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Background Check Best Practices for FCRA Compliance

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Compliance with the Fair Credit Reporting Act (FCRA) is a primary concern for employers and the background screeners with whom they work. For years, we’ve heard about lawsuit after lawsuit, and settlement after settlement—one larger than the next—regarding companies that did not comply with one aspect of the FCRA’s stringent requirements or another.

This litigation involves various issues under the FCRA that result in potential liability. However, as it relates to employment background checks, the root cause of the most heavily litigated issues stem from either the law’s strict disclosure requirements in obtaining written permission for a background check to be performed or its specific, step-by-step process for adverse action. At times, the violations include both.

Disclosure Requirements

The FCRA requires employers to obtain an applicant’s or employee’s written permission to perform a background check. It also requires them to inform an applicant or employee in writing that they can use information from that report to deny or terminate employment. This exchange must occur prior to a background check being performed.

It is well-established that under the FCRA, a disclosure for employment screening purposes must be:

  1. “clear and conspicuous,” and
  2. “in a document that consists solely of the disclosure.” This is also known as the “standalone disclosure requirement.”

Courts have provided additional guidance on these requirements, holding that even useful language provided in good faith violates the FCRA standalone disclosure requirement. The key, they’ve noted, is brevity in these documents, with no extraneous language.

Adverse Action

With regard to adverse action requirements, an employer must issue a pre-adverse action letter informing the applicant that negative information in the background check report may negatively impact the hiring decision, along with a copy of the report and a summary of the applicant’s rights under the FCRA. The employer must give the applicant a reasonable time to respond (court guidance has indicated seven to ten days). If the applicant provides clarifying information, it must be reviewed by the employer, and if the employer decides not to hire the applicant, they must send an adverse action notice that explains their decision. The adverse action notice must clearly inform the applicant of his or her right to dispute the decision and offer a chance to get another copy of the report within 60 days of receiving the notice.

Additionally, if the employer used a background screening company, the notice must specify that the hiring decision was made by the employer, not the third party, and include the name, address, and phone number of the background screening company.

The most common mistakes made by employers in this process include:

  • Forgetting to issue the pre-adverse action notice.
  • Not waiting long enough before issuing the adverse action notice.
  • Not addressing disputes in a timely manner.
  • Not documenting the date the adverse action notice was sent.
  • Not disposing of the background check reports and any sensitive information in a secure manner.
The Stakes are High

The consequences for noncompliance can be severe. One of the largest settlements for an employer occurred in 2016, when Wells Fargo agreed to pay $12 million for allegations related to failing to provide a clear and conspicuous written background check disclosure in a document that consists solely of the disclosure, failing to obtain a valid authorization in writing to procure the background check, failing to provide a copy of the background check report and FCRA Summary of Rights, and failing to wait at least five business days to respond before taking adverse action.

More recently, in the fall of 2022, one company agreed to pay $600,000 as a settlement for failing to give applicants and employees the proper disclosures when running background checks. While the company admitted no wrongdoing, it agreed to pay the settlement for alleged violations of the FCRA.

Don’t Forget About State Laws

When it comes to compliance, the FCRA is just one of the many areas to which employers need to pay close attention. Many states also have their own requirements. For example, as it relates to authorizations, some states have laws requiring additional language that allows the applicant to request a copy of the completed report. Several states also require additional state summaries of rights to be included, along with the federal FCRA Summary of Rights.

Additionally, some states impose further requirements on employers in the pre-adverse and/or adverse action process, including:

  • requiring the employer to list the reason why the applicant may be denied a job,
  • requiring additional language to be included in the notice(s), or
  • allowing the applicants additional time to respond to the pre-adverse action letter.

It’s just as imperative to understand these types of requirements and laws in the states in which employers do business as it is to understand the FCRA.

Employer Best Practices

While specific compliance measures should always be reviewed by qualified legal counsel, there are some best practices employers should consider following to help minimize the risk of noncompliance. These best practices relate to the procurement and use of consumer reports and investigative consumer reports (also known as background reports) for employment purposes. However, they do not address the various background check requirements found in state law, international law, or regulated industries.

In this process, employers should:

  1. Disclose in writing to the applicant or employee that they will be the subject of a background report as part of the employment selection process.
  2. Obtain a signed authorization for preparation of a background check report from the applicant or employee.
  3. Provide information about the applicant or employee to the background screening company and request a background screening.
  4. Wait for the background screening company to conduct the background check and prepare the background check report.
  5. Obtain the background check report (if requested by the applicant or employee, the background screening company will also provide a copy to them).
  6. Review the completed background report and determine if any information will adversely impact the employment decision.
  • If no adverse impact results from information in the background check report, the employer will proceed with the next steps in their employment process.
  • If the employer is considering an adverse employment action based in whole or in part on information in the background check report, the employer must:
    • notify the applicant or employee;
    • provide a copy of the background check report; and
  • provide the document, “A Summary of Your Rights under the Fair Credit Reporting Act.”

           This process is sometimes called “Pre-Adverse Action” or “Preliminary Adverse Action” or “First Notice.”

  1. Give the applicant or employee a reasonable time to respond (seven to ten days).

           If the applicant or employee disputes any information, they will contact the employer and background screening company. The background screening company will re-investigate any disputed items of information and issue an updated report to the employer and the                      applicant or employee.

  1. Review the updated report and make the final employment decision. If the employment decision is adverse, send a notice of adverse action to the applicant or employee.

         This process is sometimes called “Final Adverse Action.”

The importance of FCRA compliance cannot be overstated. The FCRA has specific notice requirements and steps not only for consumers, but also for consumer reporting agencies. A successful claim must allege that these requirements were met. Hire Image understands the intricacies of the FCRA and can assist with your compliance efforts.

At Hire Image, we provide background check solutions with integrity, dependability, and unparalleled service to others, all with a desire to be the best. It’s what we do every day. Our system is easy to use, and our FCRA-certified,
US-based team is always ready to help. Contact us today to learn more.

 

Disclaimer: This information is presented for general educational purposes and is provided solely for the convenience of readers. It is not a substitute for legal advice. Consultation with qualified legal counsel is recommended for all matters of employment law.

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