Job background check must comply with Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA) regulates how your company performs a job background check on applicants. Contrary to popular belief, this federal law doesn’t just cover credit checks. It covers any background report, such as driving records and criminal histories obtained from a “consumer reporting agency” (CRA).

Under the FCRA, you’re typically free to conduct background checks and use the information—if you have a clear business interest, such as hiring, firing, reassigning or promoting someone.

But you can’t run a background check on a whim. You must receive written permission from the person before obtaining the report. Then, if you decide to act on it—for example, fire a worker or reject an applicant—you must tell that person in writing that you based the decision, in part, on the background check.

Sometimes, background checks are mandatory. Jobs working with children, the elderly or the disabled usually require checks. Security positions also require background checks, as do jobs requiring employees to be bonded.

What’s new

Two trends now compel more employers to conduct background checks. First, terrorism threats and incidents of workplace violence have made companies more aware of the need for background checks.

Second, “negligent hiring” lawsuits are on the rise. Companies have a “duty of care” to protect workers and customers from employees the company knew—or should have known—posed a security risk.

For example, a hotel front-desk clerk broke into a room in the middle of the night and assaulted a guest. It turned out that the worker had a criminal record of burglary and violence, but the hotel never checked before handing over the keys to all the rooms. The hotel’s failure to conduct a background check virtually ensured it was headed for a negligent-hiring suit.

Recent case:
Four teachers in the Hillsborough, Fla., school district were charged with sexual misconduct in the 2007-08 school year. School board members questioned the district’s screening procedures. An investigation revealed that two of the four former teachers had criminal records.

One teacher, accused of having sex with a student, revealed on her application that she had been charged with driving with a suspended license in 1994. Another teacher omitted her criminal record from her application, but her background check revealed a driving-under-the-influence charge and a battery arrest. School officials uncovered the charges (which were eventually dropped) but hired that teacher anyway, noting they look at each case individually.

How to comply  

Before obtaining a consumer report on an applicant or employee, you must:

  1. Notify the person in a separate, written disclosure that you may seek a credit report for employment purposes.
  2. Get the person’s permission in writing before ordering the report.
  3. Provide a summary of FCRA rights.

If you decide to fire or not to hire someone based on background check results—even if it is only one of several reasons—you must:

  • Before taking action, give the person a “pre-adverse action disclosure” that includes a copy of the credit report and a copy of document titled, “A Summary of Your Rights Under the Fair Credit Reporting Act.” The CRA that provides the report gives you this summary. It’s also available online at
  • After taking action, you must give the person notice—orally, in writing or electronically—that you did so. Include the name, address and phone number of the CRA that supplied the report, a statement that the CRA did not make the decision to take the adverse action and a notice of the applicant’s right to dispute the information’s accuracy. The person has the right to an additional free consumer report from the agency upon request within 60 days.

Note: Under federal bankruptcy law, bankruptcy is not a valid reason to deny employment, and you can’t discriminate against an applicant because of it.

Resources  on FCRA:

Hiring for Attitude D

FCRA: A Self-Test

Would you be required to notify applicants if you:

  • Refused to hire a person partly because of a bad credit history, but primarily because of a lack of experience?
  • Got credit reports on all applicants, but didn’t send rejection letters to those who weren’t hired?

Answers: In both cases, the FCRA requires you to notify workers about the background checks. In the first situation, the applicant is entitled to the notice because the credit report played a part—however minor—in your decision. In the second, you’re not excused from notification merely because you didn’t communicate with applicants.

Final note:
Does contacting past employers count as an official credit check covered by the FCRA? That depends on who does the checking. The law does not cover a reference verified by the employer, but the FCRA does apply to a reference checked by a reference-checking agency.