As the economy shows signs of recovery many staffing firms either are required by certain clients or routinely utilize background checks as part of the hiring process, and engage the service of third parties, such as consumer reporting agencies, to gather background information, including criminal history reports. When “red flags” surface in these background reports, employers typically act on that information and decide against hiring the individual. Companies must remember that when they use a third party reporting agency to gather this information, whether it is a credit bureau or some other background screening company, the Fair Credit Reporting Act (“FCRA”) is triggered.

Most companies now include language in their job application forms that obtain from applicants the necessary consent required to conduct these background checks under FCRA. However, any company who has not typically utilized a third party background check service and decides to do so must be sure to have their application/pre-hiring forms reviewed to make certain that the appropriate authorization for conducting these background searches exists.

Equally important, and more often overlooked, is the FCRA disclosure requirement. FCRA requires that an employer who intends to take an adverse action (like denial of employment) based on a consumer report make certain disclosures before taking the adverse action. Specifically, the company must:

• Provide the individual with a copy of the report received by the company;
• Identify the agency that provided the report;
• Inform the individual of the right to obtain a free copy of the report from that agency and dispute its accuracy; and
• Notify the individual that the reporting agency is not the one making the adverse employment decision.

Two companies recently learned “the hard way” that if you fail to comply with these FCRA disclosure requirements, you can face not just a lawsuit by the affected individuals, but a civil enforcement action by the Federal Trade Commission (“FTC”). In two consent orders filed on August 11, 2009, the FTC recovered a total of $77,000 in civil penalties from two companies. Additionally, the companies were required to comply with detailed record keeping and reporting requirements and to make regular reports to the FTC so the government can monitor their compliance going forward.

Practice Pointer: It is important to review internal hiring procedures to make sure that those individuals charged with carrying out the hiring process understand how the FCRA applies. If you have policies, spend the time to retrain your staff and make sure they know the steps to take to keep the company in compliance. If you do not have a policy or guidance spelling out the FCRA compliance steps, you should consider doing so. When faced with troubling information in a third party background report, and if the applicant contests the accuracy of the information, employers will be well-served to suspend their decision on whether to hire the individual until getting legal advice. For further information regarding these issues or other related employment law questions, feel free to contact Diane J. Geller at 540.983.9396, or any other member of Gentry Locke’s Employment Practice Group.

~Diane J. Geller

An attorney for over 25 years and admitted to practice in Florida, New York, Tennessee, and Virginia, Diane J. Geller has serviced contingent staffing companies and their vendors for over 20 years. A frequent staffing industry speaker, she provides invaluable information on contract negotiations, employment law, receivables financing, franchise law, litigation, governmental compliance, and general corporate matters. For more information, visit

The contents are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have. For further information about the contents, please contact the author at (540) 983-9396. (Copyright 2009, Gentry Locke Rakes & Moore, LLP, and Diane J. Geller, Esq.)

Ready to see COATS Staffing Software Solutions in Action?
See what COATS staffing and recruiting software can do for your business. Schedule a free, no-obligation demo today.

Schedule a demo