"Employers Shouldn't Skimp on Employee Background Checks"

Complying with the Fair Credit Reporting Act (FCRA) in Four Easy Steps

Employers have become acutely aware that hiring a job applicant with an undesirable background, criminal record or falsified credentials can carry enormous economic and legal consequences. Many employers utilize pre-employment background screening to be more careful about who is hired in the first place.

Pre-employment background screening promotes a safe and profitable workplace, by protecting an employer from negligent hiring exposure, wrongful termination lawsuits, incidents of sexual harassment, financial loss, false claims, theft, workplace disruption or time wasted in recruiting and training the wrong candidate.

Background pre-screening is normally conducted by outside agencies called Consumer Reporting Agencies (CRA). Other than calling former employers for references, employers generally cannot conduct such screenings in-house due to the specialized resource and knowledge involved. In addition, firms risk legal liability if the procedures utilized to check on applicants infringe on legally protected areas of privacy.

A federal law called the Fair Credit Reporting Act (FCRA), however, governs pre-screening obtained from outside agencies. This law sets out various requirements and rules for pre-employment background reports, called Consumer Reports. This law was substantially amended on September 30, 1997, to provide greater privacy protection to consumers, and to ensure that information was accurate and complete.

A Consumer Report is much broader in scope than just a credit report. It affects a wide variety of information obtained concerning job applicants. A Consumer Report includes criminal and civil records, driving records, civil lawsuits, reference checks and any other information obtained by a Consumer Reporting Agency. By following the FCRA, an applicant's privacy rights are protected. For this reason, most legal experts advise employers to engage the services of an outside screening firm.

When engaging the services of a Consumer Reporting Agency, both the employer and the CRA must follow the four steps described in this report. Failure to do so can result in substantial legal exposures, including fines, damages, punitive damages and attorneys fees. Private investigators who engage in the business of pre-employment background screening are also covered by the FCRA.

STEP ONE--An Employer must certify to the Consumer Reporting Agency that it will follow the FCRA (FCRA Section 604)

Prior to supplying a Consumer Report, an employer must certify to the Consumer Reporting Agency (CRA), that the employer will follow all the steps set forth in the Fair Credit Reporting Act. These include:

·         That the employer will use the information for employment purposes only.

·         That the employer will not use the information in violation of any federal or state equal opportunity law.

·         That the employer will obtain all the necessary disclosures and consents as discussed below.

·         That the employer will give the appropriate notices in the event that an adverse action is taken against an applicant based in whole or in part on the contents of the Consumer Report.

·         That if a special type of consumer report is requested, called an Investigative Consumer Report, that the employer will give the additional information required by law.

These requirements are explained further in a document prepared by the Federal Trade commission entitled, "Notice to Users of Consumer Report." The FCRA requires a Consumer Reporting Agency to provide a copy of that document to every employer who requests a report.

STEP TWO--An Employer must obtain a written Release and a separate Disclosure from a job applicant before obtaining a Consumer Report (FCRA Sections 604 and 606))

Before obtaining a Consumer Report from a Consumer Reporting Agency, the employer must obtain two separate documents:

·         There must be a clear and conspicuous disclosure that a report may be requested. This must be provided in a "separate document." The purpose is to prevent the disclosure being buried in an employment application.

·         The employer must obtain written consent from the applicant.

The Consumer Reporting Agency will normally provide employers with the forms needed for the Disclosure and Release.

Recently, the Federal Trade Commission (FTC) clarified that the release and disclosure can be on the same document, a long as the language does not distract from a clear and conspicuous disclosure that a report  is being requested.

A special procedure is necessary where the employer requests a Consumer Reporting Agency to obtain employment references. Where the Consumer Reporting Agency is merely verifying factual matters, such as the dates of employment or salary, no special procedure is necessary. However, where the Consumer Reporting Agency is asking for information such as job performance, then that falls into a special category of consumer report called an, " Investigative Consumer Report."

When an Investigative Consumer Report is requested, there are some special procedures to follow:

·         There must be a disclosure to the applicant that an investigative consumer report is being requested, along with a certain specified language. Unless it is contained in the initial Disclosure, the consumer must receive this additional disclosure within three days after the request is made.

·         The Disclosure must tell the applicant that they have a right to request additional information about the nature of the investigation.

·         If the applicant makes a written request, then the employer has five days to respond with additional information and must provide a copy of a document prepared by the Federal Trade commission called, "A Summary of Your Rights Under the Fair Credit Reporting Act (which your background agency should provide).

As a practical matter, a Consumer Reporting Agency should handle all of these requirements for an employer as part of their services.

STEP THREE--If adverse action is intended as a result of a Consumer Report, then the applicant is entitled to certain documents (FCRA Section 604)

Where an employer receives a Consumer Report, and intends not to hire the applicant based upon the report in any way, then the applicant has certain rights. Before taking the adverse action, the employer must provide the following information to the applicant:

·         A copy of the consumer report

·         The FTC document "A Summary of Your Rights Under the Fair Credit Reporting Act."   (This should be provided by the screening service.)

Here is a sample letter:

Dear Applicant,

A decision is currently pending concerning your  application for employment  at (the above employer)(this company).   Enclosed for your information is a copy of the consumer report that you authorized in regard to your application for employment, together with a "Summary of Your Rights Under the Fair Credit Reporting Act."

If there is any information that is inaccurate or incomplete,  you should contact this office as soon as possible so an employment decision may be completed.

Sincerely yours,

The purpose is to give an applicant the opportunity to see the report that is being used against them. If the report is inaccurate or incomplete, the applicant then has the opportunity to contact the Consumer Reporting Agency to dispute or explain what is in the report. Otherwise, applicants may be denied employment without ever knowing they were the victims of inaccurate or incomplete data.

As a practical matter, by the time an applicant is the subject of a Consumer Report, an employer has spent  time, money and effort in recruiting, and hiring.  Therefore, it is in the employer's best interest to give an applicant an opportunity to explain any adverse information before denying a job offer.  If there was an error in the public records, giving the applicant the opportunity to explain or correct it could be to the employer's advantage.

Even if there were other reasons in addition to the Consumer Report for not hiring an applicant, these rights still apply. If the intended decision was based in whole or part on the Consumer Report, the applicant has a right to receive the report. In a situation where the employer feels that they would make an adverse decision anyway, regardless of the report, the employer may still want to follow this procedure for maximum legal protection.

The question that arises is how long an employer must wait before denying employment based upon information contained in a Consumer Report. The Fair Credit Reporting Act is silent on this point. However, many legal authorities advise that an employer should wait a reasonable period of time before making the final decision. This period should be the time that would be needed for an applicant to meaningfully review the report and make known to the employer or the Consumer Reporting Agency any inaccurate or incomplete information in the Consumer Report. A Consumer Reporting Agency should be able to assist employers in complying with these requirements. This does not mean that an employer is required to hold the job open for a long period of time.   After the first notice is given, and the applicant has had an appropriate opportunity to respond, an employer may either wait until there has been a re-investigation, or fill the position with another applicant.  Most employers find as a practical matter that this provision of law does NOT impose any hardship or burden upon an employer.   Even though in rare situations an employer may have questions on how to proceed, the clear advantages of a pre-employment screening program far outweigh any complications that can theoretically arise from compliance.

STEP FOUR--Notice must be give to an applicant after an adverse action (FCRA sec. 615)

If after sending out the documents required in Step 3, the employer intends to make the decision final, the employer must take one more step. The employer must send the applicant a Notice of Adverse Action informing the job applicant that the employer has made a final decision, along with another copy of the FTC form "Summary of Your Rights under the Fair Credit Reporting Act."

The Notice of Adverse Action must contain certain information. The following is a sample letter that contains the necessary statements:

Dear Applicant,

In reference to your application for employment, we regret to inform you that we are unable to further consider you for employment at this time. Our decision, in part, is the result of information obtained through the Consumer Reporting Agency identified below.

The Consumer Reporting Agency did not make the adverse decision, and is unable to explain why the decision was made.

You have the right to obtain within 60 days a free copy of your consumer report from the Consumer Reporting Agency as identified below and from any other consumer reporting agency which complies and maintains files on consumers on a nationwide basis.

You have the right to contact the Consumer Reporting Agency listed below to dispute any information contained in the report that you believe may be inaccurate or incomplete. A copy of your rights under the "Fair Credit Reporting Act" is enclosed, entitled "Summary of Your Rights under the Fair Credit Reporting Act." (List the Consumer Reporting Agency's name, address and phone number below, including any 800/888 number.)

Many employers find it difficult to believe that Congress intended that an applicant be notified twice, both before an adverse action and after. However, the law clearly requires two notices. This is also the interpretation of the Federal Trade Commission Staff. The purpose is to give job applicants the maximum opportunity to correct any incomplete or inaccurate reports that could affect their chances of employment.

If you have any further questions, please contact Employment Screening Resources at 1-888-999-4474.
 

The following is a copy of the summary of rights that should be given to a job applicant any time an employer sends one of the two letters in this report. This can be copied directly from this site, or by going to, "A Summary of Your Rights Under the Fair Credit Reporting Act."

Appendix A to Part 601

Prescribed Summary of Consumer Rights

The prescribed form for this summary is as a separate document, on paper no smaller than 8x11 inches in size, with text no less than 12-point type (8-point for the chart of federal agencies), in bold or capital letters as indicated. The form in this appendix prescribes both the content and the sequence of items in the required summary. A summary may accurately reflect changes in numerical items that change over time (e.g., dollar mounts, or phone numbers and addresses of federal agencies), and remain in compliance.

A Summary of Your Rights
Under the Fair Credit Reporting Act

The federal Fair Credit Reporting Act (FCRA) is designed to promote accuracy, fairness, and privacy of information in the files of every "consumer reporting agency" (CRA). Most CRAs are credit bureaus that gather and sell information about you -- such as if you pay your bills on time or have filed bankruptcy -- to creditors, employers, landlords, and other businesses. You can find the complete text of the FCRA, 15 U.S.C. 1681-1681u, at the Federal Trade Commission's web site (http://www.ftc.gov). The FCRA gives you specific rights, as outlined below. You may have additional rights under state law. You may contact a state or local consumer protection agency or a state attorney general to learn those rights.

The FCRA gives several different federal agencies authority to enforce the FCRA: