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Employment Law Blog: Dig Up the Dirt, but Know the Rules of the Game - The Fair Credit Reporting Act and Background Checks - May 5, 2014

Employers like to know everything they can about applicants. Hiring employees is a big investment, and they want to do their due diligence up front so that their investment pays off. But before employers hire third-party companies to help them “dig up the dirt” about their prospective employees, they need to know the requirements and procedures of the Fair Credit Reporting Act (“FCRA”). 15 U.S.C. § 1681 et seq. Otherwise, that information comes with a price: increased exposure to liability (ranging from $100 to $2,500, plus punitive damages, courts costs, and attorney’s fees).  


Whenever an employer considers hiring a third-party company to investigate an applicant’s background, the information given to the employer – such as the applicant’s credit score, criminal history, or driving record – is called a “consumer report” and is regulated by the FCRA. The technical requirements of the FCRA can be broken down into three categories:

  1. Steps that must be taken before an employer gets a consumer report,
  2. Steps that must be taken before an employer decides not to hire an applicant based upon information in the consumer report, and
  3. Steps that must be taken after the employer decides not to hire an applicant based upon information in the consumer report.


Step One: Before an employer seeks out a consumer report, it must inform the applicant that it may use a consumer report in order to make its employment decision. This notice must be clear and conspicuous and in a stand-alone format; it cannot be in an employment application. The employer must also obtain the applicant’s written consent before it can get the consumer report. If the applicant refuses to give his or her consent, the employer can refuse to hire that individual. The employer must also inform the third-party company, who is providing the consumer report, that it has complied with the FCRA, will continue to comply with it, and it will not use the information in the consumer report for a discriminatory purpose.  


Step Two: If the employer decides it does not want to hire an applicant based upon information in the consumer report, that employer must provide a copy of the consumer report to the applicant along with a copy of a handout explaining the applicant’s rights under the FCRA (this handout should be given to the employer from the third-party company). The whole purpose of the FCRA is to protect applicants so that employers do not make unfavorable decisions based upon incomplete or inaccurate information. As a result, employers must wait a reasonable amount of time to let the applicant correct inaccuracies in their consumer report or to explain any discrepancies.  


Step Three: After employers have waited a reasonable amount of time, they can decide not to hire the applicant. The employer must inform the applicant that their decision was based upon information in their consumer report. The employer must also inform the applicant that they have a right to dispute the accuracy or completeness of the information and can request an additional free copy of the report within sixty days. The employer must also tell the applicant the name, address, and phone number of the third-party company that supplied the report, and it must explain that the third-party company did not make, or have anything to do with, the unfavorable employment decision. If the consumer report involves a credit report, additional detailed rules apply. Next, the employer must securely store and dispose of the consumer report to protect against unauthorized use of, and access to, that confidential information.


These steps should not deter employers from utilizing resources provided by third-party companies when conducting background checks on their prospective employees; but the exposure to liability under the FCRA should give employers an incentive to know the “rules of the game” before they seek out such information.