country — have become routine.
Most people believe the information revealed is limited to criminal convictions but a "wide range" of non-conviction records can also be disclosed, the report says.
The data might include criminal charges that were withdrawn, cases where an individual was acquitted, or incidents in which charges were never laid — such as for hundreds swept up in the mass G20 arrests in Toronto two years ago or in the more recent student unrest in Quebec.
"All these people are possibly having a record that they don't know about," Des Rosiers said.
Background checks are mostly done for employment purposes and volunteer hiring, but may also be requested for other purposes, such as when applying to become a teacher or nurse, for housing, adoption, foster-care, immigration or visas.
For example, police in Calgary and Edmonton alone ran more than 140,000 individual checks in 2010.
Don Giesbrecht, president of the Canadian Child Care Federation, said the checks are critical and should be used as a springboard for a discussion with a prospective employee.
Still, Giesbrecht said he understood the association's concerns.
"I don't, at this second, see why you'd need to know if somebody was implicated in something but not charged with something — I don't see where the benefit of that would fall," Giesbrecht said.
"If you're not charged with anything, in many ways, it's really none of your business as an employer."
Currently, the association said, a legal and policy vacuum around the retention and disclosure of such information means the issue is left to individual police forces to sort out.
For example, Toronto police keep an internal database on anyone investigated even when no charges are laid. Officers make no judgment on what information is included in a background check.
"We do a search of the databases and whatever comes up gets released," said spokeswoman Meaghan Gray. "It's a very fact-based process."
Police might explain the data to a prospective employer — if the applicant asks — but the information cannot be expunged because it's in police interests to have access to it, Gray said.
The association calls the status quo "profoundly unfair." It urges non-conviction records be destroyed in most cases and disclosed only in "exceptional" circumstances.
"If the police think somebody continues to present a risk to society, a risk to public safety, then they can decide to keep the information and divulge it in certain circumstances," Des Rosiers said.
"But these have to be limited (and) the person has to be afforded due process."
The association also wants human-rights codes amended to bar discrimination based on the disclosure of non-conviction records.