Know rules for running background checks

Last year, three large employers learned that there are many wrong ways to perform employee background checks. Canon Solutions America, retailer Dollar General and the Publix supermarket chain all wrote big checks to former job applicants as a result of technical errors in their background investigation policies.

While Canon did not disclose the amount of its settlement, Dollar General settled for just over $4 million and Publix paid out $6.8 million.

The companies ran afoul of the Fair Credit Reporting Act (FCRA), which—in addition to protecting borrowers—governs background checks on job applicants. The FCRA covers background checks because so many employers dig into applicants’ credit histories when determining whether to hire.

Job applicants alleging FCRA violations don’t have to prove they suffered harm to collect damages from employers. They need only prove that an employer “displayed willful acts of disregard for the FCRA.”

The FCRA requires employers to receive written permission from employees to obtain any credit information. The law requires the release to contain specific language and to stand alone from all other releases.

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Should the information contain information that causes the employer to refuse to hire the applicant, the employer must give the applicant a:

  • Copy of the report, and allow the applicant to dispute the information
  • Summary of their rights under the FCRA
  • Pre-adverse action letter that includes the background investigating company’s contact information.

Employers also must allow the applicant to challenge any adverse information in the report. The FCRA gives applicants a “reasonable amount of time”—five days is common—to present evidence challenging the report.

Consult with your attorney to ensure your release is properly worded and that your procedures comply with the FCRA.

Online resource: FCRA guidelines

Download a free copy of our report, Employment Background Check Guidelines: Complying with the Fair Credit Reporting Act.