The alarm bells for employers have been sounding for the last few years about getting your federal Fair Credit Reporting Act paperwork in order. The proliferation of class action lawsuits around proper release forms and the pre-adverse and adverse action paperwork has cost companies millions of dollars. In large part, the class action suits have been driven by a Ninth Circuit Court (the federal court that covers California) ruling that identified that technical flaws in your company’s background checking documents was “injury” enough to have standing. This change in the barrier to having standing in federal court made the creation of class action lawsuits very easy to file, and to win.
The new six to two ruling sends the matter back to the Ninth Circuit, but essentially states that in many cases the plaintiffs have to show some injury beyond a technical flaw in the company’s process. Will this ruling abate the rising tide of FCRA driven class action lawsuits? Only time will tell.
Making critical hiring decisions for your company is a huge responsibility. Not only is it critical to the success of the company, but also the safety of your employees and getting it right isn’t easy. Last year, approximately 90% of businesses in the US did some sort of background check on prospective employees to help protect their companies against the significant liabilities of negligent hiring lawsuits.
Unfortunately, the number of businesses out of compliance with the latest background checking standards grows every year and regrettably, most hiring professionals do not realize it until they are named in ever more frequent class action lawsuits.
Chances are that you are ordering background checks, but are you compliant?
Background checks compiled by third parties, such as CAI’s detective agency*, are covered by the federal Fair Credit Reporting Act (FCRA). The FCRA covers more than financial records; it also includes reports that research criminal records, employment records, education information, driving records and even something as simple as an address history. The FCRA was broadened in scope in 1997, and is designed to provide a safeguard for the applicant who has an adverse action taken against them based upon the results reported in the background investigation. That is, if the applicant is denied an employment opportunity in whole or part by information contained in a background check, he or she has the right to view the information and dispute the record.
How do you comply?
- Have a permissible purpose (employment).
- Obtain written consent from the applicant.
- Run the check through a reputable third party Consumer Reporting Agency (CRA), like CAI.
- Look at the results and decide if the applicant fits the needs of your company:
- If the record is clean, keep the authorization form in a secure place.
- If the applicant is not hired due to something uncovered in the background check, then you should do the following:
- Mail a copy of the report, and
- a summary of the applicant’s rights under the FCRA, and
- a pre-adverse action letter [that includes the third party’s (CRA’s) name and contact info to the applicant].
- If your company is in North Carolina, you also want to send a copy of the NC Security Freeze to the applicant.
- After a reasonable amount of time (around five business days) you want to mail the declination letter to your applicant. During this time you should hold the position to give the applicant a chance to respond.
- After the “reasonable time” you may hire the appropriate applicant, thus filling the position.
- Store the rejected applicant’s signed written consent for six years. SHRM recommends that you store the negative report for two years.
Hiring can be very stressful and CAI knows that it is better to get it right the first time.
Kevin W. von der Lippe is a licensed private investigator at CAI and for 19 years has managed our detective agency and background checking business. He is security minded and proficient with the federal Fair Credit Reporting Act (FCRA) and the enforcement of Title VII of the Civil Rights Act of 1964, as administered by the EEOC as it relates to background checks. Capital Associated Industries Services Corporation is a licensed investigative agency, specializing in corporate pre-employment background screening. Our corporate agency license is BPN 001473P11.