When employers use background checks acquired through a third party company in the business of compiling background information (referred to as a “consumer reporting agency”), employers are subject to the federal Fair Credit Reporting Act (“FCRA”). Some states, including New Jersey, have their own fair credit reporting act that may impose additional responsibilities upon employers. Employment background checks, which are referred to as “consumer reports”, may include information about an individual’s credit worthiness, character, reputation, criminal background, driving record, and civil lawsuits among other information. The FCRA imposes obligations on employers at three different stages: (1) before requesting the consumer report, (2) before taking an adverse employment action against an applicant or employee based on information contained in the consumer report, and (3) after taking the adverse employment action against the applicant/employee.

Stage One - Before Requesting The Consumer Report

Before requesting a consumer report on an applicant or employee, an employer is required to provide the individual with written notice that it might use information in the consumer report to make employment decisions. The notice must be in a stand-alone document that consists solely of the notification that a consumer report may be obtained. The notice cannot be included in an employment application. Employers must also obtain a written authorization from the applicant or employee to obtain the consumer report. Employers can make a one-time disclosure and obtain written permission at that time covering any consumer report obtained during the course of employment. However, the disclosure must clearly state that the applicant/employee is authorizing the employer to obtain a consumer report at any time during the course of employment.

Lastly, before requesting the consumer report, an employer must certify to the consumer reporting agency that it: (a) obtained the individual’s written consent to obtain the consumer report, (b) complied with all the FCRA requirements, and (c) will not use the information in the consumer report to discriminate against any applicant or employee.

Stage Two – Pre-Adverse Employment Action Notice

After reviewing an individual’s consumer report, an employer may decide to take an adverse action (such as deny an applicant a position or discharge an employee) based on negative information contained in the consumer report. The FCRA requires that before an employer takes the adverse employment action, it must give the applicant or employee: (1) a copy of the consumer report, and (2) a description in writing of the rights of the consumer under the FCFRA. This “pre-adverse action” notice is designed to give the applicant/employee an opportunity to review the report and notify the employer if any information contained in the report is a mistake.

Stage Three - Post-Adverse Employment Action Notice

If the employer decides to take adverse action based upon information in the consumer report, the applicant or employee must be given notice of that decision. The FCRA provides that the notice must also include: (1) the name, address, and phone number for the consumer reporting agency that supplied the report, (2) a statement that the consumer reporting agency did not make the adverse action decision and cannot give specific reasons for it, and (3) a notice of the individual’s right to dispute the accuracy of the information contained in the consumer report, and his right to obtain an additional free report from the consumer reporting agency upon request within 60 days.

The FCRA imposes additional requirements on the use of “investigative consumer reports,” which are reports based on personal interviews about a consumer’s character, personal characteristics, and reputation.

Employers who violate the FCRA requirements are subject to paying actual damages suffered by the applicant or employee or, in the case of a willful violation, fines up to $1,000, plus punitive damages, attorneys’ fees and costs.

Anti-Discrimination Laws:

The FCRA is not the only federal law that employers must consider when using background checks for employment purposes. Employers must also comply with federal and state anti-discrimination laws to ensure that use of background checks are not having a disparate impact on any protected group.

The FCRA contains many technical requirements that employers often overlook. Employers who use consumer reports to make employment decisions should carefully review their procedures and documents to ensure compliance with the FCRA, any applicable state fair credit reporting law, and anti-discrimination laws.