Fair Credit Reporting Act Implicates Employer Liability for All Types of Background Checks, Not Just Credit Reports

The titles Fair Credit Reporting Act and the “Consumer Credit Reporting Reform Act” (which contains relevant amendments) are often misunderstood as being only applicable to credit reports. The truth of the matter is that the FCRA’s coverage is actually very broad. Indeed, reports prepared by consumer reporting agencies containing criminal, educational, employment history, and other types of common records checks are covered by the FCRA and require advance notice, disclosure, and consent.

As illustrated recently, employers have been forced to pay hefty settlements in class action cases where it was alleged that they failed to comply with federal law when conducting criminal background checks on prospective employees. Employers are advised to proceed with caution and follow certain procedures, detailed below, when conducting background checks on both employees and applicants.

RECENT FCRA SETTLEMENTS

In April, Vitran Express, Inc., a freight company, paid $2.6 million to settle Ohio class actions claims that it improperly obtained criminal background checks on job applicants. The named plaintiff in the case, Thomas Hall, alleged that Vitran ordered a criminal background report from a consumer reporting agency as part of his job application even though he had not authorized the company to do so. The report identified a different “Thomas Hall,” but someone with the same first name, middle initial, last name, and date of birth as the named plaintiff, as having 27 felony convictions. Based on that report, Vitran refused to offer Hall employment, but did not tell him why; Hall only learned of the inaccurate report when he was notified by the consumer reporting agency. In the lawsuit, Hall claimed that Vitran did not seek or receive an appropriate disclosure from applicants prior to obtaining the reports and did not provide the applicants with pre-adverse action notices, including a copy of the applicants’ criminal background report and a statement of the applicants’ rights. The class was composed of anyone who had applied with Vitran and for whom Vitran had procured a consumer report without giving written notice or obtaining authorization, regardless of whether or not they were ultimately offered employment.

Though Vitran did not admit any wrongdoing in the settlement, it did concede that a portion of the individuals seeking employment may not have been aware that it was obtaining background checks for employment purposes. Beyond the Vitran case, there has been a rash of FCRA-related class actions filed lately, such as one involving transit operator FirstGroup PLC, which, in March, agreed to pay $5.9 million to settle two class actions brought against its subsidiaries by job applicants.

COMPLYING WITH FEDERAL LAW

To avoid the similar fate of costly FCRA litigation, employers must take certain steps to ensure that they are in compliance with federal law. Before delving into these steps, it is important to understand that the law provides for an expansive definition of a “consumer report,” which is why employers are required to give advance notice, disclosure, and consent on background checks other than just credit reports. A consumer report is a report prepared by a consumer reporting agency that consists of any written, oral, or other communication of any information by a consumer bearing on an applicant’s or employee’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected for employment purposes. This definition should be kept in mind when reviewing the below compliance recommendations.

Employer Certifications to the Consumer Reporting Agency

An employer must first certify, in writing, to the consumer reporting agency retained that it will follow the FCRA rules concerning disclosure, authorization, notice, and adverse action notices, and that it will not use information in violation of any state or federal discrimination laws.

Disclosure and Authorization

Prior to obtaining a consumer report, an employer must:

  • Provide to the employee or applicant a clear and conspicuous disclosure—in a standalone document—that a report may be requested; and
  • Secure written consent from the employee or applicant to obtain the consumer report.

When an employer requests an “investigative consumer report,” which is a type of consumer report where information is gathered through personal interviews of associates of the employee or applicant, additional protocol is to be followed. Specifically, it must be disclosed to the employee or applicant that an investigative consumer report is being requested, and the disclosure has to inform the employee or applicant of their right to request further information about the nature of the investigation. Should information be requested, an employer must respond within five days.

Providing Documents Before the Adverse Action

If the results of a consumer report influence, in whole or in part, the decision not to hire an individual or to take any adverse employment action involving a current employee, the employer must provide the following two documents to the individual before taking any such action:

  • A copy of consumer report relied upon; and
  • The Federal Trade Commission document, “A Summary of Your Rights Under the Fair Credit Reporting Act.”

Notice After the Adverse Action

If, after an employer has provided a copy of the consumer report and the FTC summary of FCRA rights, it intends to make the adverse action decision final, one more step must be taken. The employer must provide an adverse action notice, informing the employee or applicant that a final decision has been made and containing:

  • The consumer reporting agency contact information;
  • A statement that the consumer reporting agency is not the decision maker and cannot inform the individual as to why the adverse action was taken;
  • A statement of the individual’s right to obtain a free copy of the consumer report; and
  • A statement of the individual’s right to dispute with the consumer reporting agency the accuracy of any information in the report.
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