HR Matters: background checks
Background checks that your company obtains from a
consumer reporting agency, are regulated by the Fair Credit Reporting Act
(FCRA). What aspects of employment background checks are covered? What
action must an employer take with respect to notification? These topics are
covered in the following article provided by HR Matters E-Tips , published
by Personnel Policy Service, Inc. To subscribe, visit:
http://www.ppspublishers.com/ezsignup.htm
FCRA Covers More Than Credit Checks
Are you in compliance with the Fair Credit Reporting Act? The law covers
almost any type of background check conducted by an outside third party and
imposes both criminal and civil penalties for noncompliance. So, make sure
your background searches don't violate the law.
You probably are aware that the Fair Credit Reporting Act (FCRA) applies if
you order a credit check for an applicant or employee. What you may not
realize is that the Act goes well beyond plain credit checks and governs
virtually all third party investigations into applicant and employee
backgrounds.
In fact, it also can cover checks of criminal records, driving records, and
education status, and some of its requirements even apply to employee
disciplinary investigations performed by outsiders. This broad coverage is
important to grasp since the law requires employers using third party
reporting agencies to comply with comprehensive notice, consent, and
disclosure obligations both prior to a check and after the results are
reported.
In this article, you'll get a refresher course in what the FCRA requires you
to do, including definitions for what are "consumer reports" and "consumer
reporting agencies."
What the FCRA Covers
The FCRA is not a typical employment law mandating what you can and cannot
do in the workplace. In fact, it was initially passed as part of banking
legislation to protect the privacy of consumer credit report information and
to guarantee that the information provided by credit bureaus is accurate.
The law does not prohibit employers from checking an applicant's or
employee's credit history and background or from making an employment
decision based on this information. Instead, it imposes strict
authorization, notice, and disclosure requirements on employers using
"consumer reporting agencies" to conduct "consumer reports." In addition,
the law applies to all employers, regardless of size.
A "consumer report" is defined broadly to include any written, oral, or
other communication of any information by a consumer reporting agency which
is then used as a factor to establish the consumer's eligibility for
employment. This covered information includes that which deals with a
consumer's creditworthiness, credit standing, credit capacity, character,
general reputation, personal characteristics, or mode of living. Clearly,
the law reaches beyond just plain credit reports and also applies to
employers using third-party "consumer reporting agencies" to perform
background checks, including those involving driving records, criminal
records, references, and education.
The term "consumer reporting agencies" also is defined broadly to include
any person who regularly engages in the practice of assembling or evaluating
consumer credit information, or other information on consumers, for the
purpose of furnishing consumer reports to third parti
Breaking Down the FCRA Requirements
If you use an outside consumer reporting agency to provide background
consumer reports, you generally must adhere to the following disclosure,
authorization, certification, and notice requirements:
Disclose the fact that checks may be performed. Before requesting a consumer
report for applicants or employees, you must provide them with a clear and
conspicuous written notice that a consumer report may be obtained for
employment purposes. This disclosure must be on a separate, self-contained
page and may not be included in an employment application or other document
containing employment information, such as a general waiver form.
Get authorization to perform checks. Applicants or employees must give
written authorization for the employer to obtain the report. The
authorization may be obtained with the notice form, and many employers
combine the two.
Certify compliance to the reporting agency. In order to get a consumer
report from a consumer reporting agency, you must certify to the agency that
you:
Are requesting the report for employment purposes (which includes to
evaluate a consumer for employment, promotion, reassignment, or retention as
an employee);
Have provided the required disclosure to the consumer and received the
necessary written authorization to request the report;
Will provide the consumer with a copy of the report and a written
description of the consumer's rights before taking any adverse action based
in whole or in part on the report; and
Will not use the information from the report in a manner that violates
federal or state equal opportunity laws.
Provide notice both before and after taking any adverse action. Although the
FCRA does not prohibit your use of the information in a credit report, it
does require you to follow certain procedures before and after taking any
adverse action based on that information. Specifically, before taking
adverse action that is based in whole or in part on the information (such as
not hiring an applicant or disciplining an employee), you must provide a
copy of the report to the person and describe in writing the person's rights
under the FCRA. (Note: The consumer reporting agency is required to provide
a summary of these rights to you, but you are not required to provide a copy
of the report if you do not take action based on it.)
A second, separate notice also must be provided after the employer takes
adverse action. This notice can be given orally, in writing, or
electronically and must include:
The name, address, and telephone number of the consumer reporting
agency issuing the report;
A statement that the agency did not make the employment decision
and is not able to explain why the decision was made;
A statement regarding the consumer's right to obtain a free disclosure of
the consumer's file from the agency, if the consumer requests the report
within 60 days of notice of the adverse action; and
A statement regarding the consumer's right to dispute directly with the
consumer reporting agency the accuracy or completeness of any
information provided by the agency.
The length of time you must wait between notifying the applicant or employee
of the adverse action and then actually taking the action is unclear since
the statute does not define it. The Fair Trade Commission (FTC), the federal
agency responsible for implementing the FCRA, has issued several nonbinding,
informal opinion letters recommending employers allow an "appropriate" time
period based on the circumstances. In one letter ruling, the FTC approved of
a five business-day period between furnishing the report and taking action.
Note, too, that many states have statutes addressing the collection and use
of information obtained through background checks and investigations,
including California , Massachusetts , and New York .
Reprinted with permission from HR Matters E-Tips, copyright Personnel Policy
Service, Inc., Louisville, KY, all rights reserved, the HR Policy and
Employment Law Compliance Experts for over 30 years, 1-800-437-3735. Sign up
for your free E-Tips subscription at
http://www.ppspublishers.com/hrmetips.htm. This article is not intended as
legal advice. Readers are encouraged to seek appropriate legal or other
professional advice.
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