Background Checks May Require Advance Disclosure
By: MARY M. KRAKOW
June 2000
Background checks are a relatively common pre-hiring technique that, unbeknownst to some employers, can create liability if the appropriate disclosures and notices are not given to the affected individual. If your business is one of the many that uses an outside entity or individual to conduct applicant background checks or investigate current employees, your business must comply with the requirements of the Federal Credit Report Act (FCRA) and the Minnesota Access to Consumer Reports Act (MACRA).
The FCRA and MACRA regulate most types of background checks used for employment purposes when the background check is performed by a "consumer reporting agency." This includes not only credit checks, perhaps the most common type, but also those that include criminal histories, driving records, and any other information your business uses to make an employment decision.
A "consumer reporting agency" is any person or company that regularly assembles information on individuals for third parties such as employers. A credit bureau, detective agency, or investigation service are typical examples but certainly not the only types that would fall under the FCRA and MACRA. Human resource consulting companies also may fall within the definition of "consumer reporting agency" for some purposes. If your business requests background information directly from an applicant, employee, or the outside entity that maintains the information, you will not be required to comply with the FCRA or MACRA as no consumer reporting agency is involved.
The steps your business must take to comply with the FCRA and MACRA, if required, depend on the type of report the consumer reporting agency provides: a "consumer report" or "investigative consumer report."
A "consumer report" is any communication, oral or written, by a consumer reporting agency that
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bears on an individual's character, general reputation, personal characteristics, mode of living, credit worthiness, credit capacity, or credit standing, and
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is used or expected to be used as a factor in determining the individual's eligibility for credit or employment purposes.
An "investigative consumer report" is the same as a consumer report except that the consumer reporting agency obtains some of the information through personal interviews with the individual's neighbors, friends, associates, or acquaintances. The Federal Trade Commission (FTC), which enforces the FCRA, treats criminal background checks as investigative consumer reports.
Generally, before obtaining a consumer report, an employer must
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disclose to the applicant or employee that it plans to obtain a consumer report or investigative consumer report and that the report will be used solely for employment purposes,
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obtain written authorization from the applicant or employee,
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inform the individual of his or her right to request additional information on the nature of the report, and
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include a box that the individual may check to receive a copy of the report.
The disclosure must be contained in a separate document and cannot be part of a job application form, although employers typically provide the disclosure to applicants at the same time as providing the job application. In addition, the employer must certify to the consumer reporting agency that the employer is in compliance with the FCRA and will not misuse the information it receives.
If the company plans to obtain an investigative consumer report, the employer must make additional disclosures. This includes informing the individual that the consumer report may include information obtained through personal interviews regarding the individual's character, general reputation, personal characteristics and mode of living. The employer also must provide the individual a summary of his or her rights under the FCRA.
If the company decides not to hire an applicant or to take adverse employment action against a current employee based on information in the consumer report, the employer must
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inform the individual that it plans to take adverse action,
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give the individual a copy of the consumer report, and
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advise the individual of his or her rights under the FCRA to dispute inaccurate or incomplete information contained in the consumer report.
Then, when the employer takes the adverse action, it must notify the individual and again advise the individual of his or her rights under the FCRA to dispute inaccurate or incomplete information.
Companies who use outside entities or individuals to conduct background checks or investigations regarding applicants or current employees should review their procedures for compliance with the FCRA and MACRA. Companies with questions regarding compliance are encouraged to contact their employment counsel.