What Employers Should Know Before Conducting Background Checks

January 19, 2012
Posted by Link Staffing Services

With the costs and risks associated with new hires, it has become common practice for employers to run background checks before hiring. We believe that’s not a bad idea. But you should know federal law imposes strict limits and disclosure requirements on an employer’s use of credit and consumer reports in making hiring decisions. Running afoul of these regulations can have serious consequences for an employer.

The Fair Credit Reporting Act (FCRA)

When you request a third party agency background report on applicants (or employees, for that matter), the request is governed by a federal statute known as the Fair Credit Reporting Act (FCRA). The law specifies two kinds of reports—consumer and investigative.

Consumer Reports

The FCRA defines consumer reports as any communication of any information by a consumer-reporting agency. The law applies any time an employer pays a third party to investigate an applicant’s credit standing or capacity, character, general reputation, or personal characteristics.

Yes, the language really is that broad and covers much more than simple credit reports. For example, it applies to criminal background checks. Before getting a consumer report, employers must disclose to the applicant that they are obtaining the report and get the applicant’s written permission.

If you make a decision not to hire an applicant based in part on information contained in a consumer report, you must notify her of the decision and supply the name and contact information of the credit reporting agency used, inform her that you and not the agency made the decision not to make a job offer, notify her about her right to dispute information contained in the report and the right to require an additional free copy of the report within 60 days.

Investigative Reports

Investigative reports are those relating to an applicant’s general character and reputation gathered by an agency through personal interviews with her neighbors, friends, and acquaintances.

Before receiving one of these reports, you must:

  • Disclose in writing to applicants that you are requesting a report containing information about their character, general reputation, personal characteristics, and mode of living;
  • Ensure that applicants receive this disclosure no later than three days after the report is requested;
  • Include in the disclosure a statement that applicants are entitled to request information about the nature and scope of the investigation; and
  • Include a summary of the applicant’s right under the FCRA.

All of these regulations, designed to protect the rights and privacy of potential employees, may be tedious, but they shouldn’t eliminate the value of background checks. Just be sure you do it right.


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