Employers’ Obligations When Using Third Parties to Conduct Background Checks

Published by Meg Vergeront on

An employer’s use of third-parties to conduct employment background checks on prospective and existing employees triggers numerous obligations under the federal Fair Credit Reporting Act (FCRA).  The following is a brief overview of the primary employer obligations before, during, and after conducting a background check through third-party investigators.

Covered Entities and Reports

The FCRA applies to “consumer reporting agencies,” which covers nearly all third-party investigators and most employment background reports, called “consumer reports,” the investigators produce.  Consumer reports include, but are not limited to, credit reports, criminal history reports and driving records obtained from a consumer reporting agency. 

Pre-Background Check Obligations

Employers that want to obtain a consumer report for any employment purpose must first provide applicants and employees with a written disclosure stating their intent to obtain a consumer report and must receive written authorization from the applicant or employee before obtaining the consumer report.  The disclosure and authorization of rights must be all be stand-alone documents and may not be part of the employment application or any other document.  Neither of these documents should include notification or authorization required by any applicable state law—those should be placed in a separate document, consistent with the applicable law. 

Post-Background Check/Pre-Adverse Action Obligations

After receiving a consumer report from a consumer reporting agency, if an employer is considering adverse action based on information in a consumer report, the employer must provide the applicant or employee with a copy of the consumer report, a “pre-adverse action” letter explaining that the employer is considering taking adverse employment action based on information in the report and a written “summary of rights” under the FCRA prior to taking any adverse employment action.  The U.S. Bureau of Consumer Financial Protection regulates the content that must be included in the summary of rights and can be found here.  Employers should always ensure their written summary of rights is up-to-date by checking online for any updates.  

Although the FCRA does not specify the amount of time an employer must give an applicant or employee to correct information in the consumer report, five business days or more is considered appropriate. 

Adverse Action Obligations

If an employer does take adverse employment action, it must then provide notice to the applicant or employee and provide him or her with certain information required by statute, including another copy of the summary of rights.  The notice need not be provided in writing, but best practice is to do so for documentation purposes in the event of litigation. 

Violation of the FCRA

In the event of a willful violation of the FCRA, an applicant or employee is entitled to seek damages of $100 to $1,000 per violation, punitive damages, and attorneys’ fees.  If the violation occurred as a result of negligence, the applicant or employee is entitled to sue for any actual damages, plus attorneys’ fees.

State Laws

Some states have requirements in addition to those set forth in the FCRA.

The Bottom Line

This overview generally describes some of the key employer obligations under the FCRA, and is not intended as a detailed guide.  Employers should consult with legal counsel before implementing a background check program that calls for the background check to be performed by a third party. 

Filed Under: employment law

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