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FCRA Background Check Compliance

Following the Law in Employment Background Checking

Hiring in Compliance with the Law

In order to build successful teams, employers need to make quick and effective hiring decisions about candidates. Employers must weigh every candidate’s qualifications and abilities against those of other competing applicants. But in doing so, businesses often find that their interests are at odds with the legal rights of employees. Laws exist to protect employee rights as well as to help employers navigate the legal complexities of employee privacy laws. The Fair Credit Reporting Act (FCRA), enforced by the Federal Trade Commission (FTC), applies broadly to consumers, but also plays an important role for employers who use background checks and consumer reports to make hiring decisions.


10 Steps to FCRA-Compliance

Once you are ready to conduct a background and credit check on an applicant or employee, it is important to follow FTC-mandated steps to ensure compliance. Employers should also check relevant state laws, as some states limit background checks to certain job types.

1. Provide written disclosure to applicant/employee.

Before performing a background check or submitting personal information to a Credit Reporting Agency (CRA), employers must notify the applicant/employee in writing with an explanation of the process. The applicant/employee must understand that the results of the background check will be used as a basis for hiring, promotion, or retention.

2. Obtain authorization from applicant/employee.

After disclosing the intent to perform a background check, employers must obtain written authorization from their applicants/employees that acknowledges that the report may be used for employment decisions. If an employer wants consent to screen employees for the duration of the employment period, this must also be indicated in the authorization.

GoodHire Consent Form

3. Provide applicant/employee information to Credit Reporting Agency (CRA)

Once an employer has obtained written consent, information about the applicant/employee may be provided to the Credit Reporting Agency (CRA) or screening company.

Disclaimer: certain state laws may limit the right to request background checks or credit reports for certain positions.

4. Background check and background report.

After a third-party agency has received the request for a background check, the agency can begin collecting and preparing a background report. Background reports may include credit history, criminal history, civil judgments, and other personal information on public record.

5. Report is returned to employer and employee/applicant.

Once the background report is completed, a copy may be returned to the employer and if requested, to the employee applicant for review.

6. Employer review of background check.

An employer may be looking for red flags or issues that could turn up in a background check. Some employers will use credit history to evaluate candidates. If an employer determines that any information from the background report may adversely impact the employment decision, they must follow additional steps to ensure compliance. If no adverse action follows the background check, an employer is successfully in compliance with FCRA.

7. Notification of adverse action to applicant/employee.

Examples of adverse action steps include: refusal to hire, failure to promote, or termination of an existing employee. If an employer decides to proceed with an adverse action based either in whole, or in part, on a background report, the applicant/employee must be notified in writing. The employee must also be provided with a copy of the background report as well as a copy of “A Summary of Your Rights under the Fair Credit Reporting Act.” (This process is sometimes called “Pre-Adverse Action” or “Preliminary Adverse Action” or “First Notice.”)

8. Opportunity to dispute information.

Employers must give employees ample time to review any disputed information and report any issues with the report to the employer. The FCRA recommends a waiting period of five business days before pursuing adverse action.

9. Re-investigation of disputed items.

If any items on the report are in dispute, a background screening company can re-investigate those items and provide an updated report to both employer and applicant/employee.

10. Review and finalize employment decision.

If an employer has followed all steps in conducting a background check, then an adverse action can be completed. A final employment decision can be made and if that decision is adverse, the employer should send a notice of adverse action to the applicant/employee. This process is called “Final Adverse Action.”


Employee Rights Under the FCRA

In today’s competitive job market, employers may have to shuffle through stacks of resumes and applications to hire for one position. Paring down the applicant pool is the first step in the hiring process. Many employers have found that performing initial background checks helps eliminate “high-risk” applicants (for instance, those who have an extensive criminal history).

While employers have valid reasons for obtaining credit reports and other background checks, consumer advocates believe that improper handling of this sensitive information can lead to breaches in employee rights and civil liberties. Additionally, misuse of background-checking can lead to illegal and discriminatory hiring practices. The FCRA is one of many laws used to protect employees against such injustices, and to help employers avoid potential lawsuits.

What are Credit Reporting Agencies (CRAs)?

When performing background checks, employers may be looking for specific or general information about job candidates. Credit reporting agencies (CRAs) can conduct a consumer credit check, and other agencies can produce additional reports including information about medical records and payments, residential history, employment history, insurance claims, or criminal background checks.

What are the Benefits of Background Checks?

1. Build a team you can be proud of. Every employer knows that a high employee turnover rate can slow down profits and decrease morale for existing employees. Making the wrong hiring decision can create logistical, personal, and legal problems.

2. Create a safe workspace. Companies also have a “duty of care” to protect workers from employees that may pose a security risk. Investing time and resources by running criminal checks on all employees will help you find the most compatible and qualified candidates, while also preventing negligent hiring and other employment litigation.

3. Take extra precautions. Legal background checks help minimize the potential for risks, including theft or injury.

Employers should consider background screening as a way to verify facts. In a competitive job market, it is not uncommon for employees to cover up a previous dismissal, deny a criminal record, or even generate fake credentials. Understanding FCRA will help you perform a comprehensive background search while adhering to the law.

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