If your company runs background checks on employees and applicants, you must comply with the Fair Credit Reporting Act, 5 U.S.C. § 1681 (“FCRA”). Failing to comply means serious financial trouble.
Seemingly Insignificant, Technical Mistakes Can Be Very Costly
On June 15, 2016, Uber reported settlement of an FCRA class action lawsuit for $7.5 million. The basis of the lawsuit was that Uber failed to provide a legally proper notice of its intent to rely upon background checks when screening its drivers. Uber is not alone in its mistake. In October 2014, Publix Super Markets, Inc. settled an FCRA class action in federal court in Tennessee for $6.8 million, including $2.3 million in attorney's fees. In March 2015, Food Lion's parent company settled an FCRA class action for $2.99 million, including $1 million in attorney's fees. In October 2014, Dollar General settled an FCRA class action for $4 million, including $1 million in attorney's fees. In January 2013, K-Mart Corporation settled an FCRA class action for $3 million, including $900,000 in attorney's fees. While technical violations of the FCRA may seem insignificant, damages can be as much as $1,000 per violation, even if the complaining party cannot demonstrate that they were actually harmed. Plus, the FCRA entitles a plaintiff to recover the attorney's fees they incurred bringing the lawsuit, which adds significant additional cost. In fact, filing FCRA claims can be so lucrative for plaintiffs and their lawyers, that some rapscallions will apply for hundreds of jobs at a time in hopes of catching FCRA errors and filing lawsuits.
Fortunately, FCRA Compliance is Easy
Compliance with the FCRA is as simple as using proper forms and following four easy steps. Some of the required forms are provided by the Federal Trade Commission (FTC), but others should be drafted by experienced counsel. Once you have the forms, simply do the following.
STEP ONE - Before Obtaining a Background Check
Before running a background check, have the applicant or employee sign the following two forms: (a) "Notice That a Consumer Report May be Obtained for Employment Purposes"; and (b) "Consent to Obtain Consumer Report for Employment Purposes".
STEP TWO - Before Taking Adverse Employment Action
Before taking any adverse action (e.g., declining employment, firing an employee, demoting an employee, etc.), provide the employee or applicant an opportunity to dispute any false information on the background check, or to identify any information that was mistakenly attributed to them. The law requires you to provide the following three items: (a) a "Pre-Adverse Action Letter," which notifies the individual of your intent to take an adverse action based on consumer information; (b) a copy of the Federal Trade Commission's form titled, "A Summary of Your Rights Under the Fair Credit Reporting Act"; and (c) a copy of the credit or background report upon which you intend to base your adverse action.
STEP THREE - Communicate the Adverse Action
If you decide to take an adverse employment action based on something found in the background check, you have to tell the employee or applicant. First, contact them by telephone to communicate the adverse action. Be considerate and polite, obviously. Second, follow up with written correspondence (email is sufficient).
STEP FOUR - After Taking an Adverse Action
After you take the adverse employment action, you must provide the declined applicant or employee with a "Post-Adverse Action Letter." Further, if the applicant or employee requests a copy of their background check after receiving the post-adverse action letter, you must provide it within 3 business days as well as another copy of the FTC's handout, "A Summary of Your Rights Under the Fair Credit Reporting Act."
A Quick Note About Your FCRA Notice Form
Please note that the "Notice That a Consumer Report May be Obtained for Employment Purposes" is a very specific form, with a handful of important technical requirements. The law generally requires the notice to be short, to the point, and not to contain anything else. For example, you cannot include any sort of waiver or release in the Notice, or you will be deemed to have failed to comply with the FCRA. I recommend keeping this form to one headline and one paragraph, both of which should be in a larger than normal font.
A Note About Requests to Inspect "Personnel Files"
Plaintiffs' lawyers love to request a copy of their client's "personnel file" either before filing a lawsuit, or in discovery. There is no standard legal definition of "personnel file," and, although SHRM and other similar organizations recommend that certain types of documents be kept in a "personnel file," nothing elevates these recommendations to the status of law. Which is to say, when you receive a request for a personnel file, first determine whether your company has an obligation to produce it for inspection at all. In most states, there is no legal requirement to allow former employees to review their files. However, if you DO have to produce employment records, you should consult legal counsel before handing over an employee's file. You may be able to save your company a LOT of trouble by withholding faulty background check documents unless you are legally required to produce them.
Additional resources provided by the author
Fortunately, compliance with the FCRA is a simple process as long as your company follows the four simple steps outlined above. If you need a proper set of FCRA forms, call or email me. After a brief consultation, I will give you the forms for free.
Our Rating is calculated using information the lawyer has included on
their profile in addition to the information we collect from state
bar associations and other organizations that license legal
professionals. Attorneys who claim their profiles and provide Avvo
with more information tend to have a higher rating than those who do
What determines Avvo Rating?Experience & background
Years licensed, work experience, education
Legal community recognition
Peer endorsements, associations, awards
Legal thought leadership
Publications, speaking engagements
This lawyer was disciplined by a state licensing authority in .
Disciplinary information may not be comprehensive, or updated. We recommend that you always check a lawyer's disciplinary status with their respective state bar association before hiring them.