In recent years, employers have seen a surge of lawsuits alleging violations of the Fair Credit Reporting Act (FCRA). In the employment context, the FCRA requires employers to disclose to applicants that they will obtain consumer credit reports for employment consideration purposes. However, employers must meet very specific criteria to comply with the FCRA’s requirements. Disclosure to the applicant must be a “clear and conspicuous” written notice that consists “solely of the disclosure.” The requirement that the FCRA notice be “clear and conspicuous” and contain only the disclosure is easily violated, even unintentionally, when the disclosure contains extra language that could be considered standard, or even helpful, to the applicant.
FCRA violations are very appealing to plaintiff’s firms because of their straightforward nature and because employers frequently rely on template background check notices from third-party background check companies that may contain violations. Additionally, a plaintiff does not need to prove that a harm occurred, only that a violation occurred. Penalties include actual and statutory damages of $100-$1000 per disclosure-violation, unlimited punitive damages, attorneys’ fees, and court costs. These violations can quickly add up to a seven-figure exposure. If an employer’s violations are found to be “willful,” statutory damages are available even without a showing of actual damages. Thus, if an employer is going to rely on consumer credit reports as a part of the hiring process, it is paramount that the employer fully complies with the FCRA’s strict requirements.
So What Kind of Disclosure Does the Employer Need to Make?
An FCRA-compliant disclosure should inform the applicant that consumer reports may be obtained for employment purposes, should be presented as a separate document, and can be presented at the time of an employment application. As discussed above, the disclosure must be “clear and conspicuous.”
Basically, less is more. The Federal Trade Commission (FTC) recommends avoiding complicated legal jargon or adding additional acknowledgements or waivers. The Ninth Circuit has held that a “concise explanation” of a disclosure statement may be included as a part of the disclosure. Walker v. Fred Meyer, Inc., 953 F.3d 1084 (9th Cir. 2020); Section 1681b(b)(2)(A)(i) of the FCRA.
For example, a company could briefly describe what a “consumer report” entails, how it will be “obtained,” and for which type of “employment purposes” it may be used. Id. The Ninth Circuit has also held that the disclosure may contain a signature and date line, which can satisfy the requirement for a signed written authorization, and does not have to be presented at a separate time from other documents. Luna v. Hansen & Adkins Auto Transport Inc., 9th Cir., No. 18-55804 (April 24, 2020).
The following are examples of what not to include in the disclosure form:
- Language that attempts to release the employer from liability for conducting, obtaining, or using the background screening report;
- Notice and Acknowledgement of FCRA rights;
- State-specific background check notices that do not apply to the state that the applicant is in;
- Any kind of certification by the prospective employee that all information in his, her, or their job application is accurate;
- Specific Instructions about how an applicant can request and inspect consumer reporting agencies’ files related to the background checks;
- Any language that requires the prospective employee to acknowledge that hiring decisions are based on legitimate, nondiscriminatory reasons; and
- Overly broad authorizations that permit the release of information that the FCRA does not allow to be included in a background screening report (e.g. bankruptcies that are more than 10 years old.)
What Other Procedures Should Employers Follow?
After disclosure is made to the applicant that his/her/their consumer report may be used by the employer for decisions related to employment, the employer must obtain the applicant’s consent, in writing, to gain access to his/her/their consumer report. The consent section can be included on the disclosure document. According to the FTC, if an applicant declines to provide permission, an employer may reject that person’s application. An employer then must certify to the consumer reporting agency that it: (a) has properly notified the applicant and obtained consent to access the consumer report; (b) will comply with the FCRA’s conditions on use for adverse actions, if applicable; and (c) will not use the information in the consumer report to violate any federal or state equal employment opportunity law or regulation.
If an employer discovers negative information in the consumer report that could remove the applicant from consideration, before making a final decision or taking any action, the employer must send a copy of the report to the applicant along with the “Summary of Consumer Rights,” which provides information on how to contact the consumer reporting agency. This gives the applicant the opportunity to review the report and correct any mistakes with the consumer reporting agency before a final employment decision is made.
While not explicitly required by the FCRA, courts and FTC guidance suggest a five-day waiting period after notifying the applicant about the discovery of information that may disqualify him/her/them from employment and before making the final decision.
If an employer decides not to hire the applicant based on information in the consumer report, it must provide certain information to the applicant within three business days of that decision. The notification can be made orally, electronically, or in writing, and must contain:
- An acknowledgement that the decision not to hire the applicant was made in whole or in part because of a consumer report received from a consumer reporting agency;
- the name, address, and phone number of the consumer reporting agency that supplied the applicant’s information;
- a statement clarifying that the consumer reporting agency did not make the decision to not hire the applicant and is not aware of the reasoning for the adverse decision; and
- a statement informing the applicant that he/she/they have the right to dispute the accuracy and completeness of any information in the report and can get an additional free report from the consumer reporting agency if he/she/they submit a request within 60 days of the employer’s decision.
California employers should also be aware that California does not allow employers to consider or seek information about certain types of criminal records, including an arrest or a detention that did not result in a conviction. Employers are required to apply the company’s background check policy equally to all applicants, in compliance with federal and state anti-discrimination laws. Also, employers should keep in mind that all background checks need to be securely disposed of.
California mirrors the FCRA disclosure requirements under Cal. Civ. Code §§ 1785.20(5)(a) and 1786.16(a)(2)(B): a clear and conspicuous disclosure in writing must be provided to the applicant before the report is procured, made in a document that consists solely of the disclosure, and the employer must obtain the applicant’s written authorization.