(HR) Are you using the correct forms to conduct background checks?

February 12, 2014 at 5:02 am by: Florida Employment Law Letter

by Lisa Berg

Under regulations issued by the Consumer Financial Protection Bureau (CFPB), which replaced the Federal Trade Commission (FTC) as the enforcer of most provisions of the Fair Credit Reporting Act (FCRA), employers were required to begin using a revised “summary of rights” form for background checks as of January 1, 2013. It’s a year later—has your organization updated its forms?

What is the FCRA?

The FCRA is a federal law that applies to employers that use a third party—i.e., a consumer reporting agency (CRA)—to conduct background checks and obtain “consumer reports” (broadly defined to include credit, criminal background, motor vehicle, and educational records checks, among other things) on employees or applicants for hiring, promotion, or other employment-related decisions. If an employer conducts background checks on its own without a CRA’s assistance, the FCRA doesn’t apply.

Before receiving a consumer report, the employer must certify to the CRA that it will follow all the steps set forth in the FCRA. The certification must state that the employer will:

  

• Use the information for employment purposes only.
• Not use the information in violation of any federal or state equal employment opportunity law.
• Obtain all the necessary disclosures and consents.
• Give the appropriate notices if it decides to take an adverse action against an applicant based in whole or in part on the contents of the consumer report.
• Provide the additional information required by law if it requests an investigative consumer report.

What does the FCRA require?

Before obtaining a consumer report from a CRA, an employer must obtain written consent from the job applicant and provide her with a clear and conspicuous written notice that a background report may be requested. The disclosure must be in a stand-alone document, not part of an employment application. The disclosure and consent may be in the same document. If an employer wants authorization to obtain consumer reports throughout an employee’s employment, the written authorization must state that clearly and conspicuously.

A special procedure is necessary when the employer asks the CRA to obtain employment references. An “investigative consumer report” involves personal interviews with people who know the applicant or employee to obtain information about his character, general reputation, personal characteristics, and lifestyle. In requesting an investigative consumer report, an employer must adhere to the following special procedures:

• The applicant must be given notice containing specific language that an investigative consumer report is being requested. Unless it is contained in the initial disclosure, the applicant must receive the notice within three days after the request for an investigative consumer report is made.
• The disclosure must tell the applicant that he has a right to request additional information about the nature of the investigation.
• If the applicant makes a written request, the employer has five days to respond with additional information and a copy of “A Summary of Your Rights Under the Fair Credit Reporting Act.”
• Before taking an adverse action based on any information contained in the report (e.g., termination, demotion, failure to hire or promote), the employer must give the applicant or employee:
• Notice of its intent to take an adverse action and a copy of the consumer report it relied on in making the decision (commonly referred to as the “preadverse action” letter); and
• A copy of “A Summary of Your Rights Under the Fair Credit Reporting Act.”
• The employer also must wait a reasonable period of time before making a final decision (e.g., five days).

After the adverse action is taken, the employer must give the employee or applicant a notice of adverse action. The notice must contain:

• A statement that the adverse action was taken based on the consumer report;
• The name, address, and telephone number of the CRA that supplied the report;
• A statement that the CRA did not make the adverse decision and cannot explain why the decision was made;
• A statement that the employee may obtain a free copy of her consumer report from the CRA within 60 days; and
• A statement that the employee may dispute the accuracy or completeness of the consumer report with the CRA.

Penalties for failure to comply with the FCRA

Failure to comply with the FCRA can have serious consequences. The Act allows individuals to pursue litigation against employers that fail to satisfy any of its requirements. Negligent failure to comply with the law’s requirements can lead to actual damages and attorneys’ fees, while willful failure to comply can lead to statutory damages ($100 to $1,000 per violation), attorneys’ fees, and punitive damages.

Bottom line

In November 2013, a proposed class action was filed against The Walt Disney Company. The complaint alleges that Disney relied on background checks obtained through a CRA but never provided employees with legally required notice of any adverse action or access to the reports. Whether the lawsuit will succeed individually or on a classwide basis remains to be seen, but it serves as a good reminder of the importance of complying with the technical requirements of the FCRA when conducting background checks.

As we enter another new year, employers should review HR processes and procedures and verify that the appropriate forms are being used. If questions about the various steps required under the FCRA arise, consult with experienced employment counsel.

Source: HR Hero Line