When Checking Backgrounds, Check the FCRA First

03/05/07

The Case
“What’s the problem,” asked Mort when Omar, his second-in-command, walked in with a sour look on his face.

“Remember when we hired for those three maintenance positions last month?”

“Vaguely. Go on,” said Mort.

“Well,” said Omar, “there was one character with tattoos, nose ring, baggy pants, and whatnot. I ran a background check on him and it came back saying he’d been convicted of a felony—armed robbery or something. So we rejected him. By law, we had to send him a copy of the report saying it was the reason we rejected him.”

“Go on,” said Mort.

“He just called,” said Omar, “saying the report was wrong and he was—in his words— ‘Giving us one chance and one chance only’ to hire him for the job or he’d file a lawsuit.”

“Did you do a background check on everyone?” asked Mort.

“No, I only do them on the scary-looking characters. Don’t worry—I don’t discriminate, except against the guys who dress like they want people to think they’re gangsters or something.”

“I think we can tell the guy to take a hike even if the background report is wrong, but let me check with our lawyer first.”

The Analysis
Whether this employer needs to worry about a lawsuit will depend on where Omar got his information on the maintenance worker he refused to hire.

Here’s why: If he obtained the information through a third-party agency, a background-checking software program, or some other person or entity that performs background checks for a fee, he must have complied with the Fair Credit Reporting Act (FCRA). Assuming the FCRA applies, Omar has created some potential liability for his employer.

However, if Omar went directly to the agency responsible for maintaining the information he wanted, the FCRA does not apply. More on that in a moment.

Employers’ Responsibilities
Since the act was amended in 1996, employers have substantial obligations when they use third-party agencies or databases to obtain background reports—which include criminal records, driving records, credit reports, and more on applicants and employees. Among those requirements is this: If the employer is contemplating taking an action adverse to the employee/applicant that is in any way based on the information received in the background report, it must take three specific steps, as follows: (1) provide the employee a “pre-adverse action” notification form, (2) provide a copy of the background report, and, (3) provide a summary of the person’s rights under the FCRA.

The employer must then wait a “reasonable” period of time (not more than thirty days, and not necessarily until any problem is solved) before it takes final adverse action in this case, refusing to hire the individual and filling the position with another candidate. The waiting period allows the employee time to inform the employer that the information is wrong and then attempt to correct it before being denied employment, a promotion, or what have you.

If the employer in this case used a third party database to obtain its information, it committed a violation of the act when it failed to provide the applicant time to correct what he claimed was erroneous information.

When the FCRA Doesn’t Apply
However, the analysis is different if the employer got its criminal background data directly from the source agency that was responsible for collecting the information in the first place. In that event, the employer would be under no obligation to comply with the FCRA. For example, say the employer sought criminal background information directly from the county sheriff’s office, or driving records directly from the state’s department of motor vehicles. In either case, the FCRA does not apply.

Why is information from these sources treated differently? Under the FCRA, there is a presumption that information received directly from the relevant (usually governmental) agency is correct. In theory, applicants and employees don’t need the procedural safeguards of the FCRA when information is obtained from sources presumed to be accurate. That presumption does not extend to third-party agencies like credit bureaus, which may be merely repositories of all sorts of data on massive numbers of people. And, as anyone who has ever seen a copy of his or her credit report knows, third-party agency reports often contain inaccuracies.

Control the Damage
If this employer should have complied with the FCRA and failed to, it still can attempt to do damage control. It could contact the disgruntled applicant and offer him the position he sought. Although technically that won’t change the fact that the FCRA has been violated, the applicant won’t then have any significant damages upon which to bring a claim.

Alternatively, the employer could tell him that it will hold the job open for a reasonable period, giving him an opportunity to get his background report corrected. If he is unable to provide proof to the employer that his report was incorrect within the time frame given, the employer will be off the hook and can fill the position with another applicant.

The last and riskiest option would be for the employer to stand by its decision not to hire the man and assume the risk that he may sue. Penalties for violation of the act include monetary damages, attorneys’ fees, and court costs.

Be Consistent
Last, as in all areas of employment law, it’s important to be consistent. In the case, Omar ran background checks only on certain applicants for the position. This could cause problems for his employer. To avoid opening yourself up to a charge of discrimination, if you order a background check for one applicant for a particular position, do a check on all the applicants for that position or category.