The Importance of Compliance in Background Screening


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FCRA

By Jonathan Culbertson on May 24, 2022

Why Is FCRA Compliance Important in Employment Background Screening?

As an employer, one of the many reasons you likely conduct background screenings on your candidates is to avoid the potential financial loss that accompanies a negative hiring decision. You are probably relying on background screenings to avoid two types of possible financial loss.

  1. First, you are likely using background screenings to confirm that you are only considering qualified individuals so that you do not have to invest more money to recruit and train yet another candidate.
  2. Second, you may be conducting background screenings in an attempt to discover whether a candidate is unsafe and thus a risk to cause harm to a coworker or third party, in hopes of avoiding the expenses that come along with negligent hiring claim.

These are worthy objectives, but you must also remember that the act of conducting background screenings, in and of itself, can subject you to the risk of financial loss if screenings are not conducted compliantly.

The federal Fair Credit Reporting Act (FCRA) requires you, as employers, to follow various legally mandated procedures, even if you use a background screening company such as InCheck. In this blog, we will highlight the key FCRA requirements applicable to employers. Please note that this blog does not address other federal, state, and local laws that mandate additional background screening procedures for which employers must also remain in compliance, such as Title VII, state consumer reporting laws, ban the box laws, fair chance hiring laws, credit restriction laws, etc.

What are the FCRA requirements that frequently result in employer non-compliance?

Consumer report disclosure and authorization

The consumer report disclosure and authorization procedures partly control when an employer can legally request a background screening on a candidate from a background screening company. Simply put, background screenings cannot be completed without the candidate’s prior knowledge and consent. 

Before the background screening report is procured, you must provide candidates with a clear and conspicuous disclosure that states that you may obtain a background screening on the candidate for employment purposes. The disclosure document must consist solely of this disclosure. Case law has explained that to “consist solely of the disclosure,” the disclosure must be on a standalone document, separate from other employment documents, and must not include extraneous (irrelevant) information. Though the disclosure may explain what the background screening entails, it must not include extraneous information such as liability waivers, state-mandated disclosures, and other FCRA rights.

In addition, you must inform the candidate that you will be conducting a background screening for employment purposes and obtain a signed authorization from the candidate to do so.

Pre-adverse action notice and adverse action notice

The FCRA’s adverse action procedures partially regulate how an employer can legally use the background screening report to make an employment decision that adversely affects the candidate.

If you intend to rely on a background screening report, in any capacity, to make a negative employment decision, you must first provide the candidate with a “pre-adverse action notice,” which includes a copy of the background screening report and the document  A Summary of Your Rights Under the Fair Credit Reporting Act.

The purpose of pre-adverse action notice is to give the candidate an opportunity to review the background screening report and contact the background screening company should they believe any item of information is inaccurate or incomplete. Consequently, the employer must wait a reasonable amount of time before making a negative employment decision. This is commonly referred to as the “waiting period.” The FCRA does not explicitly state how long an employer must give a candidate to review the background screening report before ultimately making a negative employment decision, but the Federal Trade Commission’s Advisory Opinion to Weisberg opined that five business days is a reasonable amount of time.

Next, if you ultimately make an employment decision that adversely affects the candidate, you must send the candidate an “adverse action notice,” which informs the candidate of the following:

  1. Notice of the adverse action based on the background screening report;
  2. Name, address, and telephone number of the background screening company who conducted the report;
  3. A statement that the background screening company did not make the decision to take the adverse action and is unable to provide the candidate the specific reasons why the adverse action was taken;
  4. Notice of the candidate’s right to obtain a free file disclosure of a background screening report within 60 days; and
  5. Notice of the candidate’s right to dispute with the background screening company the accuracy or completeness of any information in a background screening report.

Would FCRA non-compliance actually result in financial loss?

Although most employers believe they will never be the defendant in an FCRA lawsuit due to non-compliance, the reality is that such a scenario is a very real possibility. To illustrate this point, we can look at WebRecon’s 2021 Year in Review Report. The report indicated that in 2021 there were 5,406 FCRA cases filed. This number reflects a 3.5% increase in FCRA cases from the previous year, and the upward trend shows no signs of slowing down.

Ultimately, if you were to find yourself as the defendant in an FCRA lawsuit, there is a chance that the litigation could result in significant financial loss as the FCRA provides numerous penalties for non-compliance. Specifically, willful and reckless non-compliance with the FCRA can result in statutory damages or actual damages, punitive damages, and reasonable attorney’s fees.

The statutory fees can range anywhere from $100 to $1,000 per plaintiff and are particularly alarming because you could possibly be following the same
non-compliant procedure for numerous candidates, which could result in a class-action lawsuit. Additionally, negligent non-compliance of the FCRA can result in actual damages and reasonable attorney’s fees.  Accordingly, if one of your goals is to limit potential financial loss, you must be giving special attention to the FCRA’s requirements for how employers request and use background screenings.

4 tips and reminders for compliant background screenings

  • Consult with your legal counsel to ensure that your consumer report disclosure, authorization, pre-adverse action notice, and adverse action notice comply with the FCRA.
  • Be aware that some state and local laws mandate additional requirements above and beyond the FCRA, in regard to consumer report disclosures, authorizations, pre-adverse action notices, waiting periods, and adverse action notices.
  • Annually audit your consumer report disclosure, authorization, pre-adverse action notice, and adverse action notice processes to account for changes in law.
  • Utilize a background screening company, like InCheck, that prioritizes legal compliance!

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