For employers that use third-party background checks, the legal risk often lies less in the substance of the report and more in the process employed to obtain and use it. The Fair Credit Reporting Act (FCRA) requires an employer to take specific steps before it may procure a consumer report for employment purposes and before it may take adverse action based on that report. Those requirements carry real consequences, and technical noncompliance—even in good faith—can expose the employer to costly class actions.
FCRA Disclosure, Authorization, and Timing Requirements for Employment Background Checks
On the front end, the FCRA requires a "clear and conspicuous" written disclosure, in a stand-alone document, that a consumer report may be obtained for employment purposes. The FCRA also demands that the applicant or employee provide written authorization for such report. The disclosure and authorization should not be buried in the employment application. Lean, vetted forms are usually the safest course.
Timing also matters. Required disclosures should be provided, and authorizations obtained, before ordering a background check. Depending on the jurisdiction, additional rules may apply regarding the point at which a background check may be conducted. This is just one reason that a one-size-fits-all approach can be risky, particularly for employers hiring in multiple states or localities.
Pre-Adverse and Adverse Action Process Under the FCRA
The adverse action process poses further risk. If information in a background report may lead to an adverse decision—such as rescinding a conditional offer or declining to hire—the employer usually cannot move straight to the final decision. Generally, it must first provide the applicant or employee with a pre-adverse action notice, along with a copy of the report and a summary of FCRA rights. That step gives the applicant or employee a chance to review the report, flag possible inaccuracies, and provide context.
Only after the employer has waited for the requisite amount of time and considered any applicant or employee response should it make a final decision. If the employer ultimately decides to take adverse action, it also generally must provide an adverse action notice to the applicant or employee. Employers that skip steps, move too quickly, or fail to include the right documents invite litigation, even when the underlying employment decision may otherwise be defensible.
State and Local Background Check Laws and Employer Compliance Risk
State and local law can make the process even more complicated. Some jurisdictions impose additional disclosure requirements, longer response periods, or localized forms. Others place limits on when and how criminal history information may be considered. As a result, employers that rely on a standard national process without periodic review may expose themselves to real liability.
Employers who use background checks are wise to proceed cautiously. Third-party screening vendors can be helpful, but they do not eliminate the responsibility to comply with the law. Employers are best served by using streamlined, legally vetted forms, and by making sure the notice and adverse action process is handled carefully from start to finish.
Those with questions about background check processes are invited to contact the authors of this article or any other attorney in Venable's Labor and Employment Group.