The Fair Credit Reporting Act and Third-Party Employment Investigations

What Employers and Investigators Need to Know

If your employees work in sensitive areas, a background check is a must for ensuring that you are not exposing your company or your clients to unnecessary risk. However, there are legal limits to what background check can reveal.

Background checks are covered under the consumer credit law known as the Fair Credit Reporting Act (FCRA). Under this law, it is illegal for a credit reporting agency to deliver inaccurate information or to wrongfully run a credit check.

FCRA’s rules do not apply to companies who are doing background checks in-house. However, most employers do not have the resources to conduct pre-employment background checks. Instead, they use third party vendors, who are bound by FCRA. To ensure that your company is always on the right side of the law and not looking for information that is out of bounds, remember the following:

What background check sources are covered?

Under FCRA, it does not matter what the source of the information is. Whether the data comes from social media accounts, workers’ compensation histories, reference checks, verifications of licenses or another search, it must all be compliant with FCRA rules.

What information is restricted?

There is some information that should never be included in a background check in order to comply with FCRA rules. For instance, you cannot include:

• Paid tax liens that are more than seven years old.
• Bankruptcies over 10 years old.
• Lawsuits and judgments that are more than seven years old.
• Accounts that were sent to collections that are more than seven years old.
• Arrest records over seven years old, unless the position pays $75,000 a year or more.
• Information about indictments over seven years old.
• Any other adverse information has passed seven years of age.

It’s important to look to state law when looking for a background check. In some states, you cannot ask about arrests that do not lead to convictions. In some, you can ask about convictions for more than seven years. In others, this is not permitted. Be sure to follow all applicable state and local laws as well as federal laws like FCRA.

How do you produce an FCRA-compliant background check?

Many of the requirements around these background checks come down to permission. The employer must have give full notice to the current or prospective employee; they must also have a permissible reason to request the report.

To ensure that the employee is properly informed, the request must include:

• A notice to the individual that the employer may obtain background information for employment purposes.
• A statement that the requested information may include information about the individual’s reputation, general character, mode of living and personal characteristics.
• A statement that informs the individual of their right to make a written request to the employer for a complete and accurate account of the nature and the scope of the information requested.
• A statement that informed the individual that the employer must disclose the requested information within five days of the request.
• A copy of the summary of consumer rights that apply to the applicant or employee.

These must be on document that is separate from other employee information and agreements.

The individual must give permission or authorization for the background check. If this report will include medical information, the employer must specifically request consent for this information. The form that is used should state that consent to this investigation is continual and will remain valid until the individual revokes their consent in writing.

There must also be a certification that the third party requesting this information has a permissible purpose. Permissible purposes are relatively narrow in scope. For instance, a criminal background check may be performed on a security guard who will handle weapons in the course of their employment. It may not be appropriate for an administrative assistant who will just be filing papers and answering phones.

Does this just apply to pre-employment screenings?

FCRA rules apply to background checks that are performed at any time. This can include pre-employment checks, checks prior to promotions and background checks performed as part of an internal human resources investigation. For instance, take the instance of an employee who has been accused of embezzlement. Your human resources department may wish to conduct a background check to see if there are any past violations in this area. They may wish to do this examination in secret; however, that is the wrong way to go. FCRA requires that the rules for any background check be followed at all times. As a result, your employee must be notified and agree and the check may not use information that has aged out according to legal deadlines.

Reasonable limits

In general, you are better off going as narrow as possible while still getting the information that you need to make good decisions for your company. Do not request information that is not relevant to the job or the character of the employee who you wish to hire. This especially applies to areas like medical information, where you can find yourself on the wrong side of a discrimination complaint. By asking for what you need to make a decision that protects your customers and your company while preserving the privacy of the people who work for you, you can find the best employees for the job while being a law abiding employer.