During a briefing at the American Staffing Association 2017 Staffing Law Conference this past month in Washington, D.C., it was reported that despite the Fair Credit Reporting Act (FCRA) being around for nearly five decades, there has recently been a sharp increase in litigation, specifically with respect to the consumer protection statute.
Pamela Devata, Esq., Seyfarth Shaw, Esq., and Marc Freedman, Esq., all of the Law Offices of Marc D. Freedman, briefed staffing professionals at the conference and shared that there has been a 600 percent increase in lawsuits associated with FCRA. They described some of the things companies should be aware of in order to avoid becoming a target in this litigious trend.
Know Disclosure and Written Authorization Rules
When it comes to disclosure, it was noted that FCRA requires that the report is completed as a standalone document. This document needs written authorization by the individual being checked prior to the report being conducted and must consist solely of the disclosure. Both the authorization and the disclosure can be contained in the same document. However, it’s when the reporting delves into alleged “extraneous” information that lawsuits are becoming more prevalent.
Additionally, regarding what can be included in the disclosure, the credit information should not be a determining factor when it can be reasonably construed as unnecessary. This issue tends to arise when a company runs a credit report for a position that does not need one. For example, if you’re seeking a bookkeeper, then a credit check seems reasonable and in order, but it’s not likely necessary for a forklift operator. Further, if the report comes back with negative ratings, it becomes very subjective as to why exactly a person was not hired based on their credit score, etc.
The bottom-line is that credit authorization should be separate from other elements of a background check.
When Can You Share and How Do You Share Credit Reports?
It can be expected when conducting staffing that a potential employee’s information will be shared with a client; after all, the staffing agency is working for a client and a client will want to know about the associate getting ready to work for them. However, there are specific guidelines under FCRA that must be observed.
As some clients might request an actual credit report, ensure that the applicant has provided consent before doing so. Since sharing of credit information under FCRA is risky, the presenters suggested that it is best to not share this information at all, if possible.
Also, if consent has been provided, there should be no commentary added to the report being shared; otherwise, the staffing firm becomes a de facto consumer reporting agency.
While specific information from a background check with a client should not be shared without consent, staffing firms can provide an attestation that a background check was completed and whether or not the candidate meets the client’s hiring criteria.
What Happens if There’s An Adverse Action?
An adverse action is when an applicant is rejected for a job, reassigned, terminated, denied a promotion or “any other adverse employment action based on information in a consumer report.”
The presenters recommended that despite notification being permitted orally, in writing, or electronically, that the notice should be done in writing and include the consumer report that serves as the basis for the decision, along with a copy of “A Summary of Your Rights Under the Fair Credit Reporting Act.”
According to the presenters, there are challenges when recruiters call before the adverse action is delivered. And, it’s much easier to not place an individual while a background check is still being completed.
Best practices for staffing firms sending adverse actions is to inform applicants wondering why there might be a delay in being placed that the “background check is still pending.” And, as required under the FCRA, to ensure the two letters are sent.
Finally, the company should wait 3-5 days before filling the position, should the applicant have a dispute with the report.
The FCRA is a complicated law with important documents. It’s extremely important to understand the law and ensure that all forms required by the law that are distributed by the company are reviewed once per year.
For more detailed information on FCRA requirements, visit the Federal Trade Commission article “Using Consumer Reports: What Employers Need to Know.”