So much “news”, gossip and debate has circulated regarding risks of using background checks in the hiring process that many employers have considered stopping the practice altogether. The problem with that approach is that if an employee ultimately hurts someone or steals, embezzles, etc on the employer’s “watch”, the employer can then find itself facing a negligent hiring lawsuit. Is this another no-win situation for an employer? It need not be. As I mentioned here in last week’s post, the Fair Credit Reporting Act (FCRA) and EEOC guidelines apply to use of background checks. Employers who take the time to understand both will be able to conduct a background check and greatly reduce if not avoid the risk of lawsuits. Let’s look this week at the FCRA, which tells us what employers must do before conducting a background check and once they have decided to exclude a candidate based on information contained in the background report.
As always, let’s first get some definitions. What exactly does a “background check” include? For many employers background checks include only criminal history. Background checks can also include credit checks, references, education, neighbor interviews, education records, social security number checks and driving records, to name the most common. The FCRA is a federal law designed to promote accuracy, fairness and privacy of data collected, used and/or disclosed by a consumer reporting agency (CRA). The FCRA used to be enforced by the Federal Trade Commission, but is now enforced by the newly created Consumer Financial Protection Board (CFPB). While many are under the misconception that it only applies to credit checks (perhaps because of its name) it also governs criminal background checks. OK, one more definition and we’re ready to move on: Generally, a CRA is a third-party agency that collects and provides data about one’s creditworthiness or criminal background for purposes of making employment, tenancy or credit decisions.
So, what does an employer have to do to comply with the FCRA and steer clear of the CFPB? Here are the steps:
- Obtain the applicant’s written consent: Before conducting the background check, the employer must provide the applicant a disclosure statement, which tells the applicant that it will be conducting a background check, and what that check will include. The employer must also provide an authorization form which, the applicant, by signing, indicates his/her consent. The disclosure and authorization can be included in one form, but must otherwise stand alone. They cannot be part of the job application, handbook or any other document. Note: The FTC has allowed “blanket” authorizations, allowing employers to obtain reports anytime during employment. Whether the CFPB will continue that practice remains to be seen.
- Provide pre-adverse action notice prior to taking adverse action such as rejecting a job applicant, terminating an employee, or denying a promotion. The pre-adverse action notice must include a copy of the report and a Summary of Consumer Rights Under the FCRA, which can be found here. The FCRA requires this step in order to give the applicant an opportunity to explain any negative items on the report. For example, suppose you run a background check on John Jones. Mr. Jones’ background check shows several convictions — but for a different John Jones. You as the employer must provide Mr. Jones a reasonable time (the consensus is 5 days) to explain the record(s) and substantiate the explanations. The applicant also has a right to file a dispute with the CRA; the CRA in turn has 30 days to investigate the dispute. Note that while a sympathetic employer may give the applicant more than 5 days to get any errors corrected, the FCRA does not require an employer to do so.
- After taking an adverse action, provide an adverse action notice. This written notice must contain the CRA’s name, address and phone number, along with a statement that the CRA did not make the adverse decision, rather the employer did, and a notice that the applicant/employee has the right to dispute the accuracy or completeness of the information that the report provided.
Please note that effective January 1, 2013, the required notices have been slightly revised, in part to reflect that fact that the CFPB is now the proper enforcing agency. Employers who seek for extensive investigative consumer reports must also provide revised notices. You can find more information on that point here.
Before we say good-bye for this week, let’s note a few more points:
- The FCRA is a federal law, imposing a minimum standard employers must follow when conducting background checks. States are free to impose additional standards, and a number of them do, so employers must also check the laws of the states in which they conduct background checks.
- The FCRA does not apply when the employer conducts the background check itself (i.e. does not use a CRA).
- Each violation of FCRA requirements can result in fines from the CFPB, and, in some cases, lawsuits by classes of similarly situated employees.
- The FCRA disallows reporting the following items:
- Bankruptcies after 10 years
- Civil suits, judgments, records of arrest, from date of entry, after 7 years;
- Paid tax liens after 7 years;
- Accounts placed for collection after 7 years;
- Any other negative information (except criminal convictions for which the FCRA places no time limit) after 7 years.
Employers who find any of these items reported should either not use those items to make a hiring decision or should proceed with caution and seek legal advice before doing so.
Thank you again for joining The Emplawyerologist this week. Join us next week to delve into the EEOC guidelines on use of information in credit and criminal background checks in the hiring process.
Are you in the staffing industry or do you use staffing agency to meet your staffing requirements? If so, click here to read my post about “temps” rights under the FMLA on The Staffing Stream , a blog by Staffing Industry Analysts.
Disclaimer: The contents of this post are for informational purposes only, are not legal advice and do not create an attorney-client relationship. Always consult with competent local employment counsel on any issues discussed here.
Click here to learn more about Janette Levey Frisch, author of The Emplawyerologist.
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