Fair Credit Reporting Act Obligations for Businesses Using Background Checks for Employment Purposes.

Author:Koepke, Alicia H.

The importance of the Fair Credit Reporting Act (FCRA or the act), 15 U.S.C. [section]1681, et seq., cannot be underestimated as each of ns depends on the accuracy of information collected and shared about us to evaluate us for credit, insurance, and employment purposes. Although the act's name might lead one to believe that the FCRA regulates the sharing of "credit" information only, the FCRA regulates the sharing of many other types of information about individuals (consumers), including about individuals' character, reputation, personal characteristics, and mode of living, when the information is obtained through a "consumer reporting agency." (1) The FCRA authorizes businesses to obtain and use consumer reports for employment purposes, but companies must comply with strict disclosure and consent requirements. Given the strict requirements and the prevalence of class-action claims for violations, companies should take care to understand their obligations when using consumer reports for employment purposes.

Background on the Use of Consumer Reports for Employment Purposes

Employers desire, and are sometimes required, to screen and monitor applicants and employees for reasons such as evaluating individuals for the safety of a company's workforce and customers, (2) protecting the company's reputation and information, and assessing whether such individuals are trustworthy. Under the FCRA, employers are prohibited from obtaining a "consumer report" relating to an individual (a potential or existing employee (3) in this context) for employment purposes unless certain steps are followed. (4)

"Consumer report" is broadly defined and generally includes any communication of any information by a "consumer reporting agency" bearing on an individual's "credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living" that may be used to evaluate the individual's eligibility for employment purposes, or another purpose authorized by the FCRA. (5) There are a few specific exclusions to the definition of "consumer report," some of which are discussed below. (6) The act defined "consumer reporting agency" as anyone that "regularly engages in whole or in part in the practice of assembling or evaluating ... information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports." (7)

Requirements Prior to Procuring a Consumer Report for Employment Purposes

Before obtaining a consumer report, employers must provide applicants and employees a written "clear and conspicuous disclosure" that a consumer report may be obtained for employment purposes "in a document that consists solely of the disclosure." (8) Employers also must obtain the individuals' written authorization, which can be made on the disclosure document, but nothing else can appear on the disclosure form. (9)

Courts have found companies in violation of the initial disclosure and authorization requirements in many ways. For example, courts have held that employers violated the standalone requirement by including the disclosure in an application form or other document, or by adding a liability waiver or other superfluous information to such disclosures. (10) And courts have held that employers violated the clear and conspicuous requirement by using a disclosure form that is not "reasonably understandable" or "readily noticeable." (11)

Many employers satisfy the initial disclosure and authorization requirements at the outset of the relationship, after making a conditional offer of employment, and then use that one-time, blanket disclosure and authorization throughout the employment relationship. In Kelchner v. Sycamore Manor Health Center, 135 F. App'x 499, 502 (3d Cir. 2005), the Third Circuit Court of Appeals held that a blanket disclosure and authorization is permissible throughout the employment relationship for non-investigative consumer reports. (12)

If an employer plans to obtain an investigative consumer report, however, there are additional requirements. An investigative consumer report is a consumer report, or part thereof, in which information on an individual's character, general reputation, personal characteristics, or mode of living is obtained through personal interviews with others, such as associates, friends, or neighbors. (13) An employer obtaining such a report must clearly and accurately disclose that it may procure an investigative consumer report and state whether the report will contain information as to the individual's character, reputation, personal characteristics, and/or mode of living. (14) That disclosure must be made in writing and mailed or otherwise delivered within three days of the request for the report. (15) The disclosure must tell the consumer he or she has the right to request additional disclosures and a written summary of rights. If the consumer makes a written request for the additional disclosures within a reasonable time, the employer must make a full and accurate written disclosure of the nature and scope of the investigation sought and mail or deliver those additional disclosures within five days after receiving the consumer's request, or within five days after such employer first requested the report, whichever is later. (16)

Requirements After Procuring a Consumer Report for Employment Purposes

* Pre-Adverse Action Requirements --After obtaining a consumer report, the employer must provide additional disclosures if it may take an adverse action based partially or completely on information in the report. (17) "Adverse action" is broadly defined to include any derision for employment purposes that adversely affects the applicant or employee, not just a denial or termination of employment. (18)

Before taking an adverse action, the employer must provide the individual with a copy of the report and notice of his or her FCRA rights (collectively, the "pre-adverse action notice"). (19) To determine whether employers met their obligation to send a pre-adverse action notice, courts have refined the meaning of what constitutes an adverse action. For example, in Johnson v. ADP Screening & Selection Services, Inc., 768 F. Supp. 2d 979, 983 (D. Minn. 2011), the court held a decision to place an application on hold does not constitute an adverse action. And whether the coding of an individual in...

To continue reading