The Fair Credit Reporting Act (FCRA) may not be the first employment law that comes to mind when an employer wants to reduce legal risks and avoid potential pitfalls. However, the FCRA has a number of requirements that employers must follow when obtaining background checks. As one recent case highlights, these requirements are important to keep in mind.
Link to The Recent Case The Recent Case
Two job applicants filed suit against Eightfold AI, a company that uses an AI-based recruiting software to help companies with their recruiting efforts. Filed in California state court, the lawsuit alleges that Eightfold violated the FCRA, as well as state consumer protection laws, by creating “hidden credit reports” for applicants without complying with statutory requirements, including the FCRA requirements outlined below. The plaintiffs claim they applied for jobs with companies that use Eightfold AI and that Eightfold AI then gathered a plethora of information about them – information they did not provide in their job applications. One of the questions in the case will likely be whether this information gathering constituted a “consumer report” (like a background check) on the applicants. If it did, Eightfold AI may have violated the FCRA for failure to follow its notice requirements.
This lawsuit serves as a reminder to review the FCRA’s notice requirements and ensure that you are following them closely.
Link to FCRA’s Requirements FCRA’s Requirements
Most employers utilize a third-party background checking agency to obtain “consumer reports” (like background checks) for job applicants or current employees. Below is a summary of the FCRA’s basic requirements that employers should be sure to follow:
- Before obtaining a consumer report, you must notify the individual (using an easy-to-read document) that you may be obtaining the report. This disclosure should contain ONLY the FCRA notice and must not address any other topics. In other words, it should be a separate piece of paper or, if online, separate from the online job application. Provide this at the time of application. The Federal Trade Commission has issued some tips on how to keep this Step 1 notification simple.
- You must get written consent from the individual before obtaining the consumer report. Have them sign and acknowledge the document you provide in Step 1. Allow the individual to keep a signed copy. If they complete the written consent online, consider either providing clear instructions on how they can download and retain a copy or send them a copy of their completed consent form electronically (e.g., by email).
Once you receive the report, you may want to take adverse action (i.e., not hire the applicant, terminate an employee, etc.). If you intend to take an adverse action based on the information you receive from the report:
- Before taking an adverse action, you must provide the individual with a written summary of their rights AND a copy of the report. You do not need to provide any additional information about the adverse action at that time. However, you must give the individual a reasonable amount of time to respond to the report’s contents before proceeding with the adverse action. Five business days is generally sufficient.
- When taking adverse action (if you still decide to do so), you must provide a notice of the following information:
- The adverse action being taken;
- Contact information for the agency that provided the report, including name, address, and phone number;
- A declaration that the agency cannot provide specific information about the reasons underlying the adverse action and that it did not make the adverse action decision itself;
- That the individual has a right (within 60 days) to request and acquire another copy of the consumer report at no charge from the agency; and
- That the individual has a right to contest the contents of the consumer report with the agency.
Although employers are allowed to provide notice of this information orally or in writing, in writing is best practice.
Additionally, if you plan to utilize a third-party agency to obtain “consumer reports” that include an individual’s credit score or involve personal interviews (e.g., with the individual’s neighbors, acquaintances, associates, etc.), there are additional requirements. So, consult with your labor and employment counsel if you plan to do either of those.
Link to Takeaways Takeaways
The FCRA imposes a surprising number of exacting requirements, and compliance with them is crucial. Failure to follow them can open you up to legal action, even if you failed to follow them by mistake. As always, consult with your labor and employment counsel if you have any questions about these requirements or are looking for standard documents to use when implementing background checks.