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Hiring New Employees: New FCRA Requirements & Important Reminders

Before January 1, 2013, employers must provide the new Fair Credit Reporting Act (FCRA) Summary of Rights to individuals before taking any adverse employment action based on the contents of a background report obtained from a third party. The good news is that the procedural requirements under the FCRA are the same – the only change is the updated Summary of Rights, which can be found here. The most significant revision is that the Summary of Rights now directs contacts to the new Consumer Financial Protection Bureau (CFPB), which is the federal agency now responsible for interpreting the FCRA. Employers should consider using the new Summary of Rights now, and removing all old forms from their HR systems prior to year end to avoid any problems.

As a reminder, the FCRA applies whenever an employer causes a “consumer report” (e.g., a criminal background check, credit check, etc.) to be prepared by a third party and the employer uses that consumer report for employment purposes, such as to evaluate a job applicant. Before procuring such report, the FCRA requires the employer to give a written disclosure to the individual and obtain his or her written consent. The courts have made it clear that the FCRA requires that this disclosure and consent must be in a stand-alone document and cannot be combined with other consents.

Many employers are either unaware or forget that this FCRA consent must be a stand-alone document and not simply contained in a sentence added at the bottom of an employment application. While this requirement may seem overly technical, many employers have found out the hard way that not following this rule can lead to class-action claims by applicants who were denied employment. Be sure your company is using the correct format for securing consents for these background checks.

Once the background report is received, if the employer plans to take any adverse action against an applicant or employee based, in whole or in part, on information contained in the report, then the employer must follow a two-step notification process. First, before any adverse action is taken, the employer must provide a “pre-adverse action” notice to the individual, which must include a copy of the new Summary of Rights. The purpose of this notice is to allow the individual to contest and/or correct inaccurate information contained in the report. If, after waiting the required time period, the employer decides to move forward with the adverse action, the employer must then provide the second adverse action notice to the individual.

Background screens used in the hiring process have now become a major point of emphasis with the EEOC. In April 2012, the EEOC issued updated enforcement guidance concerning how (in its view) Title VII of the Civil Rights Act of 1964 restricts an employer’s discretion to consider criminal records relative to employment decisions. This guidance can be found here. The bottom line is that background check policies and practices should provide an opportunity for an individualized assessment to determine if the policies, as applied, are job-related and consistent with business necessity. In case employers were not paying attention, on September 4, 2012, the EEOC issued its Draft Strategic Enforcement Plan, and once again made it clear that pre-employment background screenings will be a major focus.

These “announcements” are consistent with the EEOC’s recent enforcement efforts. For example, earlier this year the EEOC found that Pepsi’s background check policy denied employment opportunities to applicants who had been arrested or convicted of certain minor offenses or who were awaiting prosecution without prior convictions. According to the EEOC, more than 300 African Americans were adversely impacted by Pepsi’s background check policy. Pepsi agreed to pay $3.13 million and to provide job offers to these individuals. Additionally, the EEOC filed lawsuits against Kaplan Higher Education Corporation and Freeman Companies alleging that they engaged in unlawful discrimination by refusing to hire African Americans because of their credit histories. Both of these lawsuits are still ongoing.

In light of the FCRA changes and the EEOC’s focus on hiring practices, coupled with recent Fourth Circuit opinions confirming the EEOC’s broad investigative powers, employers should review their overall policies and practices relating to hiring and background checks to ensure compliance in this critical area.

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These articles are provided for general informational purposes only and are marketing publications of Gentry Locke. They do not constitute legal advice or a legal opinion on any specific facts or circumstances. You are urged to consult your own lawyer concerning your situation and specific legal questions you may have.