By Laurie E. Martin, Hoover Hull Turner LLP
Employers who obtain third-party background checks on applicants or current employees or who use outside counsel or other consultants to perform internal investigations must ensure compliance with the Fair Credit Reporting Act (“FCRA”), 15 U.S.C. § 1681 et seq.
The FCRA Covers More than Credit Reports
The FCRA sets the standards for permissible purposes, notice, and permission requirements for obtaining “consumer reports.” Most employment-related background checks, if conducted by an outside company, are likely to be considered “consumer reports” or “investigative consumer reports” and subject to regulation under the federal Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681 et seq. The FCRA would not apply to information an employer representative can gather from public sources such as Google, publicly accessible social media sites, or through calling an applicant’s references.
Notice and Permission Requirements
Under the FCRA, consumer reports can be used for employment purposes, including hiring, retention, promotion or reassignment, only if an employer takes certain steps before obtaining the report, and before and after taking any adverse action based on that report. Before obtaining the report, an employer must (1) give notice to the individual separate from the employment application, and (2) obtain the applicant’s written permission. Permission may be obtained on the same form used to notify the participant that an employer may request/use information in a consumer report. The statement requesting permission should be clear whether it also authorizes reports throughout employment. Employers must also certify to the consumer reporting company the employer’s compliance with the notice and consent requirements and agreement to use the information appropriately.
Employers using investigative consumer reports, those based on personal interviews concerning a person’s character, general reputation, personal characteristics, and lifestyle, must also give notice of the request for an investigative consumer report to the employee and a statement that the individual can request additional disclosures and a summary of the scope and substance of the report.
Disclosure Requirements for Adverse Action
If an employer plans to take adverse action based on information in a consumer report, it must give the applicant or employee advance notice that includes a copy of the report relied on to make that decision and a copy of the “Summary of Your Rights under the Fair Credit Reporting Act” form. This allows the employee time to respond.
If an employer proceeds with adverse action after such notice, it must give notice of the adverse action either orally, in writing, or electronically, and the notice must include the following: (1) the name, address, and phone number of the company supplying the report, (2) a statement that the company making the report did not make the employment decision and cannot answer questions about it, (3) a notice of the person’s right to dispute the accuracy or completeness of any information the consumer reporting company furnished, and (4) notice of the person’s right to obtain an additional free report from the company on request within 60 days.
The FCRA and Internal Investigation Reports
Communications during an employer’s internal investigation of employee misconduct could fit within the FCRA’s definition of a third party investigative report, if the investigation is performed by an outside attorney or consultant. Since 2010, the FCRA has specifically excluded most internal investigations from its notice and permission requirements. Specifically, the FCRA does not require advance notice and permission before a communication to an employee in connection with an investigation of suspected misconduct relating to employment or compliance with federal, state, or local laws and regulations, rules of a self-regulatory organization, or pre-existing policies of the employer, if the communication is not made for purposes of investigating a consumer’s credit and is only provided to the employer or specified government or regulatory organizations, as provided by law or as otherwise permitted in the FCRA. 15 U.S.C. § 1681a(y).
However, if an employer takes adverse action based in whole or in part on such investigative communications, “the employer shall disclose to the consumer a summary containing the nature and substance of the communication upon which the adverse action is based.” Id. The term “summary” is not defined in the FCRA, and has been the subject of litigation. See Rivera v. Allstate Insurance Company, 140 F.Supp.3d 722 (N.D. Ill. 2015) (finding a question of fact existed as to whether statements by defendant constituted an adequate “summary” as required by the FCRA, denying summary judgment as to plaintiff’s FCRA claim).
Class action suits against employers alleging background check violations under the FCRA have proliferated in recent years. Employers should review background check practices and procedures to ensure FCRA compliance and ensure individuals involved in hiring, employee screening, and internal investigations are trained on FCRA requirements.
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