Make Sure Your Employee Background Checks Comply With Federal Law

Many employers do background checks on current employees and job applicants. Background checks are a simple and effective screening tool in a labor market flooded with employees looking for work. But far too few employers know that they must comply with the Fair Credit Reporting Act (FCRA) whenever they obtain a background report prepared by reporting agency.
FCRA requires that an employer make certain disclosures to an employee or job applicant whenever the employer obtains a report concerning the individual’s credit, character, reputation, personal characteristics, or mode of living. Common examples of background reports include criminal and civil records, credit reports, and driving records.
Below is an outline of key steps the employer must take to comply with FCRA.
  • The employer must disclose to the employee that he or she will be the subject of a background report as part of the employment process. This disclosure must be in writing within a stand-alone document.
  • The employer must obtain the employee’s signed authorization to prepare the background report. FCRA permits this authorization to be combined with the written disclosure.
  • After the reporting agency provides the background report to the employer, the employer must review the report and determine whether it will take an “adverse action” based on the report. An adverse action includes not hiring an applicant, not promoting an employee, not retaining an employee, or any other action which has a negative impact on an individual’s employment. If the employer decides not to take an adverse action based upon the report, it may skip the steps below.
  • If the employer considers taking an adverse action based on the background report, the employer must provide a “pre-adverse action notice” informing the employee that the employer is considering adverse action based on the background report.
  • The employer must also provide the employee with a copy of the background report, a copy of the FCRA document entitled “A Summary of Your Rights under the Fair Credit Reporting Act,” and a reasonable period of time to dispute the information in the report.
  • The employee may contact the reporting agency to dispute any information in the background report. The reporting agency is responsible for re-investigating any disputed items and issuing an updated report to both the employer and employee.
  • The employer must review the updated report and make a final employment decision. If the decision is adverse, the employer must send a notice of adverse action to the employee. The notice must: (1) state that the adverse action is based on information in the background report; (2) state that the reporting agency did not make the adverse decision and does not know the basis for the decision; (3) include the name, address, and toll free number of the reporting agency; and (4) state that the employee has the right to obtain another free copy of her background report within the next 60 days.
FCRA’s rules apply only when the employer obtains the report from a reporting agency. It does not affect an employer that uses its own employees to search public records for information.

The list above is a simply a brief summary of FCRA’s rules governing employee background reports. For more information, employers may consult the Federal Trade Commission’s website (http://www.ftc.gov/) or contact one of Roetzel’s employment services attorneys.


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