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  • March 08, 2019

    Employer Obligations When Using Third Parties to Conduct Background Checks

    When employers engage third parties to conduct background checks on job applicants, they must be certain to follow their obligations under the Fair Credit Reporting Act and similar state laws or they may open themselves up to liability. Meg Vergeront discusses employer obligations when conducting a background check through third-party investigators.

    Meg E. Vergeront

    employment background check

    March 20, 2019 – An employer’s use of third parties to conduct employment background checks on prospective and existing employees triggers numerous obligations under the federal Fair Credit Reporting Act (FCRA).

    The following is a brief overview of the primary employer obligations before, during, and after conducting a background check through third-party investigators.

    Covered Entities and Reports

    The FCRA applies to “consumer reporting agencies,” which covers nearly all third-party investigators and most employment background reports, or “consumer reports,” that the investigators produce.

    Meg Vergeront Meg Vergeront, U.W. 1993, is a partner at Stafford Rosenbaum LLP, Madison, where she focuses on employment and constitutional law.

    Consumer reports include credit reports, criminal history reports, and driving records obtained from a consumer-reporting agency.

    Employer Obligations Before Obtaining a Background Check

    Employers who want to obtain a consumer report for any employment purpose must first provide applicants and employees with a written disclosure stating their intent to obtain a consumer report. They must also receive written authorization from the applicant or employee before obtaining the consumer report.

    The disclosure and authorization of rights must all be stand-alone documents, and may not be part of the employment application or any other document.

    Neither of these documents should include notification or authorization required by any applicable state law – those should be placed in a separate document, consistent with the applicable law.

    Obligations Before Taking Adverse Action

    If an employer is considering adverse action based on information obtained in a consumer report, the employer must provide:

    • the applicant or employee with a copy of the consumer report;

    • a “pre-adverse action” letter explaining that the employer is considering taking adverse employment action based on information in the report; and

    • a written “summary of rights” under the FCRA.

    The employee must receive these documents prior to taking any adverse employment action.

    The U.S. Bureau of Consumer Financial Protection regulates the content that must be included in the summary of rights. Employers should always ensure their written summary of rights is up-to-date by checking online for any updates.

    Although the FCRA does not specify the amount of time an employer must give an applicant or employee to correct information in the consumer report, five business days or more is generally considered appropriate.

    Obligations on Taking Adverse Action

    If an employer does take adverse employment action, it must then provide notice to the applicant or employee, and provide him or her with certain information required by statute, including another copy of the summary of rights.

    The notice need not be provided in writing, but best practice is to do so for documentation purposes, in the event of litigation.

    Violation of the FCRA

    In the event of a willful violation of the FCRA, an applicant or employee is entitled to seek damages of $100 to $1,000 per violation, punitive damages, and attorneys’ fees.

    If the violation occurred as a result of negligence, the applicant or employee is entitled to sue for any actual damages, plus attorneys’ fees.

    State Laws

    Some states have requirements in addition to those set forth in the FCRA.

    The Bottom Line

    This overview generally describes some of the key employer obligations under the FCRA, and is not intended as a detailed guide.

    Employers should consult with legal counsel before implementing a background check program that calls for the background check to be performed by a third party.

    More on Fair Credit Reporting Act

    This article was originally published on the State Bar of Wisconsin’s Labor & Employment Law Section Blog. Visit the State Bar sections or the Labor & Employment Law Section web pages to learn more about the benefits of section membership.

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    Labor & Employment Law Section Blog is published by the State Bar of Wisconsin; blog posts are written by section members. To contribute to this blog, contact Andrea Farrell and review Author Submission Guidelines. Learn more about the Labor & Employment Law Section or become a member.

    Disclaimer: Views presented in blog posts are those of the blog post authors, not necessarily those of the Section or the State Bar of Wisconsin. Due to the rapidly changing nature of law and our reliance on information provided by outside sources, the State Bar of Wisconsin makes no warranty or guarantee concerning the accuracy or completeness of this content.

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