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FCRA Compliance: The Cost of Clarity

January 8, 2020


January 8, 2020

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You’re looking forward to the Hiring Fair that starts Monday morning. As one of the hiring managers, you’ve had your staff put together hiring packages that will inform job candidates about the company culture, provide them with descriptions of positions you are trying to fill, and even allow them to prepare a hard copy application right on the spot. If there are promising candidates, you are ready to conduct job interviews during the Hiring Fair.

You’re especially pleased that you were able to consolidate the background check disclosures and notifications required by the federal Fair Credit Reporting Act (FCRA), including your state’s fair credit reporting requirements, all on a single piece of paper, front and back. This not only saved paper, but it also kept everything about obtaining and processing background checks conveniently located in one place. You’ve had the boss review the packages and he thought they looked great.

As you close up your office for the weekend, you’re satisfied that you’ve done a great job, and you’re looking forward to meeting eager young recruits. It never crosses your mind that you’ve potentially set your company up for individual or class action suits for FCRA violations; suits your company likely will end up settling, or losing outright, for multiple millions of dollars.

FCRA Forms: Clarity vs Functionality

To understand this issue better, go back and consider the intent of the FCRA notifications and disclosures that are required. These stringent requirements are in place to meet statutory and regulatory requirements. The legalities are designed to protect all parties involved.

One intent is to provide employers with potentially critical job applicant, and employee, background data. This could protect employers from inadvertently committing negligent, dangerous, and costly hiring mistakes that could harm the company, its clients, its current employees, or its reputation. By allowing companies to gather background data on job applicants and current employees, under uniform FCRA procedures, hiring risks are mitigated.

On the other hand, the FCRA requirements also protect job applicants, by ensuring that they are informed that a background check is being sought by the employer, identifying what type of information is being requested and how this information will be used, informing the applicant whether or not the information revealed in their background check is having a negative impact on their job application, stipulating their right to know the detrimental information, and outlining their right to appeal the decision or provide evidence of mitigating circumstances.

What FCRA Court Rulings Should You Be Concerned About?

As part of the effort to provide a second chance to job applicants with a criminal conviction in their background, the courts are taking the provisions of the FCRA that deal with background checks very seriously. This puts some real teeth in the law. Employers who have been found guilty of FCRA violations are being held accountable.

For instance, in a recent case heard before the 9th U. S. Circuit Court of Appeals, Gilberg v. California Check Cashing Stores, LLC, et al., 913 F.4d 1169 (9th Cir. 2019), the court ruled that the employer’s background check disclosure form was invalid because it included state-specific legal disclosures that the court considered “extraneous and irrelevant information.” Further, because the employer’s disclosure form didn’t consist of the FCRA disclosure solely, the court ruled it did not meet the FCRA’s requirement for a standalone document.

Additionally, the court felt that the wording of the employer’s FCRA background check disclosure form was unclear. Not only that, but the court also took exception to the actual format of the form. Although the general format was readable and able to be understood, the court felt the use of Arial Narrow 8-point font was ill-advised and barely legible.

In similar rulings, Delta Airlines settled a recent (January 2019) class action suit for $2.3 million. Likewise, Petco coughed up $1.2 million (November 2018). A Florida CRA decided to settle a recent (November 2019) class action suit for $3.6 million, despite having ample defenses against all the claims in the lawsuit.

What Can You Do For Your Protection From The FCRA?

From this point of view, an HR professional doesn’t really have much room for creative leeway when designing an FCRA-compliant background check disclosure form. The FCRA imposes stringent requirements when an employer contracts with a third-party CRA to get background data, therefore, the astute HR professional should ensure that the FCRA requirements are met and appropriately documented, as follows:

  • Prior to obtaining any kind of consumer report or background check, provide the applicant or employee with “clear (makes sense to a reasonable person) and conspicuous (easily seen on the form) disclosure” that you intend to obtain this background information. This disclosure must be in a standalone, written document that contains only the disclosure.
  • If additional state notices are required, make sure they are not a part of the disclosure document. Additionally, do not include any type of “extra information” on the disclosure, such as company notices or legal language.
  • If an “adverse action” — such as demotion, dismissal, or the revoking of a job offer is being contemplated — based on information contained in the consumer report, the employer must provide a “pre-adverse action notice” to the applicant or employee, along with a copy of the consumer report together with a notice of the individual’s rights under the FCRA. The employer should also give the applicant or employee the opportunity to dispute data in the report, explain mitigating circumstances, or otherwise respond to the disqualifying information in the report.
  • After receiving and considering the applicant or employee’s response to the pre-adverse action notice, if the employer decides to proceed with the adverse action, a written notification must be provided to the individual, confirming that the adverse action was taken.

What Are Some Other FCRA Items To Be Better Safe Than Sorry?

As an employer, you’re responsible for ensuring that FCRA requirements are met and enforced. Now that the courts are holding employers to task for sloppy, incomplete or incorrect FCRA documentation, statutory penalties are being levied, not to mention attorney fees. When the proclivity for prosecuting these cases as class actions is taken into consideration, both the penalties and the attorney fees can mount into the millions of dollars.

Not only that, but you are also responsible for ensuring that any CRA you use is FCRA-compliant. If your chosen CRA is managing your background checks, including the background check disclosure notifications and consent process, verify that they are using standalone documents that are worded in accordance with the strict FCRA requirements, that they don’t include any extraneous information, and that they are easy-to-read with clear, bold headings and a legible font size.

Don’t let an easily avoidable mistake adversely impact your bottom line. Now that the courts are demonstrating their willingness to impose severe, multi-million-dollar penalties for FCRA violations, strive for clarity and strict FCRA compliance when performing or contracting for background checks.

Interpretation and implementation of the FCRA, as well as state and locality Ban the Box laws and policies that supplement the FCRA, is evolving on an almost daily basis. Therefore, the information provided here is not intended to be legal advice. Please consult with your own legal counsel for advice related to your state or locality. 

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