When appropriately used, background checks can be a powerful tool in making employment decisions. However, an employer that wants to obtain background checks from a consumer reporting agency must be cognizant of a number of laws that can limit when it may obtain a background check and how it may use the information revealed by that background check. Employers must also provide various disclosures and notices prior to obtaining a background check or taking an adverse action as a result. Employers that use or are considering using background checks as part of their hiring process should consider the following to ensure compliance with these laws at each step during the background check process.

Before seeking a background check:

The Fair Credit Reporting Act (FCRA) imposes a number of procedural requirements on the background check process. Prior to seeking a background check, employers must provide applicant/employees with FCRA Disclosure and Authorization forms as well as a Summary of Rights form, and obtain the applicant’s consent for the background check. As we previously reported, these forms were recently updated. Employers should be sure to maintain signed copies of the forms given to each applicant.

Many states have also enacted laws regulating background checks. Although these laws are often similar to the FCRA, some impose additional requirements or limitations. For example, several states prohibit employers from seeking a credit report (one type of a background check) unless the applicant’s position involves access to confidential financial information, or require the employer to wait to obtain a credit report until after a conditional offer of employment has been made. Because state laws vary considerably, employers should consult with legal counsel prior to establishing background check policies to ensure compliance with state law.

Before taking an adverse action:

An employer considering taking an adverse action (for example, deciding not to hire an applicant) based on information revealed through a background check must send a pre-adverse action letter to the applicant notifying him or her of the adverse action being considered and providing the name, mailing address, and telephone number for the consumer reporting agency. The employer must include a copy of the background check and a copy of the Summary of Rights with the pre-adverse action letter.

If the employer subsequently decides to take an adverse action based at least in part on the background information it received, it must send an adverse action letter (along with another copy of the background check and Summary of Rights) providing the following information:

  • Notification of the adverse action;
  • The name, address, and telephone number of the consumer reporting agency (including a toll-free telephone number, if it is a nationwide consumer reporting agency);
  • A statement that the consumer reporting agency did not make the adverse decision and is not able to explain why the decision was made;
  • A statement explaining that the applicant/employee has a right to obtain a free disclosure of their file from the consumer reporting agency if the applicant/employee requests the report within sixty days; and
  • A statement that the applicant/employee may dispute directly with the consumer reporting agency the accuracy or completeness of the information provided by the consumer reporting agency.

An employer should wait at least five days between the pre-adverse action and adverse action letters to provide the applicant time to respond. As with the FCRA Disclosure and Authorization, employers should maintain copies of all pre-adverse action and adverse action letters sent.

Additionally, we counsel that employers should be cautious about taking an adverse action based on applicant conviction records. State law and local ordinances may prohibit or limit adverse action against an applicant/employee based on conviction record. Even if there is no applicable law prohibiting adverse action based on conviction record, employers should avoid blanket policies that preclude employment of anyone with a conviction. As we have noted in the past, because some races have higher conviction rates than others, such policies may disparately impact certain races in violation of Title VII. Indeed, the Equal Employment Opportunity Commission has recently begun focusing its attention on this topic (and stay tuned for our upcoming article addressing this developing issue). Employers should thus make an individualized assessment of each applicant’s conviction as well as how that conviction relates to the position at issue.