Read this before requesting a background check!

October 31, 2018by accurateinvest

The Fair Credit Reporting Act (“FCRA”) provides federally-imposed limitations on all employers who seek information from a Consumer Reporting Agency about an applicant or employee for use in making an employment decision, such as a hiring or promotion. The FCRA contains specific notice, authorization, and reporting requirements related to obtaining a Consumer Report, including credit reports and criminal background checks, and potentially taking an adverse employment action based on that information.

Requirements before you request a Consumer Report:

  • Notice
    • You must provide a stand-alone notice to an applicant or employee about whom you (1) intend to get a Consumer Report; and (2) may use the Consumer Report information to make an employment decision.
    • The notice should not be part of (or included on) the job application or any other document.
    • The notice must be signed by the applicant or employee before you request the Consumer Report.
  • Authorization
    • You must obtain an authorization from an applicant or employee that authorizes you and your agents to obtain a Consumer Report.
    • Although technically the authorization language can be included as part of the notice form, given the potential to include language that a court may deem inappropriate for the notice, we recommend that you provide a stand-alone authorization form.
    • The authorization must be signed by the applicant or employee before you request the Consumer Report.

Requirements before you take an adverse employment action based on a Consumer Report:

  • Pre-Adverse Action Notice
    • You must provide the applicant or employee with a pre-adverse action notice, which contains:
      • Notice that the employer is contemplating taking an adverse action;
      • A copy of the Consumer Report; and
      • A copy of “A Summary of Your Rights Under the Fair Credit Reporting Act,” which can be found here.
        • On September 21, 2018, this “Summary” was updated to alert the applicant or employee of their right to place a “security freeze” on their Consumer Report, which would prohibit a Consumer Reporting Agency from releasing information in a frozen Consumer Report without express authorization.
        • IMMEDIATE ACTION: Employers should ensure that they are using only the current, updated version of the Summary.
  • Pre-Adverse Action Waiting Period
    • You must provide the applicant or employee with a reasonable period of time to respond to the pre-adverse action notice. We recommend that you wait at least five business days.
    • During this time, you should not fill the open job position or take other action that would constitute an adverse employment action.
    • If you receive additional information from the applicant or employee, you must consider it, but you are not required to change the decision you made prior to sending out the pre-adverse action notice.

After you take an adverse action based on a Consumer Report:

  • Adverse Action Notice
    • You must provide the applicant or employee written notice of the actual adverse employment action, which includes:
      • The name, address, and telephone number of the Consumer Reporting Agency that provided the Consumer Report;
      • A statement that the Consumer Reporting Agency did not make the adverse employment decision and cannot give specific reasons for it; and
      • Notice of the applicant or employee’s right to dispute the accuracy or completeness of the information the Consumer Reporting Agency provided, and the applicant or employee’s right, upon request, to get a free copy of the report from the Consumer Reporting Agency within 60 days.

Potential damages:

  • Up to $1,000 per discrete violation, plus punitive damages and attorneys’ fees.
  • Significant exposure can result from the filing of class action claims.
    • For example, if a noncompliant notice form is used for 100 applicants, the employer may be exposed to liability of at least $100,000 in a class action lawsuit.
  • The FCRA does not include a liability cap.

Employers should also be aware of state and local restrictions that impact employer background checks, which may include greater protections for the applicant or employee, as well as “ban-the-box”-type requirements that impact when and how the employer can request information related to an applicant’s criminal background.

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