Taking Adverse Employment Actions Based on Background Checks

The Fair Credit Reporting Act (FCRA) was enacted to promote accuracy, fairness, and privacy of consumer information contained in the files of consumer reporting agencies (CRA). Employment background checks are a form of consumer report, so employers that conduct background checks on job applicants or employees must follow the procedures outlined in the FCRA. Failure […]

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The Fair Credit Reporting Act (FCRA) was enacted to promote accuracy, fairness, and privacy of consumer information contained in the files of consumer reporting agencies (CRA). Employment background checks are a form of consumer report, so employers that conduct background checks on job applicants or employees must follow the procedures outlined in the FCRA. Failure to comply with the FCRA could result in penalties issued by the Federal Trade Commission (FTC) or civil liability for damages. Employers should confirm whether their location has a state counterpart to the FCRA that requires additional action.

Important Considerations

What steps must be taken before running a background check? You must provide job applicants with written notice that a consumer report may be used for employment decisions. The notice must be in a stand-alone format, meaning it can’t be combined with other forms such as an employment application. It should include a written authorization, which must be signed by the applicant, before pulling the consumer report.

What constitutes an adverse employment action under the FCRA? An adverse action under the FCRA encompasses any decision made by an employer that adversely affects a current or prospective employee based on information gleaned from a consumer report (e.g., denial of employment, demotion, termination, or denial of a promotion).

What steps must an employer take when considering adverse action? When considering adverse action based on information obtained from a background check, you must follow specific steps outlined by the FCRA.

The pre-adverse action notification must notify the applicant of your intent to take adverse action because of the consumer report. It must include a copy of the consumer report and a summary of rights under the FCRA. You must allow the individual a reasonable amount of time to review the report, dispute any inaccuracies, and respond to the notification. The FCRA doesn’t give a specific timeframe for this, but it’s generally considered reasonable to provide at least five business days for the individual to respond.

If the applicant provides a response within the timeframe allowed, you must review any information provided and investigate any disputed information in the consumer report. If you decide to proceed with adverse action based on the information in the consumer report, you must provide the applicant with a final adverse action notification, which:

• Notifies the applicant of the adverse action that has been taken;
• Includes the name, address, and phone number of the CRA that provided the report;
• Informs the applicant of their right to obtain a free copy of the consumer report within 60 days; and
• Informs the applicant of their right to dispute the accuracy or completeness of the information in the report with the CRA.

You must maintain FCRA records for at least five years.

What are the consequences of failing to comply with FCRA requirements for adverse actions? Individuals who believe their rights under the FCRA have been violated can file a lawsuit against the employer seeking damages. Additionally, regulatory agencies such as the FTC and the Consumer Financial Protection Bureau (CFPB) have the authority to enforce FCRA compliance and can impose penalties for violations.

Plan to Be Prepared

It’s important to be prepared for an unfavorable consumer report because it isn’t a matter of if, but when you will be confronted with a report that necessitates an adverse action against an applicant.

To ensure FCRA compliance, you should develop written policies and procedures for conducting background checks and taking adverse actions. Having these procedures in place will guide decision-makers with the necessary steps before taking adverse action. Providing employees involved in the hiring process with necessary training is key to following the FCRA requirements.

Jodi R. Bohr is a shareholder with Tiffany & Bosco, P.A., and a contributor to Arizona Employment Law Letter. She practices employment and labor law, with an emphasis on counseling employers on HR matters, litigation, and workplace investigations. She may be reached at jrb@tblaw.com.

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