Employer Obligations Under the Fair Credit Reporting Act

After our recent post entitled New Fair Credit Reporting Act (FCRA) Form Required, a number of readers wrote to ask for a better understanding of exactly what the FCRA requires of employers.

Federal FRCA Requirements

The FCRA applies to employers using third-party consumer reporting agencies to obtain background information (e.g. criminal history, financial data, personal information) on job applicants or employees.  The FCRA mandates various notices and protections for the subjects of such background checks before the information is obtained, as well as before and taking adverse action in reliance on the data received from the background check.

Before Obtaining a Background Check

Before obtaining a consumer report from a third-party consumer reporting agency, the FCRA requires that employers:

→ Obtain the applicant or employee’s written authorization to perform a report check.

→ Inform the applicant or employee in writing that the information obtained from the report may be used in employment decisions related to the individual. Importantly, this notice must be provided in a “stand-alone format” and cannot be contained within an employment application.

→ Certify to the third-party consumer reporting agency that will provide the report that it (i) complied with the above-listed requirement, (ii) complied with all of the FCRA’s requirements; and (iii) will not utilize the information contained in the background report in violation of federal or state equal opportunity law.

Before Taking Adverse Action Based on the Background Check

Before taking adverse action against an applicant or employee (e.g., not hiring an applicant, terminating an employee) based on a consumer report, employers must provide the subject individual with:

→ A copy of the report relied on; and

→ A notice entitled “A Summary of Your Rights Under the Fair Credit Reporting Act.”

After Taking Adverse Action Based on the Background Check

After taking adverse action against an applicant or employee based on a consumer report, employers must inform that individual:

→ That the adverse action was taken based on information contained in the report;

→ The name, address, and phone number of the third-party consumer reporting agency from whom the employer obtained the report;

→ That the third-party consumer reporting agency from whom the employer obtained the background report did not make the adverse-action decision;

→ That the individual may dispute the accuracy and/or completeness of the background check, and obtain another report from the same agency at no cost if requested within sixty (60) days.

Additional Requirements Under Minnesota’s Fair Credit Reporting Act

Minnesota has enacted its own state FCRA (Minnesota Statutes Chapter 13C) that largely mirrors the federal law.  However, there are a few important differences between the federal FCRA and Minnesota’s FCRA, most notably:

→ Before obtaining a consumer report on an applicant, Minnesota requires employers to inform such individual of its intent to obtain the report within or accompanied with the employment application. This disclosure must also include a box where the applicant can check off and return to receive a copy of the report.

→ If an applicant requests a copy of the report, the employer must request from the consumer reporting agency providing the report to provide a copy of such report to the applicant. The agency must then provide a copy to the applicant, without charge, within twenty-four (24) hours of providing the report to the employer.

Bottom Line

Remember, these requirements do not apply if the employer conducts its own background check.    However, if a third party reporting agency is used, compliance is critical in order to avoid the risk of costly litigation.