As any employer knows, the hiring of honest and qualified employees is critical to the success of an organization. Employers have increasingly turned to background checks in order to assure that their potential hires are above board in relevant aspects. In turn, employers often procure reports from third parties engaged in the business of assembling and evaluating data, which may include consumer credit information.

Employers conducting such checks must be aware of the Fair Credit Reporting Act (“FCRA”), a federal statute that regulates the manner in which “credit reporting agencies” (which is very broadly defined to include most companies that charge for background checks) gather and use personal information. There are FCRA provisions that apply directly to background checks used by employers. Employers should be aware of these basic aspects of the law:

  • Certification: Before obtaining a report from such an agency, the employer must certify to the agency that the employer will comply with the FCRA and will not misuse the information in a report.
  • Disclosure: If an employer intends to use a report from such an agency as part of its hiring decision, the employer must notify the applicant that it is ordering (or may order) the report and inform the applicant of the scope of the information the employer will seek. This disclosure must be clear and conspicuous, in writing, and contained in a document containing only the disclosure (i.e., no other information in the document). 
  • Written Consent: The applicant must sign a written consent form before the employer may request a report from an outside agency.
  • Notifying Applicant of His or Her Rights: An employer must advise the applicant of his or her right to request the details of the reporting agency’s report.
  • Copy of the Report And Disclosure of Rights: If the employer decides to rely upon information contained in the report when making a hiring decision, the employer must give the applicant a copy of the report before rejecting the applicant. The employer must also give the applicant a written summary of his or her rights under the FCRA.
  • Notification to the Applicant: When denying employment based on information in the report, the employer must notify the applicant of that fact and provide the unsuccessful applicant with the name and address of the reporting agency that prepared the report. The employer must also inform the unsuccessful applicant of the individual’s right to dispute the accuracy or completeness of any information the consumer reporting agency has furnished. The notification must also include a statement that the credit reporting agency did not make the hiring decision and cannot give specific reasons for the decision.

The FCRA imposes penalties upon an employer that fails to comply with these requirements. The Federal Trade Commission may impose a civil penalty up to $2,500 for each knowing violation by an employer. In addition, an aggrieved job applicant could recover damages from the employer, as well as punitive damages and attorney’s fees for bringing a successful action under the FCRA.