November 10, 2015
Fair Credit Reporting Act (FCRA)
The Fair Credit Reporting Act (15 USC 1681, et seq.) tells us what employers must do before conducting a background check and once they have decided to exclude a candidate based on information contained in the background report. It is a federal law designed to promote accuracy, fairness, and privacy of date collected, used, or disclosed by a consumer reporting agency (CRA), a third-party agency that collects and provides date about one’s creditworthiness or criminal background for purposes of making employment, tenancy, or credit decisions. The Act applies not only to credit checks but to criminal background checks as well. The FCRA is enforced by the Consumer Financial Protection Board.
Steps to follow:
1. Obtain the applicant’s written consent.
2. Provide pre-adverse action notice before taking adverse action, including a copy of the report and a Summary of consumer rights under the FCRA, which gives the applicant an opportunity to explain any negative items on the report.
3. After taking an adverse action, provide an adverse action notice, including the CRA’s name, address, and phone number, along with a statement that the employer and not the CRA made the adverse decision.
Notes:
1. The FCRA does not apply when the employer conducts the background check itself, without using a CRA.
2. Each violation of FCRA requirements can result in fines from the CFPB and sometimes by lawsuits.
3. The FCRA disallows reporting certain items: bankruptcies after 10 years; civil suits, judgments, arrest records after 7 years; paid tax liens after 7 years; accounts placed for collection after 7 years; any other negative information (except criminal convictions) after 7 years.
Fair and Accurate Credit Transactions Act (FACTA)
The Fair and Accurate Credit Transaction Act of 2003 (FACTA) added sections to the federal Fair Credit Reporting Act (FCRA, 15 U.S.C. 1681 et seq.). FACTA’s definition of “consumer reports” excludes from FCRA requirements misconduct investigation reports and any reports used for “investigation” into “compliance with Federal, State or local laws and regulations, the rules of self-regulatory organization, or any preexisting written policies of the employer”, as long as the employer/investigator does not order the reports to investigate the employee’s creditworthiness, credit standing, or credit capacity. Under FACTA, an employer ordering a credit or criminal background check as part of an investigation does not have to a) notify the employee or get his or her consent beforehand; b) give him/her a copy of the report or c) wait a “reasonable” amount of time between giving him/her the copy of the report and taking the adverse action. If it does take adverse action against the employee it need only provide a summary of the “nature and substance” of the report, but may not exclude “the sources of information acquired solely for use in preparing” the report, such as witnesses.
FACTA leaves certain terms undefined, which can create more questions, such as: What exactly is an “investigation”? Which preexisting written policies may form the basis for such an “investigation”? What form must disclosure of the “nature and substance” of a report take (written or oral)? By when must an employer disclose to an employee the “nature and substance” of a report forming the basis of an adverse action? While very little case law in this area exists, there are a few cases that provide some clarification. Some district courts have interpreted the statute.
Millard v Miller, 2005 WL 1899475 (W.D. Wis. Aug. 9, 2005) arose out of plaintiff’s termination after sustaining a workplace injury. During litigation of the workers’ compensation claim, plaintiff obtained postponement of a scheduled independent medical examination, because, she said, she would be going to visit relatives on day of the scheduled exam. Her employer did not believe her, and got a copy of her credit report, in order to subpoena records of her credit card use to show she was shopping instead of visiting relatives as she claimed. The employer shared the report with its workers’ compensation carrier and the plaintiff claimed that the failure to provide her
with a disclosure and obtain her consent before requesting the report violated the FCRA. The court decided this was an “investigation” under the FACTA. The employer admitted it got the report to get information about her off-duty conduct in a workers’ compensation
case. The court did not find that a problem, because it held that “misconduct relating to employment” should be interpreted broadly, and that Congress chose to use the phrase “relating to” to include more than matters strictly related to workplace activity or conduct. Use of the report in a workers’ compensation hearing, which necessarily involves an employment injury was therefore obtained to investigate “misconduct relating to employment,” said the Court. The court also found the workers’ compensation carrier to be the employer’s “agent”, and that it was therefore permissible to share the report with the workers’ compensation carrier.
In Martin v. First Advantage Background Services Corp., 877 F.Supp.2d 754 (D.Minn. July 13, 2012) the plaintiff had previously worked for and later been reemployed by his employer in its home mortgage department. The employer ran a background check three months after his re-hire. The background check revealed negative items, not present on his background checks done during his previous employment, and the company fired him. The employee said that the items on the report were not true and provided documentation to refute the report. When the employer refused to rescind the termination, the employee sued and alleged FCRA violations. The employer argued that the background check was part of an investigation that looked into the employee’s compliance with federal laws and regulations concerning those working for financial institutions, and also to ascertain his compliance with employee handbook policies requiring that those who do not meet background screening requirements or those of the Financial Institutions Reform, Recovery and Enforcement Act cannot be employed or continue employment. The employee argued that FACTA applies only to investigations of employee misconduct already suspected by the employer. The court disagreed and said that FACTA’s plain language clearly exempted the report from the
FCRA, as long as the employer really ordered the report for the purposes it claimed.
In Pearce v. Maxillofacial Associates, LLC, 2010 US Dist LEXIS 133430 (W.D. Okla.Dec. 16, 2010) an employer was allowed to order a background check on an employee claiming sexual harassment, even though it may have been doing so in an attempt to intimidate her. The court reasoned that since the employer ordered the report to investigate the plaintiff’s allegations of misconduct it fell within the exemption and that alleged ulterior motives for ordering the report did not affect the applicability of the exemption.