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Screenings Done Right: What Employers Need to Know About FCRA Compliance

Mayra ParisJan 29, 2018

Suppose you want to hire a new driver to deliver your new gluten-free paleo pizza invention all across the city. After weeks of searching, you've finally found the right applicant: a former racecar driver who knows the streets of the city like the back of her hand and can toss dough with her eyes closed. Before you sign that contract, you think maybe you should check to see if she's ever had a speeding ticket before. The police in your city are awfully strict about speed limits. It shouldn't take too long to search one of those online background check services, right?

Hold on a second. Performing an employment screening is more complicated that just searching for the applicant's name on a public records database when you're planning to use that information to decide whether or not to hire them.

An employment background check can include a person's criminal history, traffic violations, or credit history, among other things, and, whether you perform it yourself or hire another company to do it for you, it is considered a type of consumer report. This means that, when requesting and using background checks to make employment decisions, you must follow the guidelines set by the Fair Credit Reporting Act (FCRA).

What is the Fair Credit Reporting Act?

The Fair Credit Reporting Act (FCRA), 15 U.S. Code §1681, was passed by Congress in 1970, and is intended to protect consumers' privacy, as well as the integrity of the American banking system, by making sure that credit information is accurate and isn't misused.

According to the FCRA, employers must take certain steps to make sure, first, that consumers—here, applicants and employees—understand and agree that employment background checks may be used when making employment decisions such as hiring, promoting, reassigning, or terminating, and, second, that consumers have an opportunity to correct inaccurate or incomplete information on the background check if the employer makes a decision against their favor.

Find the entire text of the law in the Federal Trade Commission's website.

Before Requesting a Background Check

First, you need to let the applicant or employee know that a background check may be used when making employment-related decisions. This disclosure must be given in writing, and it cannot be part of the application or contract—it has to be a standalone document. You also need to get the applicant or employee's written consent to do a background check on them, and this permission can be included at the bottom of the notice. To be FCRA-compliant, the notices must be simple and easily understood. Click here to learn how to word the disclosure and the request for authorization.

Once you have met those requirements, then you can find a consumer reporting agency to look into the applicant or employee's history. When you do this, however, make sure the company you are hiring is also FCRA-compliant. Many online background screening companies are not, and they will have a disclaimer, usually at the bottom of the page, that says they are not a consumer reporting agency as defined by the FCRA. Often, these background screening companies don't take steps to make sure the information included in the reports is accurate, or don't verify the identity of the person requesting the report or their reason for requesting it. Therefore, information obtained through a service that is not FCRA-compliant cannot be used by employers to make employment-based decisions.

To see if the company you are considering is FCRA-compliant, look for mentions of "employment background checks" on their website. Companies that aren't compliant aren't allowed to advertise employment-related uses for their background checks.

Before Taking Adverse Action

As defined by the FCRA, "adverse action" is any decision an employer makes that negatively impacts an employee or applicant, such as refusal to hire, termination, reassignment, refusal to promote, among others. Often, when you do a background check on an applicant or an employee, you may find the information contained in the report disqualifies them from being from getting or keeping the job.

The Fair Credit Reporting Act says that, before you take an adverse action against the applicant or employee, you must let them know that you are considering making this decision and you need to provide them with a copy of the report you used. You must also provide them with a copy of the Summary of Rights document that you should have gotten from the consumer reporting agency. The Summary of Rights is exactly what it sounds like—a brief outline of a consumer's rights under the Fair Credit Reporting Act—and it should look something like this. Let the employee or applicant know that they have a chance to correct any inaccurate information on the report before the decision is final. As an employer, the last thing you want is to reject a perfectly good applicant on the basis of a mistake.

After Taking Adverse Action

Once you decide not to hire an applicant or not to promote an employee, based on what you found out on a background check, you must notify the employee or applicant of the adverse action, either in writing, orally, or electronically. According to the FCRA, this notice of adverse action must also include the name, address, and phone number of the consumer reporting agency that prepared the report. You must also let the consumer know that the consumer reporting agency did not make the decision and can't tell them why the decision was made. And you must let them know they have the right to get a free copy of the report from the same consumer reporting agency and to get in touch with the agency to dispute the accuracy of the information included.

Disposing of the Reports

According to the Equal Employment Opportunity Commission (EEOC), personnel and employment records must be kept for at least a year after the record is made or the personnel action—hiring, termination, promotion, etc.—is made. Background checks are among the records that need to be preserved.

Because background checks contain sensitive information, they must be disposed of securely—paperwork must be burned, pulverized, or shredded and electronic files must be destroyed or deleted in such a way that it is impossible for someone else to read or reconstruct them. If you want, you can hire a document destruction contractor to do this for you, but you are expected to follow your due diligence to make sure the contractor is also complying with FCRA guidelines when getting rid of this confidential information.

Exceptions to the Rule

There are a few instances where employers or potential employers don't have to follow these FCRA rules to the letter. For example, when a U.S. government agency or department performs a background check on an employee or applicant and finds information in it that is relevant to a national security investigation, or if they believe complying with the FCRA will jeopardize the investigation or put people's lives at risk, they are not required to disclose the reason for the adverse action.

Another notable exception is given within the trucking industry. Since drivers are often on the move, and frequently in remote places, the disclosures the employer must get and authorizations the employee or applicant must give are not required to be in writing, so long as the applicant applied for the job remotely. If this is the case, any required disclosures can be given orally or electronically. In addition, the employer is not required to give the employee or applicant notice before the adverse action is taken, only after.

Additional Requirements

If the background check you are commissioning is an "investigative consumer report"—a consumer report that was compiled through personal interviews with people who have knowledge of the consumer's character and reputation, among other characteristics—there are even more safeguards in place, because of the increased risk to the consumer's privacy. For one, you are required to disclose to the employee or applicant that you are doing an investigative consumer report on them, and this disclosure needs to be given in writing and mailed within three days of requesting the report. You also need to let the consumer know they have a right to additional disclosures from you, which would include an explanation on the nature and scope of the investigative report. Additional requirements and limitations can be found in section 606 of the FCRA.

Most importantly, the Equal Employment Opportunity Commission (EEOC) places limitations on what you can and can't do with the information you find in a background check. Basically, you can't discriminate against an applicant or employee on the basis of their race, national origin, color, sex, religion, disability, genetic information, or age. You must use the same standard for all employees and applicants. For example, you are not allowed to only check the criminal backgrounds of people who belong to a particular race, national origin, or religion. You are not allowed to ask about an applicant or employees medical history-which is part of their genetic information-unless you have concrete evidence that they cannot perform a certain job-related task because of a medical condition. Read more about EEOC requirements here.

To find a consumer reporting agency that is able to provide employment background checks in accordance with the Fair Credit Reporting Act, check out our top 10.