Misuse of employee consumer reports can lead to employer liability.

• Author: Loftis Jr., W.R.

As many employers know, a consumer report can provide valuable information when an employer is evaluating applicants for hire or existing employees for promotion, reassignment or retention. What employers might not know, however, is that they could be setting themselves up for a lawsuit if they are not careful about the way in which they use consumer reports in making employment decisions.

Consumer reports, also known as credit reports, are subject to federal legislation known as the Fair Credit Reporting Act. Many employers mistakenly believe that because the name contains the terms credit reporting," the FCRA only covers checks on credit information. In fact, just about any type of information concerning an applicant or employee that is communicated by a third party to an employer in exchange for a fee amounts to a "consumer report" under this act.

Broad definition of "consumer report" The FCRA defines a consumer report as "any written, oral or other communication of any information by a consumer reporting agency bearing on a consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics or mode of living which is used for ... employment purposes."

With this broad definition written into the law, a consumer report includes not only credit checks but checks of criminal background, driving record and education and employment histories if they are conducted by an entity that meets the definition of consumer reporting agency" under FCRA.

Like most terms in the FCRA, consumer reporting agency is broadly defined. A CPA is "any person which, for monetary fees ... regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties." Under this definition, any person who gathers and sells consumer information to employers qualifies as a consumer reporting agency.

Because the scope of the act is so broad, many employers fail to realize when they have requested information that triggers its protections. As a result, noncompliance with the FCRA may be relatively high. For employers who fail to comply with its requirements, the legal consequences can be serious.

First, the FCRA permits individuals to sue employers for damages related to a violation of the act. An individual who successfully sues also is entitled to recover courts costs, all reasonable...