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Background Checks: Not Such a Simple Thing         Personnelly Speaking by Robert Palow, Contributing Editor Most employers conduct background checks of applicants in one form or another. Unfortunately, many employers fail to follow the strict notice provisions required by law governing background checks. Requirements for background checks are confusing, not only because of the burdensome notice requirements, but because both federal and state laws cover this topic. While there have been no recent substantive changes in these laws, it is important to periodically review them in order to ensure compliance, particularly in light of the increase in lawsuits (including class actions) that target employers for purported violations of these laws. I will discuss the laws within the state of California, where I practice, and also the Federal laws that apply to all employers. Readers outside of California must be cautious, since many laws similar to California laws may apply in your state. Obviously, the Federal Acts apply to all of us. The California Consumer Credit Reporting Agencies Act (aka the Consumer Credit Act) and the Investigative Consumer Reporting Agencies Act (aka the Investigative Act) govern the state requirements and prohibitions regarding background checks. The Fair Credit Reporting Act contains federal requirements related to background checks. California Law The Consumer Credit Act. Under the Consumer Credit Act, an employer requesting a consumer credit report for employment purposes must provide written notice to the applicant or employee ("the consumer") prior to requesting a report. The notice must inform the consumer that a report will be used and divulge the source of the report, and it must contain a box that the consumer can check to receive a copy of the credit report. If the consumer checks the box requesting a copy of the report, the employer must request that a copy be provided to the consumer when it requests its own copy from the credit reporting agency. The Consumer Credit Act limits the contents of the reports. Generally, credit agencies cannot include the following information about the consumer: bankruptcies over ten years old; suits and judgments over seven years old or in which the action is barred by the statute of limitations; unlawful detainer actions unless the lessor prevailed; paid tax liens over seven years old; accounts placed for collection or charged to profit and loss over seven years old; arrests, indictments, information, misdemeanor complaints, or convictions over seven years old (items of information shall no longer be reported if it is learned that [a] in the case of a conviction, a full pardon has been granted or [b] in the case of arrest, indictment, information, or misdemeanor complaint, a conviction did not result) and other adverse information that is over seven years old. The Investigative Act. Under the Investigative Act, an employer is allowed to obtain information from an outside source about an applicant's character, general reputation, personal characteristics, or mode of living. This information is obtained through personal interviews with neighbors, friends, or associates of the consumer or with people who may have knowledge about the consumer. Like the Consumer Credit Act, this act requires the employer to provide written notice prior to requesting the report. If an employer intends to use the investigative consumer report for employment purposes, it must also notify the applicant or employee, in writing, within three days after the report is requested, that an investigative consumer report regarding her or his character, general reputation, personal characteristics, and mode of living will be made. This notification must also include the name of the consumer-reporting agency conducting the investigation and a summary of the California Civil Code provisions allowing the investigated employee to inspect the files and information acquired by the consumer-reporting agency. Although the statute requires only that a summary of the law be provided to an applicant, I recommend that a complete copy of the code section be provided to applicants to avoid any potential claims that they were not fully aware of all their rights because of the way the employer summarized the provisions in the statute. Employers who request medical information must comply with specific provisions under this act, including a requirement that the consumer consent to the furnishing of the report. An investigative consumer report is not permitted to contain (a) bankruptcies which predate the report by more than ten years, (b) suits and satisfied judgments that predate the report by more than seven years, (c) unsatisfied judgments which predate the report by more than seven years, (d) unlawful detainer actions, unless the lessor was the prevailing party, (e) paid tax liens which predate the report by more than seven years, (f) accounts placed for collection or charged to profit and loss which predate the report by more than seven years, (g) records of arrest, indictment, information, misdemeanor, complaint, or conviction of a crime which predate the report by more than seven years (items of information shall no longer be reported if it is learned that in the case of a conviction, a full pardon has been granted or in the case of arrest, indictment, information or misdemeanor complaint, a conviction did not result), and (h) any other adverse information which predates the report by more than seven years. Adverse actions under California law. An employer who denies employment or makes a decision that adversely affects a prospective employee based in any way on a consumer credit report or an investigative consumer report must provide the applicant with written notice of the adverse action. The notice must include (a) a statement that the decision to take adverse action was based in whole or in part on information contained in the consumer report, (b) the name, address, and telephone number of the consumer reporting agency that furnished the report, and (c) a statement that the applicant has the right to obtain a free copy of the report and to dispute its accuracy. Federal Law The Fair Credit Reporting Act (FCRA). The FCRA also applies to consumer reports and investigative reports. Consumer reports generally include information used or expected to be used to establish eligibility for employment, including credit worthiness, credit standing, credit capacity, character, reputation, personal character, skills, or mode of living. Investigative reports contain information about character, reputation, personal characteristics, or mode of living obtained through personal interviews. There are also distinct disclosure requirements as a result of recent amendments. First, an employer must notify an applicant or employee that the employer may obtain a consumer report or an investigative consumer report for employment purposes. This notification must be in writing and presented in a clear and conspicuous manner in a document which is wholly separate and which contains no other content. It must be given to the applicant or employee before the employer orders the report. In addition, an employer must secure written authorization from an applicant or employee before obtaining a consumer report or an investigative consumer report. If an employer orders an investigative consumer report, the employer must also notify the applicant or employee of her or his rights, in a separate form, no later than three days after ordering the report (like California law). Such notice must include a statement of the consumer's right to a complete and accurate disclosure of the nature and scope of the investigation the employer has requested and a summary of the individual consumer's rights. If the report includes medical information, the employer must comply with medical consent rules under the FCRA. The employer must also certify to the outside agency that the disclosure and consent procedures were followed at the time the report was requested and that the information will not be used in violation of applicable equal employment opportunity laws or regulations. Adverse action under Federal law. Employers who plan to take action against an applicant or employee based in whole or in part on information in a consumer report are subject to additional disclosure requirements. Before taking adverse action, employers must provide the applicant or employee with a copy of the report and a written description of her or his legal rights under the FCRA in a form set forth by the Federal Trade Commission (FTC). This is sometimes referred to as a "pre-adverse action disclosure" form. The law is unclear regarding how long an employer must wait between the pre-adverse action disclosure and the actual adverse decision. If, after the employee has a chance to respond, adverse action is taken, the employer must provide the employee with an "adverse action notice," in writing, which identifies the source of the information contained in the report using a special FTC notice form. Workplace investigations. The FTC recently issued an opinion letter extending application of the federal FCRA to workplace investigations of alleged sexual harassment and discrimination. According to the FTC, an employer who hires an outside source to investigate these claims must meet the Federal rules discussed above (internal investigations do not trigger FCRA coverage). Keep in mind, however, that neither the courts nor the legislature has addressed this extension of reporting requirements. Even the Equal Employment Opportunity Commission (EEOC) failed to discuss the opinion letter when it issued its guidance on sexual harassment investigations. Making Sense of the Laws In order to comply with these state and federal requirements, employers must, at a minimum, do the following: Inform applicants of the background check and report in a writing separate and apart from the application. Obtain employee authorization for the report. Inform the employee once a report is ordered. Meet the disclosure requirements for adverse action, including giving the employee written notice of the adverse action, a copy of the report, and a summary of rights. Once new employees are hired, employers should also consider having them all sign a separate disclosure and consent form regarding the potential for outside investigators who may conduct investigations at the workplace. In preparation for your background check (and the possibility of the rejection of a job applicant as a result of the background check), I would also recommend that the following documents be generated for timely notification to the applicant: Notice/Disclosure Form Certification to Credit Reporting Agency Certificate of Compliance by Credit Reporting Agency Notification of Request for Investigative Consumer Report (enclose a copy of the law regarding rights under California and federal laws or a summary of the same) Authorization to Obtain Investigation Reports Pre-Adverse Action Disclosure Form Post-Adverse Action Disclosure Form Notice of Rejection and Identification of Reporting Agency As you can see, employers must be very careful in this litigious environment when making a decision to do background checks. It is always advisable to consult legal counsel in your area concerning potential liability before checking the applicant’s background. About the author Robert Palow is president of RP Consultants, a Placentia, CA based company that specializes in labor and employment practices. He has more than 30 years of management and legal experience in the human resource field. ABSSI / Industry Focus / May 2000 Copyright © 2000 RP Consultants All rights reserved [ Home | Company Info | Published Articles | Services | Feedback ]