First and foremost, the information in this blog is not legal advice. Instead, this is intended
only to be helpful (but general) information. Please check with your legal counsel as to any
laws mentioned in this blog and any obligations you or your business may have.
You’ve probably seen first-hand how hiring the right employees can make or break workplace
productivity. A great employee team is efficient, energetic, and dynamic, and runs like as a well-
oiled machine. However, accidentally hiring a sub-par employee can throw a major wrench in
the gears – and bring your whole system to a grinding halt.
For small business owners, such breakdowns in communication and efficiency translate into losing
money. That’s why it’s crucial to thoroughly vet your candidates with a well-organized hiring process,
including a comprehensive background check.
While background checks are critical for employers, they also require attention to detail and from a
legal perspective. Employee background checks are generally considered “consumer reports” under
the Federal Fair Credit Reporting Act (FCRA), which means they are subject to parameters around
access and use. Remaining compliant with FCRA regulations throughout the background screening
process is crucial. If you ignore consumer laws—even accidentally—you can expose yourself to
expensive and time-consuming lawsuits that can run you out of business.
It is essential to use a FCRA-compliant employee screening service like the ones we provide here
at SafestHires. Knowing that your employee background check follows consumer reporting regulations
means one less thing you have to worry about when selecting the best candidate for a job.
In this article, we’ll discuss – from a general level (this is not legal advice; check with your legal counsel
for that) – how FCRA regulations affect the background screening process.
What is the Fair Credit Reporting Act (FCRA)?
The FCRA is a federal law that was enacted in 1970. Originally designed to help consumers dispute and
resolve inaccuracies in their credit reports, this act has since been expanded to cover numerous other
A consumer report contains information provided by a consumer reporting agency. This information may
detail a consumer’s:
- Credit health
- General reputation
- Personal characteristics
- Mode of living
The information above is typically used to determine eligibility for various things, including employment.
Today, FCRA compliance standards generally regulate employers that use background reports, along with
the Consumer Reporting Agencies (CRAs) that provide them with these reports. FCRA rules generally apply
any time an employer obtains a background check on a potential job candidate from a third-party source.
Among other provisions, and according to the FTC, the FCRA safeguards job applicants by ensuring:
- They have the right to be informed of a background check
- They have the right to provide consent for an employment background check
- They have the right to review information pertaining to their personal and financial information
- They have the right to correct any inaccuracies their background report may contain
- They have the right to appeal decisions if the applicant feels the decision was made unfairly
What is FCRA Compliance and What Does This Mean for Employers?
“FCRA compliance” typically means adhering to the requirements set forth by the Fair Credit Reporting Act.
These requirements generally require employers to conduct background checks that are accurate, transparent,
and fair to consumers.
To help ensure your business is protected from an FCRA lawsuit, it’s important to familiarize yourself with the
process of requesting an FCRA-compliant background check.
The Federal Trade Commission (FTC) lays out employer responsibilities in three different categories:
- Before requesting a background check
- Before taking adverse action
- After taking adverse action
Each specific stage of a background check has its own requirements in the screening process.
Employer Responsibilities Before Requesting a Background Check
Employers should do the following before requesting a background check:
- Provide a written notice to the applicant, explaining that information obtained in their consumer report
may be used for employment-related decisions. The notice must stand alone and cannot be included
in the employment application.
- Get the applicant’s written permission to obtain the consumer report. This can be done on paper or via
Employer Responsibilities Before Taking Adverse Action
If you decide the results of a background report disqualify a job candidate from a position, there are steps you
must take before you can reject their application, deny a promotion, or take any other adverse employment action.
Generally, you must provide the applicant or employee with:
- A notice with a copy of the consumer report you used to make your hiring decision.
The notice must specify the reason for adverse action and why this reason would
disqualify the candidate. It should also provide instructions on how the candidate
can dispute the accuracy of the report and how they can provide an explanation
of the circumstances. The SafestHires Adverse Action process is fully automated
and meets all of these rquirements.
- A copy of A Summary of Your Rights Under the Fair Credit Reporting Act
- A reasonable amount of time to review the report and either confirm or dispute its
findings. Judicial guidance on the time frame is five business days but many states
now require seven or 10 days. The SafestHires automated adverse action process
notifies you after 10 business days.
Employer Responsibilities After Taking Adverse Action
If you decide to move forward with adverse action, you generally must provide notice of your
intention verbally, electronically, or by writing to the applicant.
An Adverse Action Notice explains an individual’s rights to review information reported on a
background check. This provides them with the opportunity to correct inaccurate information.
The notice should generally include:
- Information on the Consumer Reporting Agency that provided the report
- A statement that the background check company didn’t decide to take the adverse action
and cannot give specific reasons for it.
- Indicate a person’s right to dispute the accuracy or completeness of any information.
- Inform the individual that they can receive an additional free report from the company if
they request it within 60 days.
According to the Equal Employment Opportunity Commission (EEOC), you must preserve this
documentation for one year after pulling the report, or after action was taken, whichever happens
later. Once that period is over, you must dispose of the consumer report correctly. Again, check
with your legal counsel if you have questions.
Complying with EEOC Discrimination Regulations
In addition to FCRA compliance, businesses typically must also abide by the standards set forth by
the Equal Employment Opportunity Commission. These standards may include the following:
- You cannot check the background of applicants and employees when that decision is based
on age, race, national origin, color, sex, religion, disability, or genetic information. For example,
only asking applicants of a certain age about their financial history can be discriminatory.
- You must apply the same standards to everyone.
- You must not base employment decisions on background problems that may be more common
among certain groups.
- You may need to make exceptions for problems revealed during a background check that were
caused by a disability.
While the majority of business owners wouldn’t intentionally ignore FCRA regulations, even unintentional
non-compliance can result in severe consequences that can devastate your business.
It’s crucial to confirm the Consumer Reporting Agency that provides you with a report is credible and reliable;
a mistake by the agency you hire to run a background check could also hurt your business. This is why it’s
crucial to select a background screening service that complies with all regulations from the start.
What are the consequences of FCRA non-compliance?
Your business can face severe financial penalties for running afoul of FCRA compliance regulations—even if
the violation is accidental. Settling an FCRA background check lawsuit can be extremely time consuming and
According to Webrecon LLC, in February 2018 alone, 422 FCRA lawsuits were filed. The numbers have steadily
increased each year, indicating that potential employees are savvy about their rights and are prepared to take
action against non-compliant employers.
Such costly litigation could ruin a company; employer lawsuits are incredibly expensive and can take months –
or even years – to resolve. They can erode morale among your workforce, generate negative media coverage
that causes you to lose trusted vendors and valued customers and make it difficult to attract new talent. If an
employer uses background checks, they should make every effort to remain FCRA-compliant.
What About State and Local Compliance?
There are some state and local laws and regulations that can limit your ability to obtain certain information
during a background check so it’s necessary to stay up-to-date in places where your business operates.
Run FCRA-Compliant Background Checks with SafestHires
Bringing new employees into your company is a delicate task; you have to comply with applicable consumer
reporting laws, while still trying to determine if they would be an asset or liability to your company. Bolster
your compliant process with comprehensive employee background checks from SafestHires.
All SafestHires executives and customer service employees obtain their FCRA Certification from the Professional
Background Screening Association. Additionally, our background screening lawyers at Littler have gone through
our system to ensure that every step in the order process, our adverse action process and our reports are FCRA
compliant. That said, it’s highly advisable that you consult your legal counsel to know what kinds of information
you are allowed to consider when using background information to inform a hiring decision.
While you can’t protect your business from every potential threat, you can help reduce the risk of consumer
reporting lawsuits with FCRA-compliant background screening. Protect your business and keep your well-oiled
machine running smoothly with background checks from SafestHires.