Some background on background checks

Q. Jim, a manger in HR, wants to use an outside credit agency to help with background checks of job applicants. Before making this proposal to his vice president, Jim needs to know whether the law requires the company to follow any certain processes or procedures in order to take this action.A. Several types of background checks are available to employers. The type of check should depend upon the requirements and nature of the job position. Some checks may also be required by federal or state law.The Fair Credit Reporting Act (FCRA) is a federal statute that regulates the reporting agencies that conduct background checks, as well as the companies using them. It establishes the procedures employers must follow when requesting a background investigation from an outside agency.The FCRA requires employers to make disclosures to applicants/employees before ordering a background check or taking an adverse employment action based on the results of a background check. It also requires that prior to ordering a background check, an employer must obtain the applicant/employee’s consent. Failure to comply with these requirements can result in civil penalties, punitive damages, and even attorneys’ fees.Employers may use their own employees, such as a human resource professional, to conduct background checks by verifying references or credentials without implicating the FCRA. If a company decides, however, to use an outside consultant or agency, other than a governmental law enforcement agency, to conduct a background investigation or any other background check of an applicant/employee, the requirements imposed by the FCRA are triggered.There are two types of background reports defined by the FCRA — the consumer report and the investigative consumer report. The primary difference between the two is that the consumer report refers to any information provided by an outside entity, including information verifying the applicant/employee’s credentials or other basic reference checking that serves as a factor in establishing eligibility for employment. The investigative consumer report includes oral or written information and interviews with neighbors, friends, associates or others. Before ordering a consumer report from an outside agency, employers must inform the applicant/employee in writing that a consumer report may be requested and have the applicant/employee sign a consent form.When ordering an investigative consumer report, an employer must, not more than three days after the report was requested, inform the applicant/employee in writing that an such a report has been ordered regarding the applicant/employee’s “character, general reputation, personal characteristics, and mode of living” and inform the applicant/employee of the right to request additional disclosures under the FCRA regarding the nature and scope of the investigation as well as a written summary of rights under the FCRA, and that this additional information will be provided to the applicant/employee within five days of request. Certain disclosuresThe background check can be done either before making an offer of employment, right after making an offer of employment conditioned on a satisfactory background check, or when considering an existing employee for another position.If a company, based on information obtained from a consumer report or investigative consumer report, decides to not make an offer of employment, rescind an offer of employment, or deny a transfer/promotion or terminate a current employee, such actions are considered adverse employment actions.Before taking an adverse action based upon information received, employers should allow applicants a reasonable opportunity to explain.The FCRA requires certain disclosures to the applicant/employee before an employer makes an adverse employment decision: • The name, address, and toll-free telephone number of the consumer reporting agency from which the consumer report was obtained • An explanation that the consumer reporting agency did not make the decision to take the adverse action and is unable to provide the consumer with the specific reasons why the adverse action was taken • Notice of the consumer’s right to request and obtain a free copy of the consumer report (from the consumer reporting agency) if the applicant/employee requests one within 60 days of receiving notice of the adverse action • Notice of the consumer’s right to dispute with the consumer reporting agency the accuracy or completeness of the reportEffective July 21, a section of the FCRA will be amended to specifically include disclosure requirements for any person taking an adverse action based on a credit score. In addition to the above requirements, the adverse action notice must include the numerical credit score, the range of possible credit scores, the factors adversely affecting the credit score (top four factors plus key factors), the date the credit score was created, and the name of the entity that provided the credit score.When deciding on an outside agency, companies should ask about the agency’s FCRA compliance program. Companies may also want counsel to review any disclosure or consent forms provided by the agencies. Those making hiring or personnel decisions involving a background check also should be trained in this area of the law.Jennifer L. Parent, a director in the Litigation Department and Chair of the Employment Law Practice Group of McLane, Graf, Raulerson & Middleton, P.A., can be reached at 628-1360 or jennifer.parent@mclane.com