In honor of the scariest, spookiest month of the year, here are the scariest things we are hearing these days about using background reports and complying with the law that governs use of that information:
- “I think FCRA is that law about credit reports. But we don’t check credit for our job applicants. So we’re good, right?”
- “Do we disclose to applicants that we’re requesting consumer reports? We inform them of a lot of stuff. I think it’s in our employment application somewhere.”
- “Adverse action letters? Two of them? Is that a new thing?
- “My background check company handles all those forms. So we’re good, right?”
- “I’m pretty sure we’re doing most of that stuff right some of the time. But don’t quote me on that.”
Okay, full disclosure: these are not real quotes. But they do represent real misunderstandings and confusion about employer obligations under the Fair Credit Reporting Act (“FCRA”).
If these questions and statements sound reasonable, the FCRA class action bar is looking for your company. Here is a small sampling of large companies that settled FCRA class actions in 2015:
- Fernandez v. Home Depot – $3 million
- Brown v. Delhaize America (owns Food Lion grocery stores) – $2.99 million
- Marcum v. DolgenCorp (owns Dollar General stores) – $4.08 million
But it doesn’t matter if you are small or large, local or national – you are just their type.
Third-party background check reports are “consumer reports.” In simplest terms, the Fair Credit Reporting Act, or FCRA, is a federal law that governs the collection, assembly, and use of information about consumers. The first thing you need to understand about FCRA is that it applies to employers, but also lots of other entities, so it’s not written for employers. Its name is confusing and so is the term “consumer reports,” both which feed misperceptions about what the law covers.
So know this: if your company requests any information about an applicant (or current employee) from a third party and then uses it to make an employment decision, your company has requested a “consumer report” and must comply with FCRA’s disclosure, authorization, and adverse action notice requirements. Common “consumer reports” that employers use to vet applicants include criminal history reports, driving records, education records, employment history, and yes, credit history.
Employers are on their own when it comes to FCRA compliance. This is the second thing you need to understand about FCRA: it is a hyper-technical statute with little to no guidance to lead you to compliance. Even if you have the right notices in place, they still may not be technically compliant if, for example, they contain extraneous language or too much information.
Explanatory regulations? Model forms? FCRA is no FMLA, people. Don’t look to government agencies to fill that guidance vacuum anytime soon. The Consumer Financial Protection Bureau has been the primary agency responsible for interpreting FCRA for more than five years, yet it has not issued a single piece of useful guidance regarding employer FCRA obligations during that time. As for the Federal Trade Commission, if this blog post is any indication, no one is at the wheel there anymore (if they ever were).
Instead, that vacuum is being filled, slowly but surely, with court decisions and an absolute deluge of recent FCRA class actions across the county. According to a recent report from WebRecon, FCRA lawsuits increased 83% in August 2015 from the same period in 2014. From Whole Foods to Michaels Stores to Amazon, even the giants are getting hit for FCRA violations.
What should employers do? Don’t let FCRA scare the living daylights out of you. First, review your hiring practices to ensure that your company is at least doing the following:
(1) making a clear, conspicuous written disclosure to each applicant that consumer reports may be obtained about them for employment purposes;
(2) obtaining each applicant’s written authorization to obtain consumer reports;
(3) when your company decides not to hire an applicant based on information in a consumer report, providing the applicant a copy of the report at issue and a summary of their FCRA rights before taking the action (commonly referred to as pre-adverse action notice); and,
(4) after taking the action, providing the applicant with notice of the adverse action, contact information for the agency that provided the report, and other information (commonly referred to as post-adverse action notice).
Second, if you think your company is FCRA-compliant because it does complete each of the above steps, review your disclosure, authorization, and adverse action notices. Extra information or confusing language in those documents could jeopardize your company’s compliance efforts. Additionally, if your company uses “investigative reports" – reports based on personal interviews concerning a person's character, general reputation, personal characteristics, and lifestyle – your company has additional obligations under FCRA.
Third, if your company operates in more than one state, be aware that a number of states (a number which is growing) have their own “mini-FCRAs” with separate disclosure, authorization, and/or adverse action requirements. Many states also severely restrict use of credit information and/or criminal background information for employment purposes.
Finally, DO NOT rely on your background check provider for FCRA compliance. Ask questions and make sure you know exactly what your background check company is doing on your behalf. Do not forget that FCRA compliance is ultimately your company’s responsibility, not your provider’s.
*Helena Oroz practices in all areas of employment law compliance and often assists Z&R’s clients with FCRA and state fair credit reporting and background check laws. For more information or assistance with your company’s FCRA compliance, please contact Helena | hot@zrlaw.com | 216.696.4441