​There has been a recent uptick in class action litigation initiated by job applicants claiming that employers violated the Fair Credit Reporting Act (the FCRA) in the manner they procured and used consumer reports about the applicants, such as credit reports and criminal background checks. Because the use of consumer reports is coming under increased scrutiny, employers are advised to review their background checking procedures to ensure they comply with the FCRA.

The most common accusations in lawsuits challenging employers’ procurement procedures are that employers have improperly included too much information on required disclosure and authorization forms. The FCRA requires employers to (1) disclose to applicants, in a document containing only the disclosure, that the employer may request a consumer report about the applicants and (2) obtain applicants’ authorization to request the consumer report. Both these steps must be completed before a consumer report is obtained.  Employers are permitted to combine the disclosure and the authorization into one form, but some employers include additional information in their disclosures and authorizations, such as explanations of at-will employment, explanations of privacy policies, and requests for additional information about an applicant that arguably is unrelated to the request for consumer reports. It is the inclusion of the additional information, and the omission of the term “consumer report” from those documents, that has resulted in recent class action lawsuits. Employers can take steps to avoid these claims by excluding any extraneous information in their disclosures and  authorizations. Employers might also consider providing their disclosure statements and authorizations in completely separate documents.

If an employer intends to make an adverse decision (such as deciding not to hire) based on information contained in a consumer report, the FCRA requires the employer to follow a detailed process that includes providing the applicant with a pre-adverse action notice and a subsequent adverse action notice. The pre-adverse action notice should include, among other information, a copy of the consumer report the employer will rely on for its decision and a document known as “A Summary of Your Rights Under the Fair Credit Reporting Act,” which the company hired to generate the consumer report should provide to employers.  

More detailed employer guidance on the procurement and use of consumer reports can be found on the Federal Trade Commission’s website.

Although recent class action lawsuits have been brought by job applicants, employers should keep in mind that the FCRA also applies when employers request and use consumer reports about current employees for employment purposes, such as making decisions about promotions, discipline, termination and other conditions of employment.