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Fair Credit Reporting Act (FCRA)

The Fair Credit Reporting Act (FCRA) is a crucial federal law in employment law because it regulates how employers use "consumer reports," which primarily means employment background checks conducted by a third-party screening company.

The core purpose of the FCRA is to promote the accuracy, fairness, and privacy of consumer information used in these reports. When an employer uses a third-party company (a Consumer Reporting Agency or CRA) to get information about a current or prospective employee for hiring, promotion, reassignment, or retention, the FCRA imposes strict requirements on the employer.

Here are the key employer obligations under the FCRA in the context of employment:

  1. Written Disclosure and Authorization:

    • The employer must provide a clear and conspicuous written disclosure to the applicant or employee stating that a consumer report (background check) may be obtained for employment purposes.
    • This disclosure must be in a document that consists solely of the disclosure, with no extraneous information (like a liability waiver).
    • The employer must then get the applicant or employee's written authorization before procuring the report.

  2. Certification to the CRA:

    • The employer must certify to the Consumer Reporting Agency that it has complied with the FCRA's requirements, obtained the necessary consent, and will not misuse the information in violation of federal or state equal opportunity laws.

  3. Pre-Adverse Action Procedures:

    • If an employer contemplates taking an adverse action (e.g., denying a job, not promoting, or terminating employment) based "in whole or in part" on the information in the report, they must first notify the applicant or employee. This is the pre-adverse action notice.
    • This notice must include:
      • A copy of the consumer report itself.
      • A copy of "A Summary of Your Rights Under the Fair Credit Reporting Act," which the CRA provides.
    • This step is vital because it gives the individual a reasonable opportunity (typically five business days is considered minimum best practice) to review the report and dispute any inaccurate or incomplete information with the CRA before the final decision is made.

  4. Final Adverse Action Procedures:

    • If the employer ultimately decides to take the adverse action based on the report after the waiting period, they must provide a final adverse action notice.
    • This final notice must include:
      • The name, address, and phone number of the Consumer Reporting Agency that supplied the report.
      • A statement that the CRA did not make the hiring decision and cannot explain why the decision was made.
      • Notice of the individual's right to dispute the accuracy or completeness of any information with the CRA and to get an additional free report from the CRA if requested within 60 days.

In essence, the FCRA ensures transparency and fairness in the employment background check process, allowing applicants and employees to know that a report is being requested, grant consent, and have an opportunity to correct errors before being penalized by potentially inaccurate information.