Employee Screening Disclosures – What Employers Need to Know

Aug 31, 2016

When companies hire a third-party background screening company to perform the background checks as part of their hiring process, both the employer and the background screening company must adhere to the Fair Credit Reporting Act (FCRA – the federal law that governs employee background checks). Many people have heard about the FCRA as the federal consumer lending protection law – which it is. However, the part of the FCRA that deals with employee screening has nothing to do with consumer credit cards, car loans, or mortgages.

The Fair Credit Reporting Act imposes very stringent disclosure requirements upon the employer when the employer obtains an employee background screening report. The first requirement is that companies cannot perform the background check without the applicant's consent.

This employee consent cannot be part of the general employment application - it must be a separate and distinct disclosure form whose sole purpose is the employee authorization for the background check. Further the requisite disclosure, "FCRA Summary of Rights" as prescribed by the CFPB (Consumer Financial Protection Bureau) must also be given to the applicant at the time the employee consent is obtained.

Additional employer disclosures are needed if the employer takes an adverse action, based upon the results in the background screening report (referred to as the "consumer report" in the FCRA). Adverse actions under the FCRA include:

For New Hires: To not hire the applicant
For Existing Employees: To fire, demote, or not promote the employee
Should an Adverse Action be contemplated or taken, the employer has these additional disclosure requirements:

A "Pre-Adverse Action" letter that must include the contact information of both the employer and the background screening company to allow the consumer to dispute the report if warranted (the "FCRA Summary of Rights" must also be provided again). However, this letter must not definitively state that an Adverse Action will be taken.
An "Adverse Action" letter, stating that the Adverse Action has occurred, should be sent no sooner than five business days after the "Pre-Adverse" letter was sent. Some courts have ruled against employers that waiting only four business days is not sufficient notice to the consumer (and have imposed statutory fines and punitive monetary damages upon the employer). Of course, if the consumer disputes the background screening report, the "Adverse Action" letter should not be sent until the dispute has been investigated and verified.
It should be noted that information gleaned during the interview process (and not from the "consumer report") is not governed by the FCRA. Neither one of the above letters is required if the Adverse Action is based only upon the interview process, and the information that the consumer freely disclosed to the employer.

Posted by: Rudy Troisi. President, Reliable Background Screening.




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