United States: New Year, New FCRA Forms

Do you use a third party service to conduct background checks on job applicants or employees?  If yes, then you should take note of new forms which employers are required to use for this purpose, effective January 1, 2013.  The new forms, which were originally issued last year, had to be revised due to errors, so you'll need to make sure you have the most recent, corrected versions of the forms.

By way of background, the Fair Credit Reporting Act ("FCRA") is a federal law that imposes requirements on employers who use third party Consumer Reporting Agencies ("CRA's) to obtain "consumer reports" (i.e., background checks, reference checks, credit checks) and investigative reports on job applicants or current employees.  The FCRA was previously administered by the Federal Trade Commission, but is now administered by the Consumer Financial Protection Bureau ("CFPB"), which issued the revised forms.  Employers should expect heightened scrutiny of FCRA compliance under the new administrative regime; in addition, FCRA class action lawsuits have been popping up around the country lately.  Just in case you need a refresher on FCRA compliance, there are four basic steps you need to take if you intend to use consumer or investigative reports from third parties as a basis for making hiring or employment decisions.

Step 1:  Certification to the CRA.  Each employer who engages a CRA to conduct background searches must certify to the CRA that it has provided or will provided appropriate notices to the job applicants or employees who are the subject of requested reports.  The employer must also certify to the CRA that it will obtain the required authorizations from job applicants and employees to receive copies of  reports, and that it will use any reports received solely for purposes which are permissible under the FCRA.

Step 2:  Notice and Authorization to the Applicant/Employee.  An employer who utilizes consumer and/or investigative reports as part of its applicant screening process must disclose, in writing, to each job applicant that employment consumer or investigative reports may be requested and that employment decisions may be made based on the content of such reports.  The content of your disclosure depends on the type of report you are requesting—more detailed disclosure requirements apply where investigative (as opposed to consumer) reports are requested.  Regardless, the employer must also obtain written permission from the applicant to request such a report.  In addition, where an investigative report is requested, an employer must provide the employee with a form entitled "A Summary of Your Rights Under the FCRA"  (note—this is one of the newly revised forms, so you'll need to make sure you have the up-to-date version).   Employers must then timely provide additional information if requested by the employee.

Step 3:  Pre-Adverse Action Notice.  If you intend to rely on the information in a report as a basis for an employment decision, you must provide the applicant or employee with (a) a copy of the report and (2) a copy of "A Summary of Your Rights Under the FCRA" before taking the adverse action.  This provides the employer with an opportunity to contact the CRA to dispute or explain an inaccurate report.

Step 4:  Adverse Action Steps.    If you decide to go ahead and take adverse action (such as not hiring an applicant) based on what you found in the report, you must inform the applicant or employee (preferably in writing) that you intend to do so, and provide certain fairly detailed information regarding how he or she can go about contacting the CRA and disputing the report.

Remember, the FCRA requirements do not in any way limit your ability to make employment decisions based on the content of background search reports.  Rather, this law simply requires you to provide appropriate notices and obtain authorizations before using such reports.  You do not have to hire any individual who refuses to consent to a background check.  However, if you fail to follow the proper procedures, you could be subject to penalties and damages.   Experienced employment attorneys can help you draft appropriate forms and checklists for FCRA compliance, so be sure to get help if you need it!

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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