General Guidelines for Background Checks

From: Staffing

General Guidelines for Background Checks

If conducted with inappropriate planning and training, a pre-employment investigation can be a potential source of liability. Pre-employment investigations should not be used as an off-the-record investigation into an applicant’s background.

Therefore, when conducting pre-employment investigations, employers should consider the following general guidelines:

  • Employers should use pre-employment investigation tools that are reasonable, appropriate, and relevant to the position for which the applicant is applying.
  • Pre-employment investigations should be consistently implemented with all candidates, regardless of class or position.
  • Pre-employment investigations should be conducted by persons with special training, such as a reputable investigative service.
  • All information must be evaluated in compliance with the Fair Credit Reporting Act (FCRA), the Americans with Disabilities Act (ADA), Title VII of the Civil Rights Act, and any other applicable state and federal law. The FCRA is discussed later in this chapter.

With these guidelines in mind, employers should consider which background checks are appropriate given the nature and scope of the position sought by the applicant. Many employers request criminal background checks to be completed by an outside consumer-reporting agency. Such request is generally made so as to reduce an employer’s exposure to negligent hiring claims because employers must exercise reasonable care in hiring an applicant and pursue reasonable effort to properly investigate an applicant’s background. Employers who fail to conduct proper background checks may be held liable for the employee’s actions. Outside consumer-reporting agencies can conduct background investigations both internally and through contacting references provided by job applicants.

Note: Many states require employers to perform background checks within certain industries. For example, most states require background checks for education and banking personnel.

Employer Tools

Employers have several tools that may be implemented to obtain information about current and potential employees.

Pre-Employment Check

The amount of background information that employers may obtain depends on the type of job and the potential harm an employee in that position could pose. At a minimum, applicant screening for most jobs should involve certain steps.

Review the Résumé for Work History Gaps

Gaps in an applicant’s work history could reflect poor performance, imprisonment, alcohol or drug abuse, or other problems that affect an applicant’s reliability. Alternatively, the applicant may have been attending a school or participating in other valuable nonwork pursuits during the periods where gaps appeared on the applicant’s résumé. Employers should always give applicants an opportunity to explain any gaps in a résumé.

Verify Previous Addresses

The verification of previous addresses allows the organization to determine that the applicant lived where the individual claimed and not elsewhere. Employers should record and document sources used to verify prior addresses.

Confirm Credentials

Employers should check with educational institutions to verify that any degrees listed within a résumé were received by the applicant. Employers should also contact professional accreditation groups or government licensing boards to confirm information about an applicant’s credentials.

Obtain Consent to Contact Former Employers

All applicants should be asked to sign a release that allows the employer to contact the applicant’s former employers. A signed authorization and release ease a past employer’s fear of defamation for giving a poor reference, as applicable. Employers should beware of hiring any applicant who refuses or shows reluctance to give such consent.

Follow-Up Professional References

Employers should contact an applicant’s professional references for the following reasons:

  • Past employers can confirm employment dates, job descriptions, and salaries.
  • Managers usually are not hesitant to discuss former employees with excellent records.

Specific Position Checks

When the position involves contact with the public or issues of trust, employers should try to perform both credit and criminal checks. Legal restrictions apply to both types of checks; however, investigating an applicant for possible financial or criminal misconduct minimizes the risk of later defending against a negligent hiring suit.

Credit and/or criminal check should be considered with the following types of employees:

  • Delivery and repair workers.
  • Building managers.
  • Security guards.
  • Television installers.
  • Exterminators.
  • Employees who gain access to a dwelling by virtue of their employment.
  • Child care employees.
  • Health care employees.
  • Teachers.
  • Real estate agents.
  • Bartenders and bouncers who must deal with unruly customers.

Checking References

The main source of references traditionally has been an applicant’s former employers. Reference checks are a valuable way for employers to communicate with one another about an applicant. However, in recent years concerns about defamation lawsuits have received a great deal of publicity and made many former employers reluctant to cooperate in providing references.

When an applicant’s former employer refuses to give any information, employers should document their attempt to verify the applicant’s prior work history to prevent or combat any later claims of negligent hiring. Additionally, employers must be knowledgeable of their rights, as well as the rights of the applicant.

Speaking with an Applicant’s References

To address concerns over lawsuits, some states have implemented laws providing immunity from lawsuits to former employers who supply references, positive or negative, unless the references are knowingly and maliciously offered with false information. Employers who wish to verify whether or not their state has such a law should contact their state’s Division of Employment before giving any references.

Even in states without a law providing immunity for truthful references, contacting former employers can still prove useful. At a minimum, most companies will confirm a former employee’s name, dates of employment, positions held, compensation, and other pertinent employment factors.

Employers should use the following strategies to obtain performance-related information:

  • Request that all applicants sign a form giving consent to contact former employers and releasing anyone providing truthful references from liability. Consider modifying the organization’s job application to include such a consent and waiver statement.
  • Request that job candidates obtain letters of reference or copies of performance evaluations. This strategy still requires follow-up to verify authenticity.
  • Remind former employers that failure to disclose serious problems about a former employee may render the employer liable for negligent referral.
  • Ask applicants for the name(s) and/or direct-dial number(s) of any former supervisor(s). Even in companies with policies requiring routing all reference inquiries to human resources, supervisors pleased with former employees are often willing to provide applicable and helpful information.

Common Questions for Interviewing and Evaluating References

Frequently, the type of questions a potential employer asks a reference will determine the willingness of the reference to provide information. Employers should develop questions that will yield the desired results and ask the questions consistently.

What to Ask References

The following are samples of inquiries for references:

  • What work and management style does the applicant display?
  • How often was the individual tardy or absent?
  • What is this person’s reputation among colleagues, both inside and outside the organization?
  • Describe the applicant’s character and work attitude.
  • Does this person have career potential?
  • What type of company culture best suits this person?
  • How well equipped is this person to handle specific aspects of the job, such as deadline pressures, attention to detail, and people skills?
  • Would the reference be willing to hire or rehire the applicant?

Evaluation of Reference Information

Upon contacting references, the following questions should be asked:

  • Does the information furnished by the reference and the applicant match?
  • How long has the reference known the applicant?
  • How well does the reference know the applicant?
  • Was the reference in a position to evaluate the applicant’s work?
  • Was the applicant’s former job comparable to the current job opening?

Waiver to Check References

Employers intending to check an applicant’s references should require the applicant to sign a waiver allowing confirmation and investigation of all information the applicant submits on the application.

Credit Checks

Credit checks are permissible when there is a close relationship between credit information and job performance. For example, when hiring for a bank teller position, an employer may want to conduct a credit check on the applicant to determine the applicant’s credit history because the position will directly deal with money and financial information. Utilizing credit checks for employment purposes is regulated by the Fair Credit Reporting Act (FCRA). An organization must be able to prove that an applicant’s financial condition is relevant to the job before conducting a credit check. Employers that are not able to prove relevance could face discrimination charges, since requiring a clean credit history may disproportionately screen out some job applicants.

The Federal Bankruptcy Act also bars an employer from refusing to hire someone solely because of the applicant or someone associated with the applicant:

  • Has filed for bankruptcy.
  • Was insolvent prior to filing for bankruptcy.
  • Has failed to pay a debt dischargeable in bankruptcy.

Despite these limitations, credit checks are appropriate for certain employment positions, such as positions involving the handling of money or spending authority over large amounts of money.

If an applicant is denied employment for reasons relating to the credit report, the applicant must be informed of this fact and furnished with the name of the credit agency that issued the report.

Types of Credit Checks

To check a person’s financial status, employers may request two types of credit checks:

  • A consumer credit check provides information about a person’s creditworthiness, credit standing or capacity, work habits, and mode of living, as reported by consumer-reporting agencies. Consumer-reporting agencies include organizations such as Equifax, Experian, and Trans Union, which regularly assemble or evaluate information when making reports to third parties. Consumer-reporting agencies may also include private detective agencies and other organizations that prepare background reports for use by employers in making employment decisions.
  • Investigative consumer reports exceed a mere evaluation of credit worthiness and may include personal interviews with a person’s neighbors, friends, or associates to obtain information on the person’s character, general reputation, personal characteristics, or mode of living.

Consumer Reports

Consumer reports are reports an employer obtains from a consumer-reporting agency. Employers typically use the information obtained from a consumer-reporting agency for verifying the following information:

  • Criminal history.
  • Driving records.
  • Employment history.
  • Education.
  • Social Security numbers.
  • Professional licenses.

Investigating Criminal Records

Prohibitions against inquiring about applicants’ criminal records can create a dilemma for employers who need to make reasonable investigations of applicants to avoid liability for negligent hiring. Employers should consider broadening their pre-offer investigations to include searches of public records on felony and misdemeanor convictions. To do so, employers should obtain certified copies of all conviction records (instead of relying on verbal information) and should check all jurisdictions where an applicant lived or worked. If a search turns up a criminal conviction, employers must consider the relationship between the conviction and the applicant’s fitness for a particular job before rejecting an applicant because of any particular conviction.

While this information is generally available to the public, searching through public records is a time-consuming task. Investigative services and other document and information retrieval services may be helpful, but costly. For that reason, employers should devise guidelines as to when such information is necessary. The guidelines should be applied consistently and uniformly to avoid any appearance of discrimination or unfair treatment of certain job applicants. Further, because these investigative services are consumer-reporting agencies, as defined by the FCRA, if such services are utilized then the notification, authorization, and disclosure requirements of the FCRA must also be satisfied.

Employers should also notify applicants that a conviction record search is required, when applicable, and check any state law restrictions that may apply.

Consider Business Necessity

When records show an applicant has been convicted of a crime, an employer should consider whether business necessity justifies rejecting the applicant. Under EEOC guidelines for weighing business necessity, an employer must consider the following:

  • The nature and gravity of the offense(s).
  • The time that has passed since the conviction or completion of sentence.
  • The nature of the job in question.

State Laws

States may have additional requirements for consideration, such as age at the time of the offense, evidence of rehabilitation, and responsibility for protecting property, personal safety, or general public.

Besides limiting employers’ use of arrest records, many states bar employers from basing decisions on expunged or sealed conviction records. A few states prohibit employers from asking about or refusing employment based on certain types of convictions.

For example and according to Cal. Labor Code Ann. § 432.8, California bars employers from asking applicants about convictions for possession of marijuana that are more than two years old. Massachusetts prohibits employers from asking applicants about arrests or trials that did not result in a conviction, or misdemeanor convictions more than five years old if there are no other convictions during those five years. Massachusetts employers also may not ask an applicant about any conviction of certain petty offenses, such as disturbing the peace or minor traffic violations. However, Massachusetts employers may legally ask about felony convictions, no matter how long ago they occurred.

Positions Where Checks are Allowed

For certain employment positions federal or state laws require criminal record checks. For example, most states require checking criminal convictions before hiring anyone for a position that involves working with minors. Federal law also requires checking child care center employees for convictions. Certain states also require fingerprinting and conviction record checks of applicants for positions involving public trust, such as employees of financial institutions, security guards, or health care employees. Employers filling these types of jobs should check with the applicable state regulatory agency to find out the state law.

Refusals to Hire on the Basis of Conviction Records

An employer may lawfully refuse to hire an applicant on the basis of a conviction record if such refusal is justified given the nature, timing, and other factors of the offense as it relates to the job. Importantly, such decisions must be determined on a job-related, case-by-case basis, and not be based on a blanket policy against hiring persons convicted of crimes.

The Fair Credit Reporting Act

Employers who make the decision to use pre-employment investigations and background checks must understand the federal Fair Credit Reporting Act (15 U.S.C. §§ 1681 et seq.). The purpose of the FCRA is to promote the accuracy, fairness, and privacy of the information obtained by consumer-reporting agencies.

consumer-reporting agency is an entity that regularly assembles or evaluates consumer credit information or other information on consumers for the purpose of providing consumer reports to third parties for a fee or on a cooperative nonprofit basis. The FCRA and applicable state law requirements apply when an employer seeks to obtain a consumer or investigative consumer report for employment purposes.

The FCRA imposes notification, authorization, and disclosure requirements on employers who use consumer-reporting agencies to prepare reports regarding applicants or employees’ employment histories, credit or other background information for use in making employment decisions.

Requirements Regarding Information Contained in Consumer Reports

According to 15 U.S.C. §§ 1681c and 1681d, consumer reports may not contain any of the following information:

  • Cases under Title 11 U.S. Code or under the Federal Bankruptcy Act that, from the date of entry of the Order for Relief or the date of adjudication, predate the report by more than 10 years.
  • Civil suits, civil judgments, and records of arrest that from the date of entry predate the report by more than seven years or until the governing statute of limitations has expired — whichever is the longer period.
  • Paid tax liens that from the date of employment predate the report by more than seven years.
  • Accounts placed for collection or charged profit and loss that predates the report by more than seven years. Any other adverse item of information, other than records of convictions of crimes, that predates the report by more than seven years. Information that is a matter of public record and that relates to an arrest, indictment, conviction, civil judicial action, tax lien, or outstanding judgment must be verified for accuracy by the consumer-reporting agency during the 30-day period ending on the date on which the report is furnished.
  • The name, address, and telephone number of any medical information furnisher that has notified the agency of its status, unless either of the following apply:
    • Such name, address, and telephone number are restricted or reported using codes that do not identify, or provide information sufficient to infer, the specific provider or the nature of such services, products, or devices to a person other than the consumer.
    • The report is being provided to an insurance company for a purpose relating to engaging in the business of insurance other than property and casualty insurance.
  • Information that is adverse to the interest of the consumer and that is obtained through a personal interview with a neighbor, friend, or associate of the consumer or with another person with whom the consumer is acquainted or who has knowledge of such item of information, unless either of the following apply:
    • The consumer-reporting agency has followed reasonable procedures to obtain confirmation of the information, from an additional source that has independent and direct knowledge of the information.
    • The person interviewed is the best possible source of the information.

However, the prohibition on reporting the listed types of adverse information does not apply when the report relates to the following:

  • A credit transaction involving, or which may reasonably be expected to involve, a principal amount of $150,000 or more.
  • The underwriting of life insurance involving, or which may reasonably be expected to involve, a face amount of $150,000 or more.
  • The employment of any individual at an annual salary that equals, or may reasonably be expected to equal, $75,000 or more.

General Rights Under the FCRA

The FCRA grants many rights to those individuals whose information is used by consumer-reporting agencies. The following is a summary of the major rights individuals have under the FCRA:

  • Individuals must be told if information has been used against them. Anyone who uses a credit report or other type of consumer report to deny a person’s application for credit, insurance, or employment — or to take another adverse action against a person — must tell the person the name, address, and phone number of the agency that provided the information.
  • Individuals have the right to know what is in their file. Any person may request and obtain all information about the person kept in the files of a consumer-reporting agency. The person will be required to provide proper identification, which may include the person’s Social Security number. In many instances, disclosure will be free. Individuals are entitled to a free file disclosure if the following conditions are met:
    • A person has taken adverse action against an individual because of the information in an individual’s credit report.
    • An individual is the victim of identity theft and the individual places a fraud alert in the file.
    • An individual’s file contains inaccurate information as a result of fraud.
    • An individual is on public assistance.
    • An individual is unemployed, but is expected to apply for employment within 60 days.
  • Individuals have the right to ask for their credit score. Credit scores are numerical summaries of an individual&rsquos; credit-worthiness based on information from credit bureaus. Individuals may request a credit score from consumer-reporting agencies that create scores or distribute scores used in residential real property loans, but will have to pay for it. In some mortgage transactions, individuals will receive credit score information for free from the mortgage lender.
  • Individuals have the right to dispute incomplete or inaccurate information. If an individual identifies information in their file that is incomplete or inaccurate and report it to the consumer-reporting agency, the agency must investigate, unless the individual’s dispute is frivolous.
  • Consumer-reporting agencies must correct or delete inaccurate, incomplete, or unverifiable information.Inaccurate, incomplete, or unverifiable information must be removed or corrected, usually within 30 days. However, a consumer-reporting agency may continue to report information it has verified as accurate.
  • Consumer-reporting agencies may not report outdated negative information. In most cases, a consumer-reporting agency may not report negative information that is more than seven years old or bankruptcies that are more than 10 years old.
  • Access to files must be limited. A consumer-reporting agency may only provide information about an individual to a person or entity with a valid need — usually to consider an application with a creditor, insurer, employer, landlord, or other business. The FCRA specifies those with a valid need for access.
  • Individuals must consent for reports to be provided to employers. A consumer-reporting agency may not give information about an individual to his or her employer, or potential employer, without the written consent of the individual. Written consent generally is not required in the trucking industry.
  • Individuals may limit “prescreened” offers of credit and insurance they get based on information in their credit report. Unsolicited “prescreened” offers for credit and insurance must include a toll-free phone number individuals may call if when choosing to remove their name and address form the lists these offers are based on. Individuals may opt out with the nationwide credit bureaus at 1-888-5-OPTOUT (1-888-567-8688).
  • Individuals may seek damages from violators. If a consumer-reporting agency or, in some cases, a user of consumer reports or a furnisher of information to a consumer-reporting agency violates the FCRA, an individual may be able to bring an action for damages in state of federal court.
  • Identity theft victims and active duty military personnel have additional rights.​

The following FCRA right applies with respect to nationwide consumer reporting agencies:

Consumers Have the Right To Obtain a Security Freeze

Individuals have a right to place a “security freeze” on their credit report, which will prohibit a consumer reporting agency from releasing information in their credit report without their express authorization. The security freeze is designed to prevent credit, loans, and services from being approved in the individual’s name without his or her consent. However, individuals should be aware that using a security freeze to take control over who gets access to the personal and financial information in their credit report may delay, interfere with, or prohibit the timely approval of any subsequent request or application they make regarding a new loan, credit, mortgage, or any other account involving the extension of credit.

As an alternative to a security freeze, individuals have the right to place an initial or extended fraud alert on their credit file at no cost. An initial fraud alert is a one-year alert that is placed on a consumer’s credit file. Upon seeing a fraud alert display on a consumer’s credit file, a business is required to take steps to verify the consumer’s identity before extending new credit. Individuals who are victims of identity theft are entitled to an extended fraud alert, which is a fraud alert lasting seven years.

A security freeze does not apply to a person or entity, or its affiliates, or collection agencies acting on behalf of the person or entity, with which an individual has an existing account that requests information in his or her credit report for the purposes of reviewing or collecting the account. Reviewing the account includes activities related to account maintenance, monitoring, credit line increases, and account upgrades and enhancements.

Obligations of Furnishers of Information

The FCRA imposes responsibilities on all persons who furnish information to consumer-reporting agencies. State law may impose additional requirements on furnishers. All furnishers of information to consumer-reporting agencies should become familiar with the applicable laws and may want to seek counsel to ensure compliance with the law. See CFPB Compliance Bulletin 2016-01 to learn more about the FCRA’s furnisher’s obligations.

Employer Obligations Under the FCRA

For employers, the most important sections of the FCRA concern the obligation of those who use the information provided by consumer-reporting agencies.

Users Must Have a Permissible Purpose

Congress has limited the use of consumer reports in order to protect consumers’ privacy. In order to obtain a consumer report, an employer must have a permissible purpose.

According to the FCRA, the following are permissible purposes for obtaining a consumer report:

  • If ordered by a court or federal grand jury subpoena.
  • If instructed by the consumer in writing.
  • For the extension of credit as a result of an application from a consumer or the review or collection of a consumer’s account.
  • For employment purposes, including hiring and promotions decisions, where the consumer has given written permission.
  • For the underwriting of insurance as a result of an application from a consumer.
  • Where there is a legitimate business need, in connection with a business transaction that is initiated by the consumer.
  • To review a customer’s account to determine whether the consumer continues to meet the terms and conditions of the account.
  • To determine a consumer’s eligibility for a license or other benefit granted by a governmental instrumentality required by law to consider an applicant’s financial responsibility or status.
  • For use by a potential investor or current insurer, in an evaluation or assessment of the credit or prepayment risks associated with an existing credit obligation.
  • For use by state and local officials in connection with child support payments, modifications, and enforcement.

Disclosure and Authorization Required for Consumer Reports

Before an employer may obtain a consumer report or cause one to be prepared, the employer must provide a clear and concise written disclosure to the person who is the subject of the report that such a report may be obtained and secure the person’s written authorization.

The written disclosure must be contained in a separate document used solely for that purpose, and may not simply be included on an employment application or in an employee handbook.

Before a consumer-reporting agency may provide or prepare a consumer report for an employer, the agency must obtain certification from the employer that the employer has performed and/or agreed to the following:

  • Provided the required disclosure to the applicant/employee.
  • Received written permission to obtain the report from the person who is the subject of the report.
  • Will not use the information in violation of any applicable equal employment opportunity law or regulation.
  • Will abide by the requirements stated before taking any adverse employment action.

Application by Mail, Telephone, Computer, or Other Similar Means

Specific regulations apply to a person acquiring a consumer report for an applicant who is applying for a position that the U.S. Secretary of Transportation has the power to establish qualifications and maximum hours of service, or a position subject to safety regulation by a state transportation agency, and when the employer obtains the consumer report or causes one to be prepared the only interaction between the applicant and employer was via mail, telephone, computer, or other similar means.

Accordingly, before obtaining or causing a report to be prepared both of the following must be completed:

  • The employer must provide to the applicant, by oral, written, or electronic means, notice that a consumer report may be obtained for employment purposes and a summary of the applicant’s following rights:
    • To obtain a free copy of a consumer report on the applicant from the consumer-reporting agency, which notice must include an indication of the 60-day period for obtaining such a copy.
    • To dispute with a consumer reporting agency the accuracy or completeness of any information in a consumer report furnished by the agency.
  • The applicant must consent, orally, in writing, or electronically to the employer’s procurement of the consumer report.

Investigative Consumer Reports

Investigative consumer reports are a special type of consumer report in which information about a consumer’s character, general reputation, personal characteristics, and mode of living is obtained through personal interviews with neighbors, friends, or associates by an entity or person that is a consumer-reporting agency. However, such information will not include specific factual information on a consumer’s credit record obtained directly from a creditor or from a consumer-reporting agency when such information was obtained directly from a creditor or from the consumer. Additionally, consumers who are the subjects of such reports are granted special rights under the FCRA.

To obtain an investigative consumer report, the FCRA requires the following:

  • The agency must disclose to the consumer that an investigative consumer report may be obtained. The disclosure must in writing and be mailed or otherwise delivered to the consumer at no later than three days after the date on which the report was first requested. The disclosure must include a statement informing the consumer of the right to request additional disclosures of the nature and scope of the investigation and the written summary of consumer rights.
  • The agency must certify to the FCRA that the disclosures have been made and that the agency will make the following, required disclosure: Upon written request of a consumer, made within a reasonable period of time after the disclosures required, the agency must make a complete disclosure of the nature and scope of the investigation. The disclosure must be made in a written statement that is mailed or otherwise delivered to the consumer no later than five days after the date on which the request was received from the consumer or the report was first requested — whichever is later in time.

Adverse Action

Before taking any adverse action based in whole or in part on a consumer report, an employer must provide the affected person with a copy of the report and a written description of that person’s rights under the FCRA. The term adverse action includes a denial of employment or any other decision for employment purposes that adversely affects a current or prospective employee.

Subsequent to taking any adverse action, the employer again must notify the consumer that adverse action has been taken based in whole or in part on a consumer report. Further, the employer must provide the individual orally, in writing, or electronically with the following:

  • The name, address, and telephone number of the consumer-reporting agency (including a toll-free telephone number, if it is a nationwide consumer-reporting agency) that provided the report.
  • A statement that the consumer-reporting agency did not make the adverse decision and it is not able to explain why the decision was made.
  • A statement setting forth the consumer’s right to obtain a free disclosure of the consumer’s file from the consumer-reporting agency if the consumer make a request within 60 days.
  • A statement setting forth the consumer’s right to dispute directly with the consumer-reporting agency the accuracy or completeness of any information provided by the agency.

Adverse Action Based on Information Obtained from Affiliates

According to 15 U.S.C. § 1681m, if a person takes an adverse action involving insurance, employment, or a credit transaction initiated by the consumer, based on information of the type covered by the FCRA, and this information was obtained from an entity affiliated with the user of the information by common ownership or control, the user is required to notify the consumer of the adverse action. The notice must inform the consumer that a disclosure may be obtained of the nature of the information relied upon by making a written request within 60 days of receiving the adverse action notice. If the consumer makes such a request, the user must disclose the nature of the information not later than 30 days after receiving the request. If consumer information is shared among affiliates and then used for an adverse action, the user must make an adverse action disclosure as set forth by law.

Disposing of Records

The FCRA requires that all users of consumer report information have procedures to properly dispose of records containing this information. The Federal Trade Commission (FTC), the Securities and Exchange Commission, and the banking and credit union regulators have issued regulations covering disposal.

Special Procedures for Employee Investigations

According to 15 U.S.C. § 1681a(x) and under specific circumstances, employers are not required to notify an employee or obtain an employee’s consent prior to using a consumer-reporting agency to investigate the following:

  • Suspected employment-related misconduct by the employee.
  • Compliance with the law or any pre-existing employer policies.

However, under such circumstances the sources of information acquired solely for use in preparing an investigative consumer report may not be disclosed. Additionally, the employer must not disclose the report to outside parties other than law enforcement, governmental, or self-regulatory agencies. If part of the investigation includes an investigation of the employee’s creditworthiness or credit standing, the regular rules relating to disclosure and consent apply.

Obligations of Users of Medical Information

According to 15 U.S.C. § 1681b(g), the use of medical information obtained from consumer-reporting agencies (other than payment information that appears in a coded form that does not identify the medical provider) is limited. If the information is to be used for an insurance transaction, the consumer must give consent to the user or the report or the information must be encoded so as to not identify, or provide information sufficient to infer, the specific provider or the nature of applicable medical services, products, or devices. If the report is to be used for employment purposes or in connection with a credit transaction (except as provided in regulations issued by the banking and credit union regulators), both of the following requirements must be met:

  • The consumer must provide specific written consent for the furnishing of the report that describes in clear and conspicuous language the use for which the information will be furnished.
  • The medical information must be relevant to the process or effect the employment or credit transaction.

Any user who receives medical information may not disclose the information to any other person except where necessary to carry out the purpose for which the information was disclosed or as permitted by statute, regulation, or order.


Employers who fail to obtain an applicant’s permission before requesting a consumer report or fail to provide pre-adverse action disclosures and adverse action notices pay legal consequences. The FCRA allows individuals to sue employers for damages in federal court. A person who successfully sues is entitled to recover court costs and reasonable legal fees for the employer. The law also allows individuals to seek punitive damages for deliberate violations. In addition, the FTC, other federal agencies, and the states may sue employers for noncompliance for civil penalties of up to $2,500 per violation. Notwithstanding the civil penalties, any person who knowingly and willfully obtains a consumer report under false pretences may face criminal prosecution.


For compliance with the FCRA and any applicable state laws, employers should ensure that any use of background information from credit reporting agencies satisfies the consent and notice requirements of the applicable law. Specifically, employers should pay close attention to employment applications and other documentation used in the interviewing and hiring process.

Employment forms should be developed for consumer report disclosure and authorization. In addition, when an employer obtains releases from employees, the employer should stipulate that the release takes effect immediately and continues to be valid throughout the term of employment. Thus, future background checks will already be covered.

The law imposes numerous and hefty requirements on employers who use consumer reports in their employment decision-making. Specifically, employers will have to make a written disclosure to and obtain written permission from applicants and employees before obtaining consumer reports. Moreover, employers will have to provide copies of the credit reports along with a summary of consumers’ rights before taking any adverse employment action based on the report. Although these requirements are easily met, liability for not complying can be costly. Therefore, employers should take the time necessary to become familiar with the FCRA.

Employers should also remember that various states have also enacted additional laws governing the use of consumer reports. Employers should ensure their compliance with all applicable state law requirements.