• How Employers Can Minimize Risks under the Fair Credit Reporting Act (“FCRA”)
  • December 20, 2013
  • Law Firm: Troutman Sanders LLP - Atlanta Office
  • Many employers obtain background checks of potential hires, such as drug tests, past employment checks, criminal background checks, driving record checks, and credit checks.  Above and beyond the desire to make a good hire, such checks may also help your company limit its liability.  For example, if you are hiring an employee who will have unsupervised contact with customers, you may want to conduct a criminal background check to look for a history of violent crime.  In the event of a claim related to an employee (such as where an employee caused a customer harm), an employer may be held to a greater degree of liability if it should have known (by conducting a criminal background check) that the applicant had a history of violence. 
    Employers may be surprised to learn, however, that the federal Fair Credit Reporting Act (“FCRA”) and parallel state laws impose numerous technical, procedural, notice, and timing obligations on the use of various types of background reports — not just “credit reports” — from statutorily-defined “consumer reporting agencies,”  including most kinds of criminal background checks obtained from vendors.  This is particularly the case in this day and age, when online data aggregators make information easily available to employers online. 
    Importantly, the FCRA places procedural requirements on employers that take “adverse action,” such as the denial of employment, retention or promotion, based upon information obtained in a consumer report.  If any employer wants to use a consumer report to take an adverse employment action, there are three important steps to follow: (1) before obtaining the consumer report, the employer must provide a written notice to and obtain the written consent of the prospective employee; (2) before taking the adverse action, the employer must provide a copy of the report to the prospective employee along with a statement of the prospective employee’s FCRA rights; and (3)  the employer must provide notice of the adverse action.  Each of these steps and documents are subject to regulation as to content, timing and form.
    Employers might also be surprised, and unpleasantly so, that the FCRA backs up its imposition of responsibilities on employers with a private right of action for violations, and it makes statutory and punitive damages, plus attorneys’ fees, available for violations, regardless of whether an individual suffered actual harm or out-of-pocket damages.  What’s more, these claims can be brought by prospective employees, individually, or as a class action on behalf of similarly situated individuals.  And class liability can be large, given that the FCRA provides for statutory damages of $100 to $1,000 per violation. 
    In today’s compliance culture, employers can greatly minimize the risk arising from their use of consumer reports by conducting a FCRA audit of their background check functions.  Such an audit focuses on the text of the forms used by the employer to confirm that they comply with the FCRA (as well as all applicable state and local laws).  It also focuses on the processes used by the employer to ensure its timeliness, accuracy, and consistency, and on the employer’s documentation and recordkeeping practices.  By having the proper processes and procedures in place, employers can avoid FCRA violations and mitigate damages in the event of a one-off failure in process.