Overview: The Fair Credit Reporting Act (FCRA) governs the use of consumer credit reports as well as investigative consumer reports for employment purposes. To conduct these third-party employee background checks of job applicants or employees, companies must comply with a number of steps under the FCRA. Chief among the steps are the Act's notice and consent requirements.
The FCRA mandates not only that employers notify all job applicants and employees beforehand if they wish to conduct a background check, but that employers obtain their written consent.
In addition, employers that decide they might deny employment or take other adverse action based in whole or in part on the findings of a background check first must send a pre-adverse action letter to the applicant or employee. This notification also must provide a copy of the report, a summary of FCRA rights and information on how individuals can challenge the report if they wish to do so.
HR professionals should be aware that several states have counterparts to the FCRA. Many mirror the federal legislation, but some impose additional requirements.
Trends: A number of states, including California, Illinois and Connecticut, have enacted laws in the last few years limiting the use of credit checks to certain types of jobs such as those involving financial data or sensitive information. A host of similar measures have been introduced elsewhere, so this is a trend that bears watching.
Author: David B. Weisenfeld, JD, Legal Editor
In-depth review of the spectrum of New York employment law requirements HR must follow with respect to preemployment screening and testing.
On June 22, 2015, the Morris County Chapter of the Society for Human Resource Management (MC SHRM) held it Eighth Annual Employment Law Symposium, presented in collaboration with Fisher & Phillips, LLP.
The Fair Credit Reporting Act does not prevent an employer from conducting third-party credit checks so long as the employer obtains the applicant's written consent and complies with the FCRA's notice requirements. However, some states have gone beyond federal law and placed restrictions on when employers can conduct credit checks of job applicants or employees for screening purposes to certain types of positions.
The Supreme Court has agreed to decide if an internet people-search company, Spokeo, can be sued for displaying false information about a Virginia man to potential employers. This closely-watched Fair Credit Reporting Act case has attracted the attention of Google, Facebook, eBay and Yahoo, all of which are backing Spokeo.
An employer's use of background checks raises many compliance issues, including the Fair Credit Reporting Act; the state "ban the box" trend that prevent employers from asking criminal history questions on initial job applications; and ensuring background checks do not discriminate against minority job applicants.
For the second time in two years, trucking company Swift Transportation (Swift) is facing a lawsuit alleging it violated the Fair Credit Reporting Act (FCRA). The proposed class action suit filed in a Virginia federal court claims that Swift failed to disclose to more than 10,000 applicants that it could access background checks and that applicants had the right to dispute those background checks.
XpertHR's Financial Services Resource Center for HR helps financial services employers handle their most challenging employment issues by bringing relevant resources together in one place for easy access.
Employers seeking to run credit checks of potential employees must proceed with caution because good credit requirements can be seen as having a disparate impact on minority job applicants, and several states place limits on the use of credit checks for employment purposes. This How To helps an employer with the steps to determine when to run a credit check during the preemployment process.
An employer may use this policy to notify job applicants and employees of its intent to perform a background check. An employer may not conduct a background check without written authorization from job applicants or employees.
Employers must be careful about conducting criminal background checks in the preemployment screening process and asking job applicants about their arrest and conviction records. This How To helps an employer with the steps to ensure criminal background checks are used legally and fairly.
HR guidance on complying with the Fair Credit Reporting Act (FCRA).