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Performing Background Checks May Lead to Liability
If an employer retains a consumer reporting agency to perform a background check (including checks on criminal history, identification and Social Security numbers, education verifications, employment verifications, and/or reference), the Federal Fair Credit Reporting Act (FCRA) requires employers to provide a copy of the report to the applicant if the applicant is not selected based on the background check. In addition, a copy of the report must be provided if a background check is used as the basis for terminating an employee, rescinding an offer of employment or denying a promotion.Performing background checks through third-party providers can lead to liability. For example, a class action lawsuit was recently filed against Toll Brothers, a large home builder in Pennsylvania, by individuals alleging that they filed job applications and did not receive a copy of the background checks that Toll Brothers obtained with respect to their applications. In addition, a large trucking company recently settled a similar lawsuit for 2.75 million dollars.
Under the FCRA, an employer must provide a job applicant with a copy of his/her background check if employment is denied based upon the information obtained. FCRA does not require employers to conduct employment background checks; however, the law sets a national standard that employers must follow in employment screening.
The FCRA requires that an employer must obtain the applicant's written authorization before the background check is conducted. The authorization must be on a document separate from all other documents, such as an employment application. If the employer uses information from the background check to deny a job to an applicant, terminate an employee, rescind a job offer, deny a promotion, etc. it must take the following steps:
- Pre-Adverse Action. If an employer might use information from a credit or other background check to take an adverse action it must give the employee a copy of the report and a document called “A Summary of Your Rights Under the Fair Credit Reporting Act” before taking an adverse employment action. A sample notice is available for download here: http://www.consumer.ftc.gov/articles/pdf-0096-fair-credit-reporting-act.pdf
- Adverse Action. Following an adverse action, the employer must give the individual an “adverse action notice” that contains: (a) the name, address, and phone number of the company that supplied the credit report or background information; (b) a statement that the company that supplied the information did not make the decision to take the adverse action and cannot give any specific reasons for it; and (c) a notice of the right to dispute the accuracy or completeness of any information in the report and the right to get an additional free report from the company that supplied the credit or other background information if the same is requested within 60 days.
The good news is that even in the event of an error within a background check, the FCRA does not require an employer to hold a job open. If an employer conducts background checks on its own, it is not subject to the requirements of the FCRA; however, conducting background checks in-house could expose the employer to additional liabilities that could lead to increased exposure. Finally, employers should be aware that if an adverse action is based on something other than the background check, the above notices need not be provided.
Should you have any questions regarding background checks or the hiring process in general, please do not hesitate to contact Lynn Schonberg or Ryan Neumeyer at 216-447-1551.