Three Steps for Complying with the Requirements of the Fair Credit Reporting Act in Employee Hiring

By Katharine K. Sangha

Many employers work with consumer reporting agencies to conduct background checks on applicants and current employees.  When a background check report raises a red flag on an applicant or employee, employers must be careful to comply with the federal Fair Credit Reporting Act (“FCRA”) and applicable state law prior to taking any adverse employment action.  Before obtaining a background check on an applicant or employee through a consumer reporting agency, the employer must obtain the individual’s written consent through a disclosure and authorization form. 

In the event that the background check identifies information that causes an employer to make an adverse employment decision, such as rejecting an applicant or terminating an employee, the employer should follow these steps.

1.  Send the applicant or employee a pre-adverse action notice, including a copy of the background check report and the Consumer Financial Protection Bureau’s A Summary of Your Rights Under the Fair Credit Reporting Act form.  The pre-adverse action notice should indicate that information in the report could negatively impact the individual’s employment or opportunity for employment with the employer.  

2.  Allow the applicant or employee at least five business days to dispute or correct any negative information contained in the background check report.

3.  If the applicant or employee fails to dispute the negative information in the background check report, the employer may take adverse action against the individual.  The employer must again provide notice to the applicant or employee indicating that due in whole, or in part to, information contained in the background check report, the employer is taking the adverse action (such as rejecting an applicant or terminating an employee).  The adverse action notice must also contain the following: 

  • The name, address, and phone number of the consumer reporting company that supplied the report (and, if a national consumer reporting agency, a toll free number);

  • A statement that the consumer reporting agency that supplied the report did not make the decision to take the unfavorable action and cannot give specific reasons for it;

  • A notice of the person's right to dispute the accuracy or completeness of any information the consumer reporting company furnished; and

  • A statement of the applicant’s or employee’s right to receive an additional free report from the consumer reporting agency if the person asks for it within sixty days.

In addition, employers should also be vigilant of the federal Equal Employment Opportunity Commission’s guidance on using arrest and conviction records to make employment decisions, as well as any applicable state and local laws, such as ban the box laws or ordinances.