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.
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.
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
Michael Gentry, “It's Beginning to Look a Lot Like … Fair Credit Reporting Act Disclosures are Destined to be Alone for Now,” Labor & Employment Law Blog, Dec. 18, 2017.
Sam Wayne, “How to Add Fair Credit Reporting Act Cases to Your Practice,” Wisconsin Lawyer magazine, January 2016.
Scott Paler, “How to Conduct Legally Compliant Job Applicant and Employee Background Checks in Wisconsin,” InsideTrack, Feb. 4, 2015.
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.