Maintaining FCRA Compliance When Running Background Checks on Employees

Jan 24, 2023 | Business Law, Legal Update

Maintaining FCRA Compliance When Running Background Checks on Employees

To ensure workforce safety and security, many employers routinely conduct background checks on candidates for employment. However, these seemingly protective actions can expose employers to significant litigation risk if done incorrectly. In fact, if you are thinking about expanding your workforce, it might be a good time to review your background check disclosure forms and screening processes to ensure they comply with the Fair Credit Reporting Act (FCRA). The number of lawsuits—including class action lawsuits—brought under FCRA has more than doubled over the last 13 years. That number continues to rise almost exponentially, and even procedural violations of the law can result in litigation.

Where FCRA compliance is concerned, employers can benefit from a minimalist approach. By reviewing and simplifying current disclosure forms and processes, small and large businesses alike may be able to minimize unnecessary paperwork and potential legal exposure. 

What to Do Before You Ask for Background Information

Be sure you are applying your background check policies equally. It is illegal to check the background of applicants and employees only on the basis of race, national origin, color, sex, religion, disability, genetic information, age (40 or older), and other protected characteristics. When seeking credit reporting information, asking people only of a certain age, race, ethnicity, or other protected class about their financial histories could be evidence of discrimination.

How Does FCRA Apply in the Employment Context?

What Is FCRA?

FCRA protects consumers, and by association job applicants and employees, by promoting the accuracy, fairness, and privacy of information maintained by consumer reporting agencies. If an employer requests an employee or applicant’s “consumer report,” this triggers legal obligations under FCRA. While people often think of consumer reports as solely being “credit reports,” a consumer report can include a range of reports for purchase, such as driving records, criminal records, credit reports, and virtually any other reports bought from third parties–even drug tests.

What Are an Employer’s Obligations Under FCRA?

If an employer wants to purchase a consumer report as part of an employee’s background check, the employer must both disclose to the applicant or employee their intention to obtain the report and obtain written consent before requesting or purchasing the report. If, after receiving the information, the employer intends to take an adverse employment action – like turning down the applicant or terminating the employee – there are specific notice requirements the employer must follow. The disclosure and notice provisions of FCRA present the greatest risk for employer noncompliance. 

Your business should formulate an FCRA compliance checklist. By checking off action items each time your company obtains a background report on an employee or candidate, you can help ensure that you have provided adequate disclosures as well as proper notice if an adverse action takes place.

The Disclosure

Employers who wish to conduct background checks or obtain consumer reports of candidates for employment or current employees must disclose to the applicant or employee that they want to obtain a consumer report for employment purposes. A disclosure regarding background checks can be presented at any time in any part of an employment application, but it should be a separate document. 

The Federal Trade Commission (FTC) recommends keeping disclosure language as simple as possible. Avoiding complex legal jargon and making the purpose of the disclosure as obvious as possible helps to protect both employer and employee. And, don’t use a form that is overreaching in an effort to cut off exposure.  Some tips include:

  • Don’t include waivers or releases from liability for conducting, obtaining, or using a background report;
  • Don’t require the employee or applicant to certify that all information in his or her job application is accurate;
  • Don’t require the candidate or employee to acknowledge that your hiring decisions are based on nondiscriminatory reasons; and
  • Delete any broad authorizations that permit the release of information that FCRA does not allow to be included in a report.

If you have a very clear, simple disclosure form, you can provide it to a candidate or employee. If you hired a background reporting company, you must supply a form summary of rights. If you did not hire a reporting company, you may still want to supply a form summary of rights. Once those are in the employee’s hands, the employer can request authorization to obtain a consumer report.

The Notice

If the results of the background check lead you to seek an adverse employment action such as refusal to hire or termination, you are required to notify the applicant or employee in advance. You must supply a copy of the report, give them a description of their FCRA rights, and provide a reasonable opportunity for the applicant or employee to respond to information that may be incorrect in the report. The Act does not specify how much time is reasonable, but Advisory Opinions of the FTC recommend that individuals be provided at least 5 business days to respond to the employer.

There have been lawsuits on this issue. In Beverly v. Wal-mart, (E.D. Va. 2008), the Court found that sending the plaintiff a pre-adverse action notice and copy of his consumer report on September 1, then the final notice on September 6, was too soon given that Labor Day fell on Monday, September 5 and mail delivery was delayed.  In Johnson v. ADP Screening and Selection Services, Inc. and Robert Half International, Inc., 768 F. Supp. 2d 979 (D. Minn. 2011), the Court sided with the employer because ten business days were provided to the candidate.

If you choose to go forward with an adverse action, you should provide a final notice that includes:

  • The name, address, and phone number of the consumer reporting company that supplied the report;
  • A statement that the company that supplied the report did not make the decision to take the unfavorable action and can’t give specific reasons for it; and
  • A notice of the person’s right to dispute the accuracy or completeness of any information the consumer reporting company furnished, and to get an additional free report from the company if the person asks for it within 60 days.

The FTC provides several model forms for providing notice of an adverse employment action. Some employers prefer to draft their own forms, which is also permitted under the rules, as long as all relevant information is included.

Consequences of Non-Compliance

The consequences of non-compliance can be expensive. While many of the publicized FCRA-based lawsuits are class action claims directed at information clearinghouses like credit reporting agencies, any employer can find themselves within the crosshairs as well.